The F.T.C. Finally Takes On Amazon

Lina Khan, the chair of the Federal Trade Commission, established her prominence as a legal scholar largely by critiquing Amazon’s sprawling business. In 2017, while she was still a student at Yale Law School, she published a paper titled “Amazon’s Antitrust Paradox,” which argued that the accepted paradigm for analyzing antitrust violations was outdated. In the nineteen-seventies, American antitrust enforcement increasingly prioritized the so-called “consumer welfare” standard, which centered on the idea that consumer prices were the most important factor in judging whether a firm was engaged in anticompetitive behavior.

Khan’s argument against the dominance of the consumer-welfare standard rested on an analysis of the business practices of Amazon—which she called “the titan of twenty-first century commerce,” and which now, according to some estimates, controls about half of the U.S.’s online-shopping market. Despite the fact that Amazon offered low prices, she wrote, its dominance was still detrimental to the economy. Amazon would sell products near or below cost in order to gain market share, making it more difficult for smaller businesses to compete, thereby reducing choices for consumers. In the era of the Internet, a framework that analyzed the benefits to consumers primarily through the metric of cost was no longer realistic, because, among other reasons, companies could use huge amounts of data to fine-tune what they charged particular shoppers for particular items. Even if the cost of goods wasn’t immediately going up, she wrote, companies like Amazon posed longer-term threats that needed to be taken seriously.

In 2021, Khan took up the post of chair of the F.T.C., and since then observers have anticipated a case that the agency would bring against Amazon under her leadership. Last Tuesday, it finally did. The case, which was filed in conjunction with seventeen states, accuses the company of using its monopoly position in online retail to suppress competition.

The case makes various requests of the court, including preventing Amazon from engaging in particular practices and seeking “structural relief”—legal jargon for requiring the company to make structural changes to its business, including selling off parts of it. It also echoes some of the arguments that Khan made in another influential paper, published in the Columbia Law Review in 2019, titled “The Separation of Platforms and Commerce.” There, Khan focussed on the economic threats posed by tech companies’ spread into multiple lines of business. By operating platforms that were ostensibly marketplaces while also offering their own goods and services on those marketplaces, she wrote, companies such as Alphabet (which E.U. antitrust officials fined in 2017 for favoring its own services over its competitors’ in Google’s search results, a ruling the company disputed but ultimately lost) and Apple (which E.U. officials have accused of disadvantaging music-streaming apps like Spotify in its app store, in order to promote Apple Music, charges that Apple says are without merit), could use the power that they already had to give themselves an unfair edge in new markets. These companies effectively placed themselves “in direct competition with some of the businesses that depend on them, creating a conflict of interest that platforms can exploit to further entrench their dominance, thwart competition, and stifle innovation.”

In the F.T.C.’s almost two-hundred-page-long complaint, the agency raises alarms about two particular aspects of Amazon’s business practices related to this sort of consolidation. First, it accuses the company of preventing sellers from offering lower prices on other retail sites by burying their products if it catches them doing so. Until 2019, Amazon required sellers to sign contracts promising that they would not offer cheaper deals elsewhere; although no longer a formal policy, the regulators allege that the company has continued to enact this requirement through indirect means, with the result of artificially raising prices and preventing other retail sites from growing their market share. Secondly, Amazon coerces sellers who want to list their products under Amazon’s free-shipping program, Amazon Prime—the subscribers of which constitute a market of some two hundred million shoppers—into using Amazon’s own fulfillment service. This, the government alleges, allows Amazon to unfairly advantage its own warehousing and shipping services because, in order to fully access Amazon’s enormous base of potential consumers, sellers can’t choose a different option. The F.T.C. also argues that this prevents other delivery-fulfillment-service companies from growing, because Amazon has locked up a large proportion of the sellers that they would need to develop a robust customer base. As one seller cited in the lawsuit put it, “we have nowhere else to go and Amazon knows it.”

Amazon quickly refuted the government’s charges, releasing a statement on the day that the case was filed, in which its general counsel, David Zapolsky, painted a dire picture of a government win. “If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses,” he wrote, calling the lawsuit “wrong on the facts and the law.” At the moment, Amazon is contesting that the F.T.C.’s account of the details of its business are accurate. The case might ultimately be settled, but, if it reaches a trial, which could take several years if it follows the pace of similar cases, the government’s success could depend, among other things, on how much it can persuade the court to recognize the deficiencies of the prevailing antitrust framework.

Amazon is the third major tech company to face monopolization accusations by the government in the past three years—many also think its case will be the hardest for the government to successfully argue. In 2021, the F.T.C. filed an amended complaint against Meta (then known as Facebook), after an earlier one had been dismissed for failing to make a strong enough argument that Facebook had become a monopoly. The revised case alleges, in greater detail, that the company bought competitors to eliminate threats to its business, and is proceeding toward a trial. (Meta has said that its purchases of WhatsApp and Instagram were ultimately good for competition, and made those companies “into what they are today.”) Google is currently defending itself against charges filed by the Justice Department, which accused it of making anticompetitive deals in order to remain the world’s dominant search engine. (Google argues that consumers prefer its search engine and have alternatives to choose from.)

These cases are components of the Biden Administration’s goal to reduce the concentration of economic power in several industries, which they see as having limited corporate employees’ ability to bargain for higher wages and allowed tech companies to amass enormous amounts of personal data, among other negative effects. Although this campaign has many supporters, it also carries political risks—especially when targeting Amazon. A Harvard poll conducted in 2021 found that Americans viewed Amazon more favorably than any of the other seventeen institutions that the survey asked about, except the U.S. military. Battling Big Tech has the potential to alienate voters who see Amazon as a source of not just life-changing convenience but also jobs, and who may not be preoccupied by the more complex effects it has on the economy.

Rebecca Haw Allensworth, a professor at Vanderbilt Law School, told me that, like Google, Amazon is likely to base its defense on the argument that its decisions have legitimate business justifications, and that its size simply results from its customers’ satisfaction. “Amazon’s going to say, ‘These practices give the lowest prices to our consumers,’ ” Allensworth told me. The F.T.C.’s claim that Amazon’s requirement that sellers listed under Prime also use its fulfillment services would be particularly difficult to spin as anticompetitive, she went on, because antitrust laws give businesses deference to decide how to make, produce, and deliver their products. “They’ll say, ‘We have to be able to stand by it and say it’s going to be delivered on time.’ And that’s a powerful story.”

George Hay, who is a professor of law and economics at Cornell and a former Justice Department antitrust official, noted that “Amazon has had years—at least since Lina Khan came to the F.T.C.—to think about this lawsuit and how they’re going to defend against it.” He also emphasized that litigation drains resources; in legal battles, companies like Amazon, with large budgets, have myriad advantages. “I have the greatest respect for the government lawyers, but they are at an operating disadvantage, and that’s going to show,” he said. “Amazon’s going to have two dozen people scrutinizing the government’s witnesses. The government can’t do that.” ♦