As we saw in the last chapter, the most common interpretation of antitrust today is explicitly economic in nature, based on maximizing the benefit to consumers (or society as a whole). Although this was not the motivation of those who wrote the original antitrust laws (or the Neo-Brandeisian revivalists), who were more focused on limiting corporate size and concentration, the consensus today remains that antitrust should focus on economic concerns, specifically the effects on firm behavior on welfare or efficiency.

In this chapter I shall survey the economics behind antitrust, not only because it is the mainstream understanding, but also because many of the issues I identify in antitrust are embedded in the economic analysis itself. If economics is new to you, I hope you find my explanation intuitive and non-technical, free of the customary graphs and math. (If you are familiar with economics already, you may find my treatment interesting for the same reason.) My goal is to introduce the basic economic rationale for antitrust, focusing on only the elements necessary for the philosophical arguments I shall introduce in the next chapter.

Welfare and surplus

The field of economics can be divided into two parts: positive economics, which describes the behavior of individuals, institutions, and the economy as a whole, and normative economics, which makes recommendations to improve the outcomes of this behavior based on some goal (whether implicit or explicit). Although antitrust has relied for the past half century on the positive economics of firm behavior and market outcomes (a field known as industrial organization), the legal and policy-oriented side of antitrust falls squarely within normative economics.

Within normative economics, antitrust is an application of welfare economics, which aims to maximize the total welfare of the members of society. In the context of commercial activity, economists define welfare as the sum of the well-being of all participants in the market, or the total benefit of commerce to buyers and sellers, net of the costs to both. This is easier to see on the producer side: their benefit is the revenue they earn from selling goods and services, and their costs include wages and salaries, rent, utilities, and the cost of raw materials. When we subtract costs from benefits, we get their net benefit, which we know better as profit.