What the FTC Gets Wrong in its Suit Against Amazon

The Federal Trade Commission (FTC) recently filed its long-rumored lawsuit against Amazon, accusing the company of anti-competitive conduct. Among the FTC’s claims are that Amazon uses various means to ensure that no merchant on the Marketplace offers the same product cheaper somewhere else, and that the Prime Certification requirement, that vendors allegedly must pay for additional services, such as Fulfillment by Amazon, to receive the Prime badge,  imposes an unfair burden on these third-party sellers.

As an initial observation, it bears emphasizing that in competition matters the role of the FTC is limited. Like any federal (law) enforcement agency, its job is to enforce the law as written by Congress and interpreted by the courts. For decades, the “consumer welfare standard” has been the North Star of U.S. antitrust law. The fundamental question is whether a company’s conduct makes markets more efficient and leaves consumers better off. If the answer is yes, and unless the company has otherwise engaged in unlawful conduct, that is the end of the inquiry. The current leadership of the FTC harbors deep misgivings about this, and they are free to make that case in articles and speeches, but it is, or should be, irrelevant to the discharge of their enforcement duties.

In the first substantive section of its complaint, the FTC asserts that “Amazon is a monopolist.” While that statement undoubtedly is meant to evoke connotations of illegality, it is worth noting that, by itself, being a monopolist is perfectly legal. As the late Justice Scalia wrote for the majority in Trinko, “[t]he mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.”

Antitrust cases are fact-specific and turn on what the evidence shows and how convincing it is. As a result, monopolization law can be murky. But what is clear is that a finding of monopoly power is a substantial bar for the enforcement agencies to meet. And the first hurdle almost always is the definition of a relevant market. It is hard, after all, to prove that a company has a monopoly without showing that it occupies a dominant position in a clearly defined market. The relevant market is usually “determined by the reasonable interchangeability of use [] between the product [and its substitutes].” In addition, the Supreme Court has stressed the importance of paying close attention to “the economic realities of the market at issue.”

In the case of consumer retail, it is well-established that competition between brick-and-mortar shops and online stores is intense. Omnichannel shopping affords consumers the opportunity to mix-and-match on-and offline retail based on what makes the most sense to them. Against this backdrop, reasonable minds can quibble over whether the relevant market is general retail or e-commerce retail. But in neither market does Amazon enjoy a monopoly or anything close to it.

A seminal opinion by Judge Learned Hand found that while a market share of ninety percent would “constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three percent is not.” To put that in perspective, Amazon’s share of the general retail market in the U.S. in 2022 was 10 percent, and its share of the e-commerce market was 38 percent. The exceptionally narrow and contrived market alleged in the complaint–”online superstores”–whose sole purpose is to grossly inflate Amazon’s market share, is risible. And while the other alleged market in the complaint, the “market for online marketplace services purchased by seller,” might be aimed at giving a reprieve to large third-party logistics companies, the focus of antitrust has always been to protect the competitive process, not any particular competitor or group of competitors.   

It is also a basic principle of antitrust law that a private company is free to decide with whom to do business, and on what terms. As long as its decisions are guided by a legitimate business rationale, it would not be unlawful for a company to have a policy that, for example, requires merchants on its marketplace not to sell their products cheaper on other websites and to deny vendors, who do not abide by that rule, access to its most valuable real estate. And this is, in fact, a very common practice.

But in this case the FTC has it completely backwards. Amazon does not dictate the prices of third-party merchants on its website, nor are those sellers prohibited from offering their goods cheaper somewhere else. If they do, they are just not eligible to be a Featured Offer on the Marketplace. Like any retailer, Amazon aims to be price competitive and clearly has a right to protect its highly successful brand. What the FTC’s complaint elides is that over the last two decades, Amazon has helped thousands of third-party sellers thrive, because without them it would be impossible to offer consumers the wide product selection, low prices, and fast delivery that they have come to expect. 

In her law school paper, now-Chair Khan acknowledged that Amazon “clearly [has] delivered enormous benefits to consumers,” and that consumers “universally seem to love the company.” Under any reasonable interpretation of existing law, there simply is no antitrust harm. Instead of filing meritless lawsuits, the FTC would do well to focus on its proper role, which is to enforce the law as it is.

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