The FTC Takes On Amazon

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The time-worn metaphor of the “white whale” relates to something one pursues with little chance of success, as seen in the case of Captain Ahab in Melville’s “Moby Dick.” Think of it as an obsession that dominates one’s thoughts and actions. Such is the case with Lina Khan, the chairperson of the Federal Trade Commission in her tenacious pursuit of Amazon
AMZN
. Many of us in academia have been waiting for this lawsuit to drop. Since Khan ultimately rose to antitrust fame due to her 2017 Yale Law Journal essay, Amazon’s Antitrust Paradox.

On September 26, 2023, the FTC in conjunction with the attorneys general of 17 states, filed a long-awaited lawsuit against Amazon, alleging anti-competitive behavior in violation of federal antitrust laws. Filed in the Western District of Washington, the suit focuses primarily on Amazon’s Prime program, alleging the company used manipulative, coercive, or deceptive user interface designs to trick consumers into enrolling while simultaneously complicating the process for cancelling the subscription.

This historic suit is part of a series of actions taken by both the FTC and the Antitrust Division of the Department of Justice since the Biden Administration came into power in 2021. In appointing Ms. Khan to run the FTC and Jonathan Kanter to run the Antitrust Division, President Joe Biden signaled a much greater willingness for rigorous federal enforcement of antitrust law. Both Kanter and Khan have been considered antitrust hawks, calling for significant reforms particularly focused on Big Tech.

In addition to the Amazon suit, the DOJ is in the midst of a trial against Google
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alleging violations of Section 2 of the Sherman Act, particularly focused on anti-competitive behavior in both the search engine and search advertising markets. This is in addition to a second suit, also filed by the DOJ, this time under Sections 1 and 2 of the Sherman Act accusing them of monopolistic behavior in the adtech market. The FTC also brought an action against Meta (formerly Facebook) in December, 2020, alleging anticompetitive behavior resulting from Meta’s acquisition of both Instagram and Facebook.

It should be noted that the first Google suit as well as the investigation into Amazon which ultimately led to the lawsuit in question both began under the Trump Administration and were merely brought to bare under the Biden Administration. Despite this, in all four cases, the federal regulators have been joined by a bipartisan group of Attorneys General; in some cases, overwhelmingly so. In Meta’s case, the FTC was joined by 46 states Attorneys General, as well as the AGs of the District of Columbia and Guam, although a federal appellate court later removed the states from the action.

Given the proliferation of these suits and the ongoing discussion of how and why we should apply antitrust laws, I thought it would be a good idea to discuss what is really driving these actions.

Does America have a monopoly problem?

For the first time in American history, there is a public declaration of war on Big Tech. You must remember that antitrust is not only a domestic problem. There is an international race on who is going to regulate or break up leading American technology firms. Regulators outside the United States are a step ahead of U.S. regulators. Across the Atlantic, in the European Union and Australia, regulators are drafting and enforcing new laws and regulations aimed directly at American Big Tech companies, whereas here, we are using old legislation that was passed more than a hundred years ago and aimed at breaking Big Oil monopolies. There is an academic debate on whether we can use old antitrust laws to try to rein in Silicon Valley’s largest technology firms.

In essence, there are three primary concerns with Big Tech when it comes to antitrust. First is the obvious: these companies are exercising monopolistic powers to the detriment of their consumers as well as their suppliers. Meta, Google, and Amazon are all pervasive players in their respective markets. They are the dominant forces and it isn’t shocking that it is nearly impossible to compete with them. They are simply too large and the entry costs are simply too high for any meaningful competition to come in and try and disrupt the market. By absorbing or killing competitors, Big Tech is likely in violation of existing concepts of horizontal integration.

If you want to find out more on the practice of Killer Acquisitions, check out work by Florian Ederer et al.

Second, which is derivative of the first, is these companies are using their significant capital they have obtained from dominating their respective original markets to both enter into new markets and to move up the supply chain of existing markets. In antitrust law, this latter concept is referred to as vertical integration. By controlling their suppliers on the backend or distributors on the front end, a company can continue to squeeze more from both their suppliers and consumers while minimizing their own costs simply by taking over the supply chain themselves. By branching into new markets, like Amazon and Google have with streaming, music, and other intellectual property areas, they can tie their already enormous power in their original markets to new markets and bring the full weight of their power to them. If one of these companies wants to become a major player in a market tangential to their existing markets quickly, they almost certainly can, with very little risk or effort on their part.

If you want to find out more on how Amazon’s search algorithm and interface design influence prices, using a behavioral economic lens, check out a new paper by Rory Van Loo and Nikita Aggarwal.

Finally, there is the underlying concern about data privacy. From a political perspective, this is likely the major driver behind the bipartisan pushes against Big Tech. Nearly every company considered to be a part of Big Tech collects, manipulates, and sells vast amounts of data collected from their consumers. At the end of the day, this data and how it is used effectively is how these companies are so extraordinarily successful. But there are legitimate concerns about how, when, and for what purpose it is collected. Consumers can rarely back out and for a country that has long valued privacy, but rarely protected it legally, this is a bit of a quandary. While the first two issues clearly fall within the realm of antitrust law, this final, and likely most pressing, issue is, in my opinion, not within that scope. But given the lack of political will in Washington to do much of anything, comprehensive privacy laws which would be better suited to addressing this are a fool’s errand. In the interim, antitrust law will have to do.

For more on rethinking antitrust policy, check out Tim Wu’s book, The Curse of Bigness: Antitrust in the New Gilded Age.

Too much power?

There is a concern that Big Tech companies, and their managers, have too much influence on our lives because they revolutionize our economy, build our knowledge platforms and can connect us with others. They have state like powers and are also referred to as “net-states”, because they are essentially large digital non-state tech companies.

The five largest corporations are Microsoft
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, Apple
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, Amazon, Facebook and Alphabet’s Google. These companies are accused of having too much power. There is bi-partisan support on putting some restraints around this power. Just like their old predecessors, Big Tech companies enjoy very little regulation and employ monopolistic practices, using acquisitions, joint ventures, and investments that have led to antitrust investigations in the United States, the European Commission and Australia. But, the big elephant in the room, at least, to me is on the question of breaking them up.

My own personal view is that while we need to curtail BigTech monopoly power we should do so very carefully and not necessarily break them up easily. It should be limited to a case by case analysis. I’m concerned about innovation policy, great power competition and national security. Instead of breakups, perhaps, it is time for us to really rethink about how data is gathered and used by Big Tech companies. Finally, we can actually use our traditional antitrust tools to prevent anticompetitive behavior. Stay tuned, I have a great new paper on Interlocking Directorates with Moran Ofir, Miriam Schwartz and John Livingstone. I also have a book chapter on Interlocking Directorship: Evidence from a Natural Experiment by Israeli Competition Law, in A RESEARCH HANDBOOK ON COMPETITION AND CORPORATE LAW, with Moran Ofir (Anna Tzanaki and Florence Thépot, ed).

Thank you to my research fellow, John Livingstone. If you have any comments, suggestions or feedback, please send them to John Livingstone [email protected] or to me [email protected].



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