What the Critics Are Saying About Lina Khan’s Amazon Antitrust Suit

October 2nd, 2023

The reviews are in on the Federal Trade Commission’s complaint against Amazon. If this were a movie on Rotten Tomatoes, FTC Chair Lina Khan’s signature antitrust case would be a big green splat.

The suit, released last Tuesday, alleges that Amazon’s “ongoing pattern of illegal conduct blocks competition, allowing it to wield monopoly power to inflate prices, degrade quality, and stifle innovation for consumers and businesses.”

While the suit has received plaudits from the usual suspects, such as Senators Elizabeth Warren and Amy Klobuchar, it has generated far more criticism from practitioners, economists and full-time antitrust lawyers.

• Carl Szabo, Vice President & General Counsel of NetChoice and Professor at the Antonin Scalia Law School at George Mason University, notes that the complaint mirrors other cases that the FTC recently lost. Szabo says the “FTC sue[d] Amazon for showing consumers the best prices and best options.” The FTC also complains that Amazon displays its own products ahead of others (think of the Wegmans brand at Wegmans).

• Jon Williams, a Professor of Economics at the University of North Carolina at Chapel Hill posted “Another L coming for @FTC. If Amazon is a ‘monopolist’ in retail space, they’re exceptionally bad at it. Apple profits more on chargers alone than the entirety of Amazon, even before excluding AWS. Lina’s obsession with big tech is going to harm consumers.”

The reality is that in its search for a “monopolist” it can tear down, the FTC will only hurt consumers. Amazon Prime is deeply popular among Americans. Gary Winslett of Middlebury College noted that “A) 64% of voters are Prime members, B) 91% are satisfied C) voters wants govt to focus on other tech policy priorities, and D) ind. voters oppose a breakup by > 5-1 margin.”

It will be hard for the FTC to make a pro-consumer case against Amazon with stats like these.

• Gus Hurwitz, Senior Fellow and Academic Director for the University of Pennsylvania Center for Technology, Innovation, and Competition, added to this: “Amazon has a really good brand. Consumers trust them. Amazon invests a great deal to maintain their brand and that trust. This makes it hard for companies that consumers don’t know and trust to get into the market.” Amazon has a strong market presence because it provides a very popular and cheap service to consumers.

• Patrick Hedger, Executive Director of the Taxpayers Protection Alliance, put out a thread questioning several claims made by the FTC. First, it is claimed that Amazon systematically prevents competitors from growing, but data show that Amazon wasn’t even the third-fastest growing e-commerce platform in 2021.

Second, if Amazon truly is such an obvious monopoly, why the need to severely restrict Amazon’s market definition to the point of obscurantism?

Third, why is the FTC arguing that Amazon isn’t actually all that big of a player, when bigness and badness are necessary conditions to bring an antitrust case? And finally, why would the FTC target Amazon’s shipping logistics business when that business is clearly more efficient, and therefore less costly to the consumer, than if sellers provided shipping services themselves?

• Brian Albrecht, Chief Economist at the International Center for Law & Economics argued that the FTC complaint against Amazon makes an elementary economics mistake: confusing a shift of a curve for a movement along a curve.

The problem for the FTC, Albrecht asserts, is that “Amazon’s competing on the merits by offering better products also prevents other companies from reaching critical mass… if I improve my product, that reduces demand for your product, which raises your costs. You can’t ‘reach scale.’” But, as Albrecht puts it, “that’s not anticompetitive harm!” It’s just normal business in the marketplace.

Other comments were less analytical and more rhetorical.

• Albrecht also poked fun at the FTC for challenging Amazon for using common marketing techniques: “They used colors! And that’s not even the worst part. They bombarded consumers… With offers.”

• Eli Dourado of the Center for Growth and Opportunity quipped “ah yes, we must put an end to the famously high prices on Amazon.”

• Neil Chilson, former Chief Technologist for the FTC, pointed out the hypocrisy of the FTC to, on the one hand, claim it isn’t targeting Amazon because it is big, and on the other, narrowly define Amazon as the chief online superstore market.

Szabo also posted that “Biden is going to break Prime — but that is Bidenomics – breaking what works. Biden’s FTC is going to make everything more expensive and going to break our economy even more… It seems the only ‘problem’ for Americans is that we have too many choices out there.”

• Robert Winterton of NetChoice said that “Chair Khan is out of touch with the American people. Her claims that Amazon has made their service worse and raised prices over the last few years rings hollow to consumers who say Amazon is one of their favorite companies…”

• The Small Business & Entrepreneurship Council put out a quote from its president claiming that Lina Khan’s “disconnected theories put America’s digital leadership and vibrant startup ecosystem in serious danger…small businesses will be harmed.”

• Former Chief Economist for the Office of Management and Budget Vance Ginn claimed “This is yet another attempt by the government to control the marketplace rather than consumers. That will result in harm for consumers with higher costs and capitalism [with] less competition & innovation.”

• Adam Kovacevich, the Founder and CEO of the Chamber of Progress put out a detailed thread on X, elaborating on the facts and flaws of the case. The thread is lengthy but a few points stick out.

Buy Box is the algorithm by which Amazon determines which vendor of a product that has multiple vendors ultimately gets the sale. The FTC alleges that this policy penalizes sellers who offer lower prices off Amazon. As Kovacevich writes, “Amazon’s Buy Box rules ensure that its shoppers are getting the best price on the Internet. Sellers who don’t ‘win’ the Buy Box understandably don’t like that – but that’s not the basis for an antitrust complaint.”

The FTC also alleges that the link between Amazon Prime and Fulfillment by Amazon (FBA) is anticompetitive. Sellers are required to use Amazon’s fulfillment service in order for their products to be Prime eligible.

As Kovacevich points out, the “FTC’s critique of Prime-FBA link focuses only on seller fees – not the impact on consumers who want two-day shipping.” As Kovacevich writes, “In case there was any doubt that FTC’s case is brought to help sellers, not consumers, look at how often the case mentions each term: ‘Sellers’: 368 times[,] ‘Consumers’: 51 times[,] ‘Customers’: 43 times.”

Amazon used to offer Seller-Fulfilled Prime, where sellers use alternative shipping services but still ensure on-time delivery. Amazon paused the program because it found that sellers weren’t meeting their shipping promises to consumers. When the European Union brought a case against Amazon, the EU reached a settlement where Amazon agreed to provide access to SFP. As Kovacevich writes, “In an alternate universe, with a more reasonable FTC Chair, the FTC would have sought a settlement from Amazon on ensuring access to Seller-Fulfilled Prime…which Amazon would have accepted, as it did in the EU. What a waste.”

Perhaps the most obtrusive fact of the whole case is how narrowly the FTC defines the market Amazon purportedly monopolizes. Amazon is pitted against only other “online superstores.” “Surprise, surprise,” writes Kovacevich, “once FTC draws this narrow and convoluted market definition – completely disconnected from shoppers’ reality — Amazon has a 60+% share!” If one were to compare Amazon against both all online retail and all retail in general, its market share drops to 37.6% and 3.5% respectively. The FTC doesn’t even compare Amazon against one of its primary competitors: Shopify.

The FTC’s lawsuit is a target-rich hot mess of a filing. Let us hope that a court in Washington State thinks the same.