Consumer Benefit – the Missing Ingredient in the Amazon and Google Antitrust Complaints

January 16th, 2024

The economic reasoning in the Department of Justice antitrust complaint against Google is weak. In the Federal Trade Commission complaint against Amazon, it is nonexistent. Lina Khan’s FTC has 80 economists on staff – but somehow the economic modeling typical of an FTC complaint are nowhere to be found in her filing.

That makes it doubly interesting then to read the analysis of Thomas Lenard, former FTC economist and past leader of the National Economists Club, in a Tech Policy Institute piece. What does an economist make of these two antitrust cases?

Lenard demonstrates that progressive antitrust regulators ignore the value of a transaction – “consumers aren’t just concerned about the list price of an item; they are concerned about the all-in price, which includes transaction costs.”

The case against Google, Lenard notes, is largely about transaction costs. The government attributes Google’s dominance in search to its pre-install agreement with Apple. Justice lawyers and Google argue over whether it’s easy or difficult to switch search engines. (In my experience, it’s easy. I didn’t even need to find a teenager to help me.) Lenard concludes: “Even if installing a search engine is relatively simple, most consumers would probably prefer a phone with the search engine they want right out of the box.”

That consumer preference, is of course, Google.

Regarding the Amazon complaint, Lenard begins with a tart observation, expressing astonishment over a long quote from the FTC complaint that defends Amazon as a good deal for consumers. He turns to Amazon’s practice of forbidding sellers to charge a higher price on Amazon than they do on other platforms. This benefits shoppers by giving them an automatic assurance that the same product is not available for a lesser price elsewhere, eliminating the cost and hassle of searching across multiple sites. If this somehow leads to collusion on price, Lenard writes, the FTC has not proven it.

A second allegation regards Amazon’s policy that requires sellers to use its fulfillment service – storage, packing, delivery, and the processing of returns. Lenard writes:

“The FTC thinks the fulfillment requirement is also anticompetitive, but consider the alternative: Customers would likely confront multiple fulfillment operations with varying reliability, delivery times, and return policies. Amazon would incur costs policing those operations to assure they satisfy Amazon’s service commitment – costs that would be passed onto consumers.”

These twin progressive antitrust cases are a strange hybrid. Unlike previous failed antitrust cases based on progressive “neo-Brandeisian” theory, they are predicating their cases on appeals to consumer welfare. And in both cases they would take a machete to services consumers value. At the heart of these cases is a certain disingenuousness. And there is also a certain elite contempt – betraying the belief that consumers are too stupid to know what’s good for them.