Lina Khan's War On Consumers
On Amazon, economics, regulatory hubris, and (briefly) ducks.
For reasons possibly1 related to national security, high finance, clandestine intrigue, and Rob Manfred’s ongoing crusade to ruin Major League Baseball, The Thoughtful Spot takes an abridged form this week.
Recall the “news”letter that discussed the Department of Justice’s case against Google Search. It’s two primary lessons: To further bogus antitrust suits, regulators habitually misdefine markets and portray ordinary, competitive business practices as malicious.
The Federal Trade Commission’s (FTC) new suit against Amazon could hardly fit this mold better if Chair Lina Khan attempted affirmatively to validate every criticism that every free marketeer has ever leveled at her agency.
This author this week discussed the Amazon case at the American Institute for Economic Research:
The Federal Trade Commission (FTC) late last month filed suit against Amazon as an alleged monopolist (in two relevant markets) that uses putatively illegal business practices to fortify its market dominance. The agency targets as “unfair” Amazon’s policies that discourage sellers from offering lower prices elsewhere and that tie the benefits of Amazon Prime to the company’s in-house fulfillment service. The FTC’s suit is quite flimsy, and it will likely founder in court.
This case demonstrates the eagerness of Biden-appointed, neo-Brandeisian antitrust officials to persecute large companies, even when doing so requires endangering consumer welfare. Neo-Brandeisians — members of a regressive school of antitrust that seeks a return to debunked early 20th-century theories — harbor biases against big business per se, irrespective of economic benefits to consumers. And sure enough, should the FTC prevail against Amazon, Americans would likely suffer inflated prices and delayed delivery times.
Understanding Amazon’s place in the digital economy, and in the hearts of Americans, reveals fully the FTC’s malfeasance and how out of touch the agency is. Amazon has won its success as a marketplace and order fulfiller by offering innovative services that profit third-party sellers and provide consumers savings and convenience. For sellers, it offers a vast (and previously unreachable) customer base. Users may reliably assume that the products it lists and promotes are of good quality, competitively priced, and quickly deliverable.
Amazon is popular, and it benefits consumers:
JPMorgan Chase estimated a $139-a-year Prime membership’s worth at as much as $1,000. A 2023 poll reported that two thirds of voters use Amazon weekly, and almost a quarter use it daily. What’s more, 91 percent of platform users described themselves as “satisfied,” while 63 described themselves as “very satisfied.”
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[Amazon] boasts lower prices than any other online retailer, according to a 2022 analysis, undercutting competitors on average by 13 percent. It undercuts the two next largest online retailers (Walmart and Target) by 6 percent and 16 percent, respectively.
Market-definition shenanigans:
These definitions matter greatly in many antitrust suits wherein the government must prove that defendants qualify legally as monopolists.
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In the FTC’s reductively defined market of “online superstores,” Amazon could control more than 60 percent. “This alleged market is so narrowly drawn that it appears to include just Amazon, eBay, and the online stores offered by Walmart and Target,” writes the International Center for Law and Economics (ICLE) President Geoffrey Manne. However, Amazon likely accounts for less than 30 percent of domestic online retail and just 5 percent of domestic retail generally. Roughly 80 percent of global retail still occurs in physical stores. The FTC omits key retail competitors such as brick-and-mortar stores, online specialty retailers, product brands’ own websites, and the like.
The agency draws similarly myopic boundaries around the second market it alleges Amazon has monopolized, the so-called market for “online marketplace services purchased by sellers.”
Regarding market definitions, the FTC disregards the basic economic concept of substitutability (emphasis added).
Economically speaking, the proper question is neither whether a good or service looks like a duck nor whether it quacks like a duck, but whether consumers will put it to the same use as they would a duck. If, for example, the cost of dairy products rise, a person might switch his dessert choice from ice cream to baked goods or fruit. Although the FTC points to obvious structural and operational variations between Amazon and such companies as Costco or Shopify, its argument to omit them from consideration as Amazon’s relevant competition rests more heavily on aesthetic, than economic, factors.
Though not likely.