Lina Khan Erred in the Seminal Amazon Critique That Has Inspired Antitrust Legislation and a Possible FTC Suit, New Report Finds

WASHINGTON—FTC Chair Lina Khan erred in key aspects of the legal analysis framing the 2017 law journal article that established her reputation as an antitrust scholar, propelled her to influential positions in government, and helped inspire the movement to restructure antitrust policy now underway in the United States, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology.

Khan’s seminal article in The Yale Law Journal, titled “Amazon’s Antitrust Paradox,” contended that the longstanding legal framework for U.S. antitrust enforcement is “unequipped to capture the architecture of market power in the modern economy” and that reforms are needed to address “the anticompetitive nature of platform markets.” Her reasoning has informed subsequent legislative and regulatory efforts in Congress and the Biden administration—and now, under Khan’s direction, the FTC is reportedly preparing an antitrust suit against Amazon. Yet ITIF’s new report finds Khan’s original analysis erred by ignoring or misapplying the economics of two-sided markets, mischaracterizing competitive conditions, and overlooking pro-competitive effects of Amazon’s conduct.

“Lina Khan’s theory of the case against online platforms like Amazon has been an inspiration for the movement to restructure antitrust, so it’s important for policymakers to recognize that her prescriptions stem from a fatally flawed analysis,” said ITIF President Robert D. Atkinson. “Two-sided online market platforms don’t expose shortcomings in current antitrust doctrine based on consumer welfare, as she contends. To the contrary, regulators can use existing analytical methods to distinguish anticompetitive conduct from pro-competitive conduct.”

ITIF’s report reviews the economics of two-sided online market platforms—including how optimal pricing strategies, the definition of relevant markets, and the measurement of market power differ from one-sided markets—then assesses Khan’s analysis of Amazon’s conduct.

In the case of e-books, ITIF’s report finds Khan failed to appreciate that e-book retailing has characteristics of a two-sided market, which led her to mischaracterize a common pricing strategy as predation. Separately, in analyzing the online diaper market, Khan misunderstood key features of online retailing, particularly the ease of market entry and the extent to which consumers substitute between online and offline channels.

ITIF’s report also finds Khan misrepresented key facts about Amazon’s logistics business, misunderstood Amazon’s relationship with independent sellers on its platform, and overstated the competitive impact of Amazon’s vertical integration on its rivals. And the report shows that in using data to compete with Marketplace sellers, Amazon aims to reduce prices for consumers, not appropriate sellers’ investments. Moreover, its practices are consistent with the ways its brick-and-mortar retail competitors use data.

After assessing Khan’s analysis of Amazon’s conduct, ITIF’s report reviews her proposals for antitrust reform and concludes they are unnecessary, unlikely to capture the conduct she is concerned about, and jeopardize the consumer benefits arising from innovative digital platforms.

“Unfortunately, the misguided ideas Khan expressed in the Yale Law Journal article that became her calling card have suffused the antimonopoly movement in the United States as rapidly as she has ascended to influential positions in government,” said Atkinson. “Her theory of the case is flawed at its core. Legislators, agency officials, and other policymakers should reconsider antitrust proposals that rely on her analysis or conclusions.”

Read the report.