The Antitrust Paradox that Really Isn’t
I began researching Lina Khan in 2017. The current Federal Trade Commission Chair had published “Amazon’s Antitrust Paradox” in the prestigious Yale Law Journal.
The article contended that Amazon used predatory pricing (selling products below cost to drive out competition). Her view was that Amazon aimed to create a monopoly and take unfair advantage of consumers.
My research file on Khan between 2017 and 2021 includes a few articles. Most of them discuss how Khan continued touting this same anti-Amazon theme for the House Judiciary Committee’s Subcommittee on Antitrust, Commerce and Administrative Law.
A Bizarre Line of Thought on Antitrust Law
I found Khan’s whole line of thought between 2017 and 2021 bizarre. I, unlike Khan, am not a lawyer. But my understanding is that antitrust law protects American consumers from deceptive or unfair business practices. The law’s goal is to promote a free and competitive marketplace by challenging anti-competitive mergers and business practices.
The facts in 2017 were that Amazon’s business model was widely embraced. Customers received great service, chose from a great selection of products and paid great prices.
The Amazon model was not new in 2017. It simply expanded Jeff Bezos’ 1994 business model. As a matter of fact, those are the goals of every business: provide great service, selection and prices.
A New FTC Chief – A New Line of Attack
Imagine my shock in 2021 when Khan was named the youngest ever chair of the Federal Trade Commission (FTC).
Clearly, she took this position not to uphold antitrust law but to change it. In her words, the United States needs “a different set of rules.” Not surprisingly, Khan drove the FTC against merger and acquisitions involving “Big Tech.”
Not surprisingly, she lost. Microsoft won the fight to buy Activision Blizzard. The FTC withdrew a case against Meta after negative court rulings.
Now, Khan’s FTC has targeted Amazon with a major antitrust action. Surprise, surprise.
But, wait a minute, it looks like she has changed her tune. She now claims that Amazon’s practices result in higher prices for lower quality products.
So, what exactly is the problem? Is Amazon charging too much (2023) or too little (2017)? Again, it’s bizarre.
Digging deeper into the FTC’s lawsuit against Amazon begets more confusion. At a high level, I categorize the FTC’s concepts into three categories: Don’t all retailers do this? Isn’t this good for the consumer? Don’t customers have a choice?
- Don’t all retailers do this?
- Amazon uses an algorithm to price items.
- Amazon charges clients to advertise on their site.
If you think other retailers don’t use algorithmic pricing, you have not talked to many retailers. And in general, most business entities charge for advertising. Take a look at your next grocery store receipt. Kroger likely did not print the coupon for the Mexican restaurant next door for free.
- Isn’t this good for the consumer?
- Amazon highlights low prices.
- Amazon’s prices are routinely lower than prices elsewhere.
This kind of goes back to point No. 1. From time immemorial, many retailers have advertised lower prices. Yes, some upscale retailers advertise that “premium” pricing is worth the extra value and service. But most consumers goods aren’t advertised like BMWs and Porsches.
And whether Amazon’s prices truly are lower depends upon the product. “Free shipping” is not free, and I know examples where the drug store around the corner has lower prices on some goods.
U.S. consumers know how to do price comparisons.
- Don’t customers have a choice?
- According to the FTC, customers have no choice Amazon is in a business category all be itself – the “online retailer.”
In my view, “online retailer” is a made-up term:
- First, Amazon has a retail footprint through Whole Foods.
- Second, Amazon has dipped into the physical store market and, frankly, has not been able to compete.
- Third, all sales these days are omnichannel.
Yes, Amazon dominates online sales to the tune of a 38% market share. But Amazon has a lot of omnichannel competition. Think Walmart, Costco, The Home Depot, Dicks, etc.
In fact, Walmart generated more revenue in retail sales last year than Amazon. Although that could change in the future – and then change again.
Shoppers are not exclusively online or exclusively in retail stores. They might see something online. Go visit the store. Try it on. Like it and buy it – or not. They’ll try something on in the store. Wait until the next paycheck – and then buy it online.
That point seems to elude every thinker behind the FTC’s lawsuit against Amazon.
If you define the category narrowly enough, like the FTC did, nobody has any competition. What happens if I define the retail landscape as companies whose founder, Jeff, has a shaved head?
It’s only Amazon. No competition.
If You Break Up Amazon, Who’s Next?
The recent FTC lawsuit asks for “structural relief,” a phrase that often translates into a breakup.
Now, don’t get me wrong, I have professionally had some disagreements on some Amazon practices. But just because I disagree does not mean they are illegal.
In fact, I recently warned retailers against relying on Amazon as their one-stop supply chain solution. Better to look for optionality in your warehousing and transportation.
Anyone who thinks that breaking up Amazon is in the best interest of the consumer needs to look at Walmart. Doesn’t the megaretailer’s “Everyday Low Prices” give them an unfair advantage?
And then who’s next? Costco, Kroger, Home Depot and Target?
Bottom line, the FTC needs to focus on enforcing the laws of the land, not trying to rewrite them.
What do you think?