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65 ANTITRLJ 713
(Cite as: 65 Antitrust L.J. 713) [pic]
Antitrust Law Journal
Spring, 1997 *713 CONSUMER SOVEREIGNTY: A UNIFIED THEORY OF ANTITRUST AND CONSUMER
PROTECTION LAW Neil W. Averitt [FNa1]
Robert H. Lande
Copyright © 1997 by the American Bar Association; Neil W. Averitt, Robert
H.
Lande
This article is about the relationship between antitrust and consumer
protection law. Its purpose is to define each area of law, to delineate the
boundary between them, to show how they interact with each other, and to
show how they ultimately support one another as the two component parts of
an overarching unity. That overarching unity is consumer sovereignty. Antitrust and consumer
protection law share a common purpose in that both are intended to
facilitate the exercise of consumer sovereignty or effective consumer
choice. Consumer sovereignty exists when two fundamental conditions are
present. There must be a range of consumer options made possible through
competition, and consumers must be able to choose effectively among these
options. The boundary between antitrust and consumer protection is best defined by
reference to these two elements of consumer sovereignty. The antitrust laws
are intended to ensure that the marketplace remains competitive, so that a
meaningful range of options is made available to consumers, unimpaired by
practices such as price fixing or anticompetitive mergers. [FN1] The
consumer protection laws are then intended to ensure *714 that consumers
can choose effectively from among those options, with their critical
faculties unimpaired by such violations as deception or the withholding of
material information. Protection at both levels is needed in order to
ensure that a market economy can continue to operate effectively. [FN2] Legal protection of this sort is required, as a practical matter, only
when the free market is not working properly. "Market failures" can arise,
however, which may create or permit competition or consumer protection
problems. This article will demonstrate that antitrust violations (which
impair the menu of options) stem from market failures in the general
marketplace external to consumers, whereas consumer protection violations
(which impair the individual's ability to choose) flow from internal market
failures that take place, in a sense, "inside the consumer's head." [FN3] While this approach appears on its face to be of almost Doric simplicity,
it provides a coherent theoretical platform from which antitrust and
consumer protection law may be better understood and applied. The development of a unified theory of consumer sovereignty not only is
of conceptual interest, but also has significant practical consequences.
First, it can explain why the Federal Trade Commission was created to have
responsibility for both antitrust and consumer protection issues and why it
should retain this dual jurisdiction. An awareness of this relationship
between the two halves of the FTC's statutory charter also may be useful in
identifying specific categories of cases that it, rather than the
Department of Justice, is better suited to handle. Second, a unified theory
of antitrust and consumer protection law will assist the FTC in determining
when particular conduct or transactions should be pursued on antitrust, as
opposed to consumer protection, grounds. [FN4] *715 Third, the consumer
sovereignty model we propose can help to determine when borderline business
practices contravene the underlying purposes of the consumer protection or
antitrust statutes to such a degree that they warrant prosecution. Fourth,
the broad importance of marketplace options in the consumer sovereignty
model suggests that antitrust should devote more attention than it now does
to the role of nonprice competition. In certain sectors of the economy--for
example, high-tech or media-related industries--diversity of options may be
far more important to consumers than price competition. Finally, by
defining the elements of consumer sovereignty in an intuitively
understandable way, this framework should be useful to those countries that
are establishing or reorganizing trade regulation programs for the first
time. This article is divided into five principal sections. Part I introduces
and defines the concept of consumer sovereignty, and shows that it requires
both the availability of consumer options and the ability to choose among
them. Part II reviews the antitrust and consumer protection case law and
shows that it is consistent with (and explicable by) this option-oriented
model of consumer sovereignty. Part III identifies and discusses the market
failures that may tend to prevent the exercise of consumer sovereignty by
impairing either the menu of options or consumers' capacity to select among
them. Part IV then considers more complex applications of our proposed
theory in which the two types of protection interact in simultaneous or
sequential ways. Finally, Part V explores the practical implications and
consequences of the proposed theoretical framework.
I. AN OPTION-ORIENTED CONCEPT OF CONSUMER SOVEREIGNTY Simply put, consumer sovereignty is the state of affairs that prevails or
should prevail in a modern free-market economy. It is the set of societal
arrangements that causes that economy to act primarily in response to the
aggregate signals of consumer demand, rather than in response to government
directives or the preferences of individual businesses. [FN5] It is the
state of affairs in which the consumers are truly "sovereign," in the *716
sense of having the power to define their own wants and the opportunity to
satisfy those wants at prices not greatly in excess of the costs borne by
the providers of the relevant goods and services. [FN6] The concept of
consumer sovereignty goes so far as to embody at least some implicit
notions about the proper relationship between the individual and the state.
It is part of the Western world's answers to the prescriptions of Marxism. The essence of consumer sovereignty is the exercise of choice. It is by
choosing some goods or some options over others that consumers satisfy
their own wants and send their signals to the economy. It is, therefore,
critical that the exercise of consumer choice be protected. We have already seen that effective consumer choice requires two things:
options in the marketplace, and the ability to choose freely among them. In
order to turn this conceptual paradigm into operational policy, however, at
least some rough degree of quantification is required. Just how many
options must be present in the market? Just how free from external
influences must consumers be? In an imperfect world, of course, the answers
to these questions must be standards of sufficiency rather than standards
of perfection. [FN7] Thus, we do not simply require the maximum number of options. Antitrust
law does not prevent all conduct or transactions that have the effect of
reducing the number of options available to consumers. Nor does the law
affirmatively require the creation of options. Rather, it prevents business
conduct that artificially limits the natural range of options in the
marketplace. [FN8] Indeed, the law permits even some artificial reductions,
such as some mergers, if the benefits of the action appear to outweigh the
costs. Through these means, the antitrust laws aim to preserve a
sufficient, although not a perfect, array of choices for consumers. Consumer protection laws are similar in the sense that they seek to
protect the ability of consumers to make informed choices among *717
competing options, but the laws do not necessarily strive to ensure that
consumers have absolutely perfect information or that they act with
absolutely perfect rationality. [FN9] Probably no consumer is a perfect
reasoning machine, existentially free from all the extraneous influences of
early upbringing, cultural values, or half-remembered advertising campaigns
from years ago. [FN10] What we ask of consumer protection law is,
therefore, something relatively modest. We ask that consumers be enabled to
make rational choices to the extent that they wish to concentrate on doing
so. Consumer protection law ensures that buyers are protected from
coercion, deception, and other influences that are difficult to evade or to
guard against, but it does not protect buyers from the milder, knowable
influences of things like "image" advertising, which consumers could set
aside if they desire. As protected by these two principles, the exercise of consumer
sovereignty should be beneficial to society in a number of concrete ways.
It will support and lead to an efficient economic market. [FN11] That, in
turn, will tend to produce an environment offering the lowest prices, the
best product quality and variety, the highest degree of consumer surplus,
and all the other benefits of a competitive economy. [FN12]
*718 II. HOW THE CASE LAW EMBODIES THIS OPTION-ORIENTED APPROACH TO
CONSUMER
SOVEREIGNTY The case law in both the antitrust and consumer protection areas is
consistent with the consumer sovereignty model we propose. The antitrust
case law can be explained in terms of protecting the supply of op