For several decades, the guiding principle in U.S. antitrust enforcement has been protecting the interests of consumers. Keeping the consumer welfare standard at the forefront of antitrust policy provides important benefits, including protecting consumers, promoting economically efficient outcomes, and imposing a disciplined structure on antitrust enforcement, which goes a long way toward preventing the politicization of antitrust policy. The FTC’s antitrust lawsuit against Amazon shows how these benefits are lost when consumers are removed from the forefront of antitrust enforcement.
Amazon’s Marketplace is highly popular with consumers because it delivers more choices, fast delivery, and lower prices. The third-party seller ecosystem on Marketplace is thriving, and direct sales by Amazon, which comprise only a small share of total sales on Marketplace, add more competition and choice for consumers. Small and medium-sized sellers use Marketplace to gain access to customers at a far lower cost than if they had to build their own distribution networks.
Rather than celebrate the many ways Amazon benefits consumers, the FTC has filed a major antitrust complaint against Amazon.
According to FTC Chair Lina Khan, “The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”
Chair Lina Khan’s negative views toward companies like Amazon were well-known even before she joined the FTC. In a 2019 article, Khan asserted that when Amazon sells products in competition with other suppliers on the Amazon platform, the company gives itself an unfair advantage over those of other sellers.
“One feature dominant digital platforms share is that they have integrated across business lines such that they both operate a platform and market their own goods and services on it. This structure places dominant platforms 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,” Khan noted at the time.
However, vertical integration is very common in supply chain arrangements. In many markets, firms meet other firms as buyers or suppliers at some levels and as competitors at other levels. Large manufacturers like automakers often are vertically integrated so that they make some components that they also buy from suppliers. Similarly, restaurant chains may operate subsidiaries that supply their restaurants, and perhaps other restaurants, while also buying supplies from companies that compete with their upstream supplier operations. Creative use of vertical integration has many benefits that are passed on to consumers, including increased synergy, creative problem-solving, and better product development.
It is rather ironic that the FTC, whose priority should be protecting consumers, is punishing a company whose CEO claims its success is due to an obsessive focus on the customer.
The complaint alleges that Amazon punishes sellers if they offer lower prices elsewhere, which refers to Amazon’s price parity policy. Amazon requires that its merchants sell on its Marketplace at the lowest price they offer online. This prevents them from using Amazon as essentially an advertising platform and then offering a lower price on their own websites. This tactic does not lead to lower prices for consumers–it just allows the sellers to shift the sale from the Amazon website to their own. In other words, merchants who attempt this free-riding tactic are the ones raising consumer prices on Marketplace to try to keep Amazon from making the sale. By having a price parity policy, Amazon keeps prices low on its Marketplace by taking away the incentive for this kind of free riding.
Most importantly, this approach to antitrust takes the focus off how Amazon got where it is largely by being more efficient and innovative than anyone else. Instead, we should want “fairness,” which, as the FTC claimed in a recent policy statement, will be defined by the bureaucrats running the FTC.
“The word efficiency doesn’t appear anywhere in the antitrust statutes. They’re really written to, in the FTC’s case, allow the FTC to police unfair methods of competition. Implicit in that prescription is the idea that there are illegitimate forms of competition and legitimate forms of competition, and it’s really up to the FTC to be defining what is fair and what is unfair when it comes to competition,” Khan said in an interview last year.
The latest lawsuit against Amazon fulfills the agenda Chair Khan brought to the FTC. If the FTC gets its way, this case will inevitably lead to higher prices and slower deliveries for Amazon customers, as well as lost opportunities for smaller merchants to use all of the distribution services provided by Amazon.
Who will benefit if the FTC prevails against Amazon? Certainly, it will be Amazon’s competitors, such as Walmart and Target, who will gain market share from a weakened Amazon.com. The FTC will also win, in the sense that it will be empowered to set the rules for competition nearly everywhere in the economy. Other winners may be the larger third-party sellers on Amazon who compete with Amazon for sales and don’t benefit as much as the smaller sellers from Amazon’s distribution services and network.
The latest Amazon lawsuit is the clearest demonstration yet of what is wrong with the antitrust policies coming out of the current FTC. In its zeal to go after Amazon, the FTC is asserting it has the right to pick winners and losers in the economy.
Ted Bolema recently retired as executive director of the Institute for the Study of Economic Growth at Wichita State University. Wichita State University is one of over 400 schools that participate in Amazon’s Career Choice program. He is a former trial attorney with the Antitrust Division of the U.S. Department of Justice.
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