Big Tech monopolies? Amazon suit broadens an antitrust revival.
A new antitrust suit against Amazon represents the Biden administration’s latest step to aggressively oppose what it sees as growing monopoly power in the United States, particularly in the technology sectors of the economy.
As a retailer, Amazon sells just about anything. It’s also a digital platform for other companies to sell their products. The government’s suit alleges that Amazon has used this dual role to suppress lower-priced competition on rival platforms.
Why We Wrote This
A story focused onAre consumers harmed by the dominance of tech companies like Amazon, Google, and Facebook? Their market power is stirring renewed antitrust activism, even if the charges against them may be difficult to prove.
The Federal Trade Commission has already charged social media giant Meta (the owner of Facebook) and search engine behemoth Alphabet (the owner of Google) for monopolistic practices. The FTC’s new action against Amazon, filed last week, may prove to be the commission’s toughest antitrust case yet. These moves reflect the administration’s determination to counter corporate power more aggressively than at any time in the past half-century.
The Amazon suit “is another important piece in a program ... to basically transform U.S. antitrust policy,” says William Kovacic, director of the Competition Law Center at George Washington University and a former FTC commissioner and chair. “They are seeking to restore a vision of antitrust law that prevailed from the early 1930s to the early ’70s.”
A new antitrust suit against Amazon represents the Biden administration’s latest step to aggressively oppose what it sees as growing monopoly power in the United States, particularly in the technology sectors of the economy.
The Federal Trade Commission has already charged social media giant Meta (owner of Facebook) and search engine behemoth Alphabet (owner of Google) for monopolistic practices. The FTC’s new action against Amazon, filed with 17 states last week, may prove to be the commission’s toughest antitrust case yet. These moves reflect the administration’s determination to counter corporate power more aggressively than at any time in the past half-century.
The Amazon suit “is another important piece in a program ... to basically transform U.S. antitrust policy,” says William Kovacic, director of the Competition Law Center at George Washington University and a former FTC commissioner and chair. “They are seeking to restore a vision of antitrust law that prevailed from the early 1930s to the early ’70s.”
Why We Wrote This
A story focused onAre consumers harmed by the dominance of tech companies like Amazon, Google, and Facebook? Their market power is stirring renewed antitrust activism, even if the charges against them may be difficult to prove.
Amazon represents a huge challenge for the agency, not only because of its size but also because of the sprawling nature of its business. As a retailer, it sells just about anything. It’s also a digital platform for other companies to sell their products.
The government’s suit alleges that Amazon has used this dual role to suppress lower-priced competition on rival platforms.
“The focus is on the effect on consumers and effect on price: raising price, preventing discounting, interfering with consumer choice,” says Harry First, a New York University law professor and close observer of the FTC. “It’s not: You made it hard for small firms to compete on the Amazon marketplace. ... It’s not a complaint that you’ve suppressed wages in the Amazon warehouse. ... But it does try to wrap its arms around all of what Amazon does and then focuses on some specific aspects of its conduct.”
Specifically, the suit alleges that the company keeps its online sellers from offering lower prices elsewhere. Sellers used to have to formally promise not to do so until Amazon dropped that language from its contracts a few years ago. The FTC argues the company now enforces the same policy indirectly by, for example, burying sellers in its search results if they offer better prices on other platforms.
The commission also accuses Amazon of forcing sellers to use its warehousing and shipping services if they list their goods under Amazon Prime, the company’s free shipping program that has 200 million subscribers worldwide.
“The complaint tells an impressive story,” says Mr. Kovacic, the former FTC chair. “The important footnote to that is that Amazon is not going to take this lying down. We know that they will contest bitterly [the argument] that their behavior was bad for the economy.”
Many antitrust experts say it will be an uphill battle for the government because Amazon has bigger legal resources to fight back.
“It’s a bit of a scary thing to head to court and to be prepared to litigate against a well-funded target,” says Stephen Calkins, a law professor at Wayne State University and former general counsel for the FTC. “If the FTC loses, it will be a massive use of resources.”
On the same day that the FTC filed its 172-page complaint against Amazon, the company issued a rebuttal. The government has it backward, it argues. By letting other retailers sell on its site, it’s enhancing competition, allowing customers to compare prices and products, general counsel David Zapolsky wrote. In June, the company said it was reactivating a program that would allow sellers to list under Prime shipping but handle deliveries themselves.
The suit threatens a vital part of Amazon’s business. While the company’s online sales have been growing slowly, revenues from its services to these third-party sellers grew at an annual rate of 18%, the company reported in August. That segment is Amazon’s second-biggest business after online sales.
The government’s lawsuit is well within the modern antitrust law, which since the 1970s has emphasized harm to consumers rather than how much of a particular industry is concentrated in the hands of a single company. This has led to criticism by some that FTC enforcement has become lax. But under President Joe Biden, the commission has signaled that it’s going to scrutinize mergers more rigorously for potential monopoly abuses – a throwback to the agency’s pre-1970s era, antitrust experts say.
Whether Amazon represents a monopoly depends on how one counts. In U.S. online sales, it had a 38% share last year, by one estimate, while Walmart was a distant second with 6%. But in overall retail sales, it still plays second fiddle to Walmart, although it could overtake the traditional retailer next year and grab 15% of the market by 2026, according to Ascential Digital Commerce.
To Amazon, this proves the online giant is not a monopoly. “Consumers today still buy over 80% of all retail products in physical stores,” points out Mr. Zapolsky, the company’s general counsel. “Amazon may not be the small business it once was, but we’re still just a piece of a massive and robust retail market with numerous options for consumers and sellers.”
The digital nature of large tech companies, such as Amazon, Meta, and Google, doesn’t make current law obsolete in prosecuting them, antitrust experts say. (The FTC has accused Meta of reducing competition through acquisition of one-time rivals Instagram and WhatsApp, and Google of using exclusionary practices to maintain its dominance in internet search.)
But new solutions may be needed if courts find the companies guilty.
“The digital ecosystems (Amazon, Google, Meta, etc.) have very unique economic features,” Diana Moss, director of competition policy at the Progressive Policy Institute, writes in an email. They enjoy lower costs than their smaller competitors because of the vast amounts of analyzable data and computing power they amass. And the more users they attract, the more valuable these advantages become. “These features mean that more than one policy tool may be needed to promote competition.”
One possible solution, she says, could be a digital sector regulator to set the rules and boundaries.
