Why FTC’s case against Amazon is misunderstood
Disclaimer: The views expressed in this article are solely my own and do not reflect the views or positions of any organization with which I am affiliated, including my employer.
If you look at recent media coverage about DOJ v. Google, there is general consensus that the DOJ’s arguments are well-founded. Most articles rightfully point to Google’s distribution deals as the crux of the trial, and in last week’s analysis, we talked about how these onerous deals that Android device manufacturers had to sign might be the DOJ’s smoking gun. The coverage on FTC v. Amazon however has been mixed. If you read FTC’s press release and then Amazon’s rebuttal, I wouldn’t blame you if you sided with Amazon.
I have been skeptical of the FTC given their repeated missteps and back-to-back failures, and I was ready to write about how this is yet another misstep. Then I read the FTC’s 150-page complaint against Amazon. My takeaway was two-fold — 1) it’s a very well-framed case that is poorly understood, and 2) the FTC needs a better PR person. In this article, we’ll dive into:
FTC’s arguments against Amazon
Non-arguments that are being misunderstood as arguments
What lies ahead
FTC’s arguments against Amazon
I won’t harp on this since we’ve covered this a bunch before, but here’s a quick refresher on anti-trust / anti-monopoly laws in the US:
It is not illegal to be a monopoly; it is however, illegal to engage in anti-competitive tactics to maintain a monopoly position
For a monopoly to exist, a definition of “relevant market” is required and needs to be accepted by the courts
Interpretation of anti-trust laws in the US went through many phases in the past century. The most black-and-white version of it applies the consumer welfare standard (i.e. if a monopoly causes price increases / directly lowers consumer welfare, that’s an anti-trust violation). A broader interpretation of the law, which is required for tech products given they’re often free, looks at whether there is short or long-term harm created for consumers (eg. if a company killed all competition and if that results in price increases / stifled innovation in the long term, that could be considered an anti-trust violation)
With that context, let’s lay out the outline of FTC’s case against Amazon. The argument goes something like this:
Amazon is a monopoly in two relevant markets — the “online superstore market” and the “market for online marketplace services”
Amazon engaged in anti-discounting tactics that prohibited sellers from offering lower prices outside of Amazon. This, in turn, increased prices for consumers on and off Amazon.
Amazon used Prime’s popularity to force sellers into using Amazon’s fulfillment services. This, in turn, made it more difficult for sellers to use a single fulfillment provider across multiple marketplaces (“multi-homing”), and therefore made the market less competitive for rivals
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