Question

Give three arguments for and three arguments against the maximization of consumer welfare instead of the maximization of total welfare as the main objective of competition policy

Answer 1

Maximization of consumer welfare as the main objective of competition policy

Consumer Welfare: It refers to the benefits obtained by the consumers after the consumption of goods and services.

Total Welfare: It refers to the benefits received by both the consumer as well as the producers from their exchange that takes place in the market.

Argument for;

• Firms able to choose the most profitable method that increases the total welfare the most by maximizing consumer welfare. If they choose total welfare then the firm might end up selecting the method that will only maximize the total welfare to some extent only.
• Deviation from optimal enforcement probability if the business has private information about its efficiency and will only propose a merger with those deals that maximize its total welfare. As it is utilizing the enforcement probability, all the proposed mergers can increase the total welfare and will be accepted by the business. Therefore, not very optimal.
• Consumer welfare makes it easier to conform to international enforcement laws. The decisive power is held by the aggressive importing nations whose Antitrust laws can impact the other nations.

Argument against;

• Total welfare generates more for society as a whole and also strives to enhance the efficiency of the economy.
• It treats both the producers and the consumers in a neutral manner where the wealth distribution between them is concerned. Whereas, consumer welfare favors one party and discriminates against the other. This can greatly shackle efficiency, innovation, and other economical elements.
• Antitrust laws are based on consumer welfare. There have been controversies about it not being very effective as this standard can prevent the new issues of industry concentration and corporate power from being addressed.