WASHINGTON (Legal Newsline) - Federal Trade Commission Chair Lina Khan, in a recent interview, acknowledged that even she buys baby diapers on Amazon.
“Once In a while if I need something, you know be it diapers, or wipes, or whatever, I use it,” she told New Yorker Editor David Remnick.
On the one hand, Khan’s buying habits support the central claim in the FTC’s antitrust suit against Amazon: The online giant has such economic power that it can prevent merchants who sell goods on its platform from offering lower prices anywhere else. Under that theory, Khan has no reason to shop anywhere but Amazon.
On the other hand, Khan’s diaper shopping could support Amazon’s defense that it has grown to control about 40% of the online market by offering customers an unbeatable combination of low prices and convenient home delivery, both for its own goods and those sold by third-party merchants.
“The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer,” the company said in response to the lawsuit by the FTC and 17 state attorneys general.
Amazon will get a shot at ending the FTC’s suit on Dec. 8, the deadline for filing its motion to dismiss the case pending in federal court in Seattle. In that filing, Amazon is likely to point to a Washington, D.C., judge’s decision dismissing similar claims by the District of Columbia in 2021.
After examining D.C.’s case, Judge Hiram Puig-Lago said D.C. had failed to identify any products that cost more because of Amazon’s supposed power to enforce pricing decisions across the entire Internet.
The district “simply repeated vague conclusion after vague conclusion devoid of facts to support the vague conclusions it repeatedly stated,” the judge wrote in a 2022 order refusing to reconsider his dismissal, over the objections of the U.S. government.
In its lawsuit filed in September, the FTC also fails to identify any specific products that cost more because of Amazon’s alleged anticompetitive practices. The complaint opens big, stating: “Amazon is a monopolist. It exploits its monopolies in ways that enrich Amazon but harm its customers: both the tens of millions of American households who regularly shop on Amazon’s online superstore and the hundreds of thousands of businesses who rely on Amazon to reach them.”
The FTC goes on to say Amazon charges third-party merchants excessive fees for shipping and advertising and those merchants pass the cost on to consumers, billions of dollars a year. The scheme wouldn’t work, of course, if consumers could simply buy products elsewhere – like Lina Khan shopping for diapers on another website.
To prevent that from happening, the FTC says, Amazon deploys tools like “Project Nessie” to identify lower prices on the Internet and match them, depriving third-party merchants of any advantage by trying to avoid Amazon’s fees by discounting elsewhere. Amazon allegedly keeps up this predatory scheme long enough to discipline third-party merchants, then raises prices with the confidence they won’t challenge it again.
The FTC claims Project Nessie helped Amazon earn $1 billion in additional profit between 2016 and 2018, even while it charged lower prices. Other than such round numbers, however, the complaint doesn’t identify any products that actually cost more because of Amazon’s alleged market manipulation.
Another tactic, the FTC says, is denying third-party merchants access to the “buy box” for instant purchases if they offer prices for the same goods elsewhere “even by a penny.” Amazon says this ensures its customers get the lowest prices available, but the FTC says it scares merchants into charging Amazon-level prices everywhere.
One big potential problem with the FTC’s case is that it defines the “relevant market,” a vital component of any antitrust case, as “online superstores.” By “online superstore,” FTC appears to mean Amazon, eBay and the online stores operated by Walmart and Target, although it doesn’t state that directly. Amazon enforces an illegal monopoly over that market with almost 80% share, the FTC says.
The effects of that monopoly appear to fall mostly outside the FTC’s relevant market, however. The FTC claims Amazon has the power to prevent the merchants who sell on its site from charging lower prices elsewhere, from Walmart and eBay to their own websites.
Combining the two markets doesn’t work in antitrust law, said George Priest, a prominent antitrust scholar at Yale Law School.
“Once you define the relevant market, it’s the effects within that relevant market that matter,” Priest said. Following that rule, the FTC would have to show that Walmart and eBay, hardly slouches in the retail business, allow the merchants they buy goods from to charge excess prices dictated by competitor Amazon.
Another big challenge for the FTC is proving a case under Section 2 of the Sherman Antitrust Act, which outlaws monopolization and restraint of trade. Regulators and plaintiffs rarely bring pure Section 2 cases, Priest said, and for good reason: It is much easier to prove violations of Section 1, which outlaws horizontal collusion between competitors. That just requires evidence competitors agreed to raise prices. To prove Section 2 violations, the FTC must prove Amazon has the ability to set prices when it has less than 40% share of the online market and around 8% of the $6.5 trillion total U.S. retail market.
By narrowing the relevant market to “online superstores,” Khan apparently hopes U.S. District John H. Chun, a Biden appointee, ignores that larger retail market. Amazon, hopes the opposite.
After all, Priest said, if Amazon’s prices were truly too high, “Lina Khan could always go to the local store and buy diapers.”