The Federal Trade Commission under chairwoman Lina Khan has had an unenviable record of losing antitrust cases in federal court. It is likely to add to it with its most recent suit against Amazon.
The FTC and 17 state attorneys general allege that the online-selling platform is using illegal business practices to maintain monopoly power. Monopoly on what? Amazon does not have anything approaching a monopoly on retail sales. About 80 percent of consumer purchases still occur in physical stores, and Amazon faces competition from countless small businesses and giants such as Walmart online.
As Amazon users know, one of the top reasons to shop on Amazon is lower prices. Yet the FTC alleges that Amazon keeps prices higher than they otherwise would be, by demoting discount sellers in search results. Aside from being contradictory to most people’s experience using Amazon, this charge is also contradictory to past criticism of Amazon on antitrust grounds.
It was Lina Khan who, in an academic paper before she became an FTC commissioner, wrote that Amazon was engaged in anticompetitive behavior by using predatory pricing. That’s when a company forgoes profits to smother its competitors — by holding prices too low.
That at least aligns with consumer experience on Amazon, where prices are indeed often lower, but it runs into the problem of being a peculiar theory of harm in an antitrust case. The FTC’s job is to protect consumers, and why should consumers be protected from easy access to lower-priced goods? But it’s clear that the FTC’s mission under Khan is to hit Amazon, so now the problem is that prices are too high.
The FTC’s argument in this case is not that Amazon should be broken up. The argument is instead that the FTC should be able to determine how Amazon runs its business. The standard now appears to be that if enough unelected bureaucrats at the Federal Trade Commission Building in Washington, D.C., believe a company’s business practices are problematic, the company is liable to be sued and forced to change its ways.
And U.S. antitrust laws are sufficiently vague and broad that just about anything can be considered illegal if the FTC decides it wants to go after a firm and courts go along. If prices are higher than competitors’, that’s monopoly power. If prices are lower than competitors’, that’s predatory pricing. If prices are the same as competitors’, that’s collusion.
Antitrust used to be nonsensical. When Nobel Prize-winning economist Ronald Coase taught antitrust for the first time in the 1960s, he described it as “absurd” and said, “My recollection of the course is that it was what I call ‘hearty laughter.’” In the 1960s, attorneys defending a merger would argue in court that the merger would not result in greater efficiency or benefits for consumers, for fear of the judge finding that the company would grow as a result. The only consistent rule in antitrust at that time was, in the words of Supreme Court justice Potter Stewart, “The government always wins.”
Since the 1970s, antitrust scholars have developed the consumer-welfare standard, which introduced the rule of law to antitrust enforcement. Courts now have standards against which to measure firms’ behavior, based on the effects on prices and product access. This decades-long project has been carried out by judges and scholars from across the political spectrum, and it is now firmly embedded in case law.
That creates a problem for Khan’s FTC, which is consistently rebuffed by the courts based on what were, until recently, widely accepted theories of harm and standards of evidence. That’s why we are now treated to the spectacle of the FTC arguing the opposite of what Khan had previously argued about Amazon. It’s throwing everything at the wall to see if something will stick.
That it likely won’t stick in federal court is only partial consolation. As a simple matter of principle, the federal government should never single out any private company for this kind of harassment. And the mere act of bringing these suits, and suggesting that the FTC ought to be able to tinker with business practices under pretense of antitrust law, will have a negative effect on other businesses who are seeking to innovate and grow.
The message from the FTC to businesses right now: Don’t get too big, or too successful, or too beneficial to consumers, because if you do, we’re coming for you. That’s the wrong message for the federal government to send, and it’s contrary to the agency’s mission to promote competition and protect consumers.