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Amazon faces one of its toughest legal battles yet with the federal antitrust lawsuit, but experts are divided on whether curtailing the company is in the nation's best economic interest. | DBT PHOTO BY JACOB OWENS[/caption]
One of the most consequential questions in business is set for a courtroom battle: Should there be an ‘Everything Store’? And if so, who should be prioritized in its operation?
The fight between the Federal Trade Commission (FTC) and Amazon broke into a new phase on Sept. 26, when the agency entrusted with consumer protection sued the e-commerce giant in federal court.
But the philosophical battle over Amazon’s alleged monopoly dates to 2017, when now-FTC Chair Lina Khan was then just an unknown Yale University law student. It was then that she published “Amazon’s Antitrust Paradox” in the Yale Law Journal, a 95-page academic paper that argued Amazon was a monopoly regardless of its favorable consumer pricing because of the impact it had on the marketplace.
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Jacob Owens
Editor
Delaware Business Times[/caption]
The paper made her a progressive firebrand, but also drew her a fair share of critics who argued that Amazon didn’t fit the traditional stereotype of a monopoly nor would breaking it up be in the best interest of the American economy.
That criticism hasn’t slowed Khan’s resolve to bring her thesis to the courtroom though.
The recently filed Amazon case boils down to two major complaints: that Amazon punishes sellers for discounting its products elsewhere on the internet, and that Amazon requires sellers to meet its Prime service obligations to use its fulfillment services, adding anti-competitive costs to their businesses.
Through those tactics, the FTC alleges Amazon has established an e-commerce monopoly that subsequently allows it to reap additional benefits by boosting paid listings, biasing its own products in searches, and charging seller fees that could total nearly half of their total revenue on the site.
According to the FTC and plaintiff states, “Amazon has violated the law not by being big, but by how it uses its scale and scope to stifle competition.” The lawsuit further alleged that Amazon now captures more sales than the next 15 largest U.S. online retail firms combined.
In a lengthy statement issued shortly after the lawsuit was filed, Amazon argues that many of the options deemed “coercive” by the FTC are in fact optional, with many sellers choosing not to utilize them, and that its search feature is made in the best interest of its consumers.
“The FTC’s case alleges that our practice of only highlighting competitively priced offers and our practice of matching low prices offered by other retailers somehow lead to higher prices. But that’s not how competition works. The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices — a perverse result that would be directly opposed to the goals of antitrust law,” the company argues.
The Amazon case is somewhat unique in antitrust law. It isn’t a clear-cut case of one company holding an entire industry hostage, because other mega retailers such as Walmart and Target do compete and distribution and logistics giants like Shopify help small businesses operate without Amazon. Nor is it a case of predatory pricing for customers – at least on its face – because Amazon often sets the floor for pricing in the market.
The case hinges on the idea that an unbalanced market that is unfair to smaller competitors ultimately negatively impacts consumers.
I don’t think anyone would argue that Amazon’s gigantic size and network makes life difficult for small companies to scale and compete with it. But many antitrust and economics professors agree that Amazon isn’t a monopoly because it is far from the only option.
A break-up of Amazon’s online marketplace would benefit thousands of small businesses looking to offer discounted pricing elsewhere, but it would undeniably hurt thousands more who would be unable to bear the distribution costs and operations borne by Amazon today.
In discussing the topic of alleged monopolies by Big Tech companies a few years ago, Hemant Bhargava, technology management chair at University of California-Davis, said he didn’t think any of these behemoths met the definition – in part because the quintet of Amazon, Google, Facebook, Microsoft and Apple kept each other from becoming one.
Pointing to the FTC’s failed antitrust case against Microsoft in the 1990s over its web browser dominance, Bhargava noted that “I think we can rely on standard competitive forces [because] the evidence that the government actions led to good results is really not there.” Microsoft lost its lead in web browsers to Google, Apple and others because it stopped innovating, he said.
Amazon also pointed to the fact that its constant innovation – including with its marketplace, Prime bundling, same-day shipping, web services, and more – has allowed it to reach its current size. In that way, it’s not unlike Apple or Google.
A successful antitrust case against Amazon could force it, and other companies, to rethink the amount of profit it reinvests in research and development. That’s a prospect that is damaging not just for corporate bottom lines but also for the American economy that has thrived on innovation.
The case against Amazon is expected to take years to litigate, but its stakes are transformative. One day it just might make the perfect story for an Amazon Studios film.
