Antitrust Reform Builds on Its Momentum

On September 26, 2023, the Federal Trade Commission (FTC) and 17 states, including New York and New Jersey, filed an antitrust lawsuit against e-commerce giant, Amazon. This suit is one of many which mark a significant turning point for the antitrust reform movement; but for Chairperson Lina Khan, the lawsuit against Amazon is a full circle moment. The now-leader of the FTC gained prominence as a law student at Yale Law School in 2017 when her note was published in the Yale Law Journal. Her writing discussed a new way of thinking about antitrust law in the era of big tech companies. It even criticized past administrations for what Khan believed was reluctance to sue due to a fear of devastating court losses. The title of Khan’s 2017 article? Amazon’s Antitrust Paradox. 

Although antitrust law has sent shivers down the spines of law students for decades, this piece will break down the latest lawsuit against Amazon and discuss how Lina Khan and the antitrust reform movement have shifted the focus of antitrust enforcement in the wake of the Information Age.

What is going on in the case against Amazon?

The complaint filed by the FTC alleges that Amazon engaged in anti-competitive behavior on its online platform that stifles competition. ​​One of the key allegations is that Amazon uses its dominant position in the e-commerce market to favor its own products over those of third-party sellers. The complaint further claims that Amazon prioritizes its private-label products, giving them preferential placement and promoting them over competing products from independent sellers. This lawsuit is the result of growing concerns about the significant control that Amazon exercises over third-party sellers who utilize their platform. Amazon reportedly limits the third-party seller’s ability to set prices independently and subjects them to unfavorable terms and conditions.

It is important to note that antitrust litigation takes time, so the outcome of this case is likely years down the road. Nevertheless, the result will have a resounding impact on the digital marketplace as a whole. Similarly notable is what this case demonstrates about the larger message that is being sent by the FTC under the leadership of Chairperson Lina Khan. 

Khan has shifted the FTC’s focus to regulating large tech companies, such as Google and Amazon, to ensure a level playing field for all market participants. For many antitrust experts, Khan’s willingness to go head to head with some of the world’s largest companies has helped spark a global debate about the power of technology companies and the role governments play in regulating them.

What is antitrust law?

Now here comes the fun part! One of the most fundamental capitalist principles is that “free and open markets are the foundation of a vibrant economy.” In 1914, the FTC was formed to help protect the public from deceptive and unfair business practices and encourage fair competition in the marketplace. After beginning operations in 1915, the FTC has used advocacy, education, and research, antitrust law (the Clayton Act, the Federal Trade Commission Act, and others) as tools to carry out its mission. Antitrust lawsuits are cases brought by the government to address illegal and/or anticompetitive practices. 

How has antitrust enforcement traditionally been approached and how has it changed?

Before Khan, antitrust enforcement maintained a conservative approach. “The courts weren't applying the literal language of the antitrust statutes,” says Bill Baher, visiting Fellow at the Brookings Institute and former Head of Antitrust Enforcement at the Justice Department and the FTC. “They were imposing on the government a very high standard of proof to challenge monopolies, to challenge mergers that increase concentrations.” According to Khan’s writing, this kind of approach, “fails to capture the architecture of market power in the twenty-first century marketplace.” Khan argues that “gauging real competition in the twenty-first century marketplace - especially in the case of online platforms - requires analyzing the underlying structure and dynamics of markets. Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive process itself.” 

Under the Biden Administration, the FTC has shifted to the same type of liberal interpretation of the law that Khan championed in her law school note. Despite Khan’s limited success in cases so far against large companies, she has shown a willingness to take on the challenge.

Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition. By this measure, Amazon has excelled; it has evaded government scrutiny in part through fervently de-voting its business strategy and rhetoric to reducing prices for consumers.

Lina Khan, 2017.

What does this new approach to antitrust law have to do with me or my business?

Khan argues that under traditional antitrust enforcement, the consideration of “consumer welfare” has failed to adequately account for the true price consumers are paying in the Internet Age. Rather than looking at price as the primary measure of consumer harm, other non-price effects like “product variety, reduced service, [and] diminished innovation” should be afforded greater weight. The old approach to enforcement made economic factors that are more simple to measure “disproportionately important.” In reality, consumers are still suffering, but the harms have taken a different shape. The true price, Khan claims, comes in the form of your personal data, which companies gather from their customers and sell for profit. You pay the cost with your information in a way that traditional measures do not adequately embody.

Under the current structure, only mergers that exceed a particular dollar amount are subject to scrutiny of their terms. However, this monetary threshold does not account for the volume of (money making) data at stake. Determining the true value of a transaction using just its monetary value only affords us a fraction of insight into  the level of market dominance that a company may have. Acquiring and profiting from data has deep implications for competition. In the context of Amazon and other vertically integrated platforms, insights in the form of data that the company obtains in one sector are used to “undermine rivals in another.” The resulting vertical integration may give rise to anticompetitive conflicts of interest.

What are the possible outcomes of this case?

Although we may not know the results of Amazon’s case for a few years, what is certain is the impact that Lina Khan and the antitrust reform movement will have on the future of e-commerce. If you are a small business owner, entrepreneur, or even a consumer, you are no doubt impacted in some way by the $16.6 trillion global e-commerce market.  

In the event the FTC is successful, it would provide a much needed boost to the government’s efforts to wrangle in big tech. Amazon could be subject to penalties as serious as being forced to divide into smaller companies for each of its separate lines of business. The result could mean lower prices, and more opportunity for third-party sellers can give consumers a better experience. On the other hand, retailers and small businesses that rely on Amazon for sales might see a change in the volume and quantity of sales if the marketplace were broken up.  At the same time, courts accepting a more liberal approach to antitrust enforcement could signal a big shift in the way we think about the data that companies collect. If Amazon comes out on top, big tech companies all over the country will be emboldened to continue their pursuits of dominance in their industries, and Khan’s antitrust reform movement could be set back yet again.