FTC vs. Amazon: The Beginning of the End for the Neo-Brandeisians?
The Federal Trade Commission (FTC) has now brought its long-anticipated antitrust lawsuit against Amazon. As some have noted, the complaint omits many of the theories in Chair Khan’s “Amazon’s Antitrust Paradox”, alleging that Amazon has unlawfully maintained monopolies in its general e-commerce business and its third-party Marketplace specifically through certain fulfillment and pricing practices. The complaint also declares that Amazon’s course of conduct both as a whole and through a distinct algorithm known as Project Nessie constitutes unfair methods of competition. While many have observed how the FTC has focused on behavior that fits within the existing consumer welfare framework, its complaint has a number of difficulties that appear likely to not just doom its case, but perhaps also the prospects of the broader neo-Brandeisian antitrust reform movement.
The FTC’s monopolization claim against Amazon’s overall e-commerce business depends upon Amazon having monopoly power in what the FTC defines as the “online superstore market.” Unfortunately for the FTC, that market is unlikely to hold up. As Amazon has already stated, the offline market accounts for over 80 percent of all retail sales, and Amazon is not only approximately half the size of Walmart but one of many large retailers with extensive product overlaps. What is more, the notion of an “online superstore” submarket seems fanciful, as superstores probably do not have pricing power in e-commerce given that consumers can go directly to the website of a smaller retailer (e.g., Staples) that has the product (e.g., a pen) they want—a fact consistent with the FTC’s own concerns about the broad scope of Amazon’s so-called pricing “surveillance.”
Assessing Amazon’s power in the “online marketplace services” market may be less encumbered by these sorts of definitional issues. However, even if this market is well defined, the FTC will still have to show that Amazon has durable monopoly power in it. Indeed, although the FTC contends that Amazon’s share has been between 66 and 71 percent, these figures are on the threshold of what it will likely need to presume monopoly power based on market share. And, without this presumption, the FTC may run into trouble not only because of the alternative marketplaces offered by other players with large consumer bases like Walmart, eBay, and Alphabet, but what the complaint admits are sellers’ preferences for multihoming, which can mitigate network barriers to entry.
The FTC’s accusation that Amazon maintained monopoly power in these markets by conditioning sellers’ Prime eligibility on their use of its “fulfillment by Amazon” service (FBA) looks to be yet another paradox. A tying or bundling claim involves consumers purchasing one product where a seller has market power being coerced to buy a second separate product. As such, a problem with the FTC’s theory is that even if Prime eligibility requires FBA, which requires selling on Marketplace, FBA is designed to entail Prime eligibility, which suggests they are not in fact separate products. Moreover, Amazon does not appear to have market power in Prime/FBA that it could leverage to buttress Marketplace—undermining another factual predicate of its claim.
The allegation that Amazon’s purported “anti-discounting” practices foreclose rivals and harm competition is currently the subject of a private class action against Amazon in the same judicial district where the FTC filed its complaint. And the suit is instructive: earlier this year, the court found that although the claim could survive a motion to dismiss, these types of practices have never been deemed unlawful under the Sherman Act. This does not bode well for the FTC. Additionally, Amazon has strong procompetitive justifications for its behavior: it monitors pricing and designs its Buy Box to offer the lowest prices it can, which is of course a common practice of price matching that is widespread across retail, and which almost invariably benefits the consumer.
The FTC’s decision to proclaim that Amazon’s fulfillment and pricing practices are an unfair method of competition is a transparent attempt to take antitrust enforcement beyond its modern guardrails. It is also likely futile. First, it’s not at all obvious that courts will accept that Amazon’s practices are an unfair method of competition if they do not violate the Sherman Act. Second, the FTC has historically almost always lost in court when bringing standalone unfair methods of competition claims even when its authority to do so has been recognized. Furthermore, and contrary to the FTC’s allegations, Amazon clearly will be able to point to procompetitive justifications for not just its pricing practices, but also conditioning Prime eligibility on the use of FBA, which helps ensure its best customers have top fulfillment and delivery service.
The FTC’s final allegation that Amazon’s Project Nessie, which seems to be some kind of pricing algorithm, constitutes an unfair method of competition is difficult to assess given the extent of redactions in this section of the FTC’s complaint. Nevertheless, in view of the hurdles with standalone unfair methods of competition claims generally, it must again be presumed that the FTC will not prevail—especially if it turns out that this is just more price monitoring by Amazon that isn’t harmful to competition. And, as concerns remedy, the FTC’s request for structural relief seems at best foolhardy, as only its highly tenuous “tying” claim appears to involve any kind of leveraging, and which has already been addressed in Europe through behavioral remedies.
While it has been suggested that the FTC’s agenda to bring bold actions amidst continued losses in cases like Meta/Within and Microsoft/Activision is consistent with a push to drive support for new antitrust legislation, in FTC v. Amazon Chair Khan is probably out to win. And with good reason: since her law review article, Amazon has been the poster child of the neo-Brandeisian crusade, whose future is now likely intertwined with a judicial ruling many years away. As such, FTC v. Amazon may determine not just the legacy of Chair Khan, but the fate of the broader neo-Brandeisian antitrust reform movement. Unfortunately for both, the apparent deficiencies in the FTC’s complaint suggest that their best days may already be behind them.