Final month, the Federal Commerce Fee filed a serious grievance in federal district courtroom alleging that Amazon is an unlawful monopoly. The FTC could possibly win its case. However given the bounds of American antitrust legislation, that authorized victory would do little to curb Amazon’s financial energy.
To prevail, the FTC — which is joined by 17 states in its lawsuit — should present that Amazon’s enterprise practices unfairly hurt its rivals and clients. The company is difficult a number of of Amazon’s practices, however its strongest argument is that Amazon punishes retailers who provide decrease costs on every other on-line platform.
Whereas many purchasers are happy with the choices on Amazon, they might not be conscious that Amazon is creating an unfair market for the sellers they depend on, which might elevate costs and restrict their choices.
In truth, Amazon used to explicitly prohibit retailers from providing decrease costs elsewhere, a apply that might hurt rival platforms and drive up costs general. The corporate stopped after the apply attracted public consideration, however the FTC is alleging that it continues this prohibition by different means, similar to by stopping shoppers from accessing the “Add to Cart” and “Purchase Now” choices for price-cutting retailers and burying these retailers’ items on the backside of search outcomes.
In accordance with the FTC, most retailers can’t afford to surrender entry to Amazon’s community of shoppers simply to supply decrease costs elsewhere. The corporate’s practices due to this fact prohibit retailers’ skill to set their very own costs. If proved, the FTC’s case right here is powerful as a result of Amazon doesn’t seem to have a sound enterprise justification for controlling costs on rival platforms.
However it isn’t sufficient to point out that Amazon engaged in unfair techniques. The FTC should additionally present that Amazon is a monopoly, which suggests it has substantial energy to lift costs or restrict competitors. Individuals could surprise: If the colossal Amazon doesn’t have market energy, then who does? But this definition is usually a matter of authorized dispute.
The FTC alleges that Amazon has a greater than 70% share of the marketplace for on-line retail superstores, assembly the authorized threshold for monopoly energy. Amazon has substantial energy on this market as a result of it successfully makes use of methods it couldn’t pursue if shoppers and retailers might simply change to rival on-line sellers. The FTC additionally alleges that Amazon compromises the standard of shoppers’ searches, prices retailers excessively excessive charges and requires retailers to buy different providers with a purpose to entry Amazon Prime shoppers — all issues it might do as a result of it’s a superstore.
The financial actuality is that on-line platforms — similar to Amazon and EBay — serve consumers who need a platform with as many sellers as potential and vice versa, which creates a community impact. In consequence, platform markets are dominated by a number of tremendous gamers that compete for the largest community and are arduous to displace.
If a courtroom accepts this argument and agrees with the FTC that Amazon’s market is on-line superstores, then it would doubtless discover that the corporate has monopoly energy. However a courtroom might as a substitute conclude that buyers can fairly purchase from any vendor with a web site and, due to this fact, that Amazon’s market consists of all on-line retail. In that case, Amazon’s market share is near 40%. Or Amazon’s market may very well be outlined much more broadly as all client retail within the U.S., dropping its share of gross sales all the way down to round 11%. Both of those conclusions would finish the FTC’s case.
Suppose the FTC prevails towards these potentialities and wins. What is going to consequence?
An antitrust treatment have to be tailor-made to the defendant’s unlawful actions, and nothing on this case would immediate a courtroom to interrupt up Amazon. The ruling would as a substitute order Amazon to cease the unlawful conduct similar to discriminating towards retailers that supply decrease costs elsewhere or insisting that retailers purchase Amazon packaging providers to entry Prime clients.
These modifications might barely decrease costs for shoppers and retailers, and since Amazon’s annual gross sales are greater than $500 billion, even a small share of financial savings can be a significant quantity for shoppers as a complete. However Amazon nonetheless has too massive an internet footprint for competitor platforms to undercut its particular person costs considerably.
Non-public lawsuits may additionally observe an FTC victory, with shoppers and retailers claiming damages from Amazon’s unlawful practices. This might lead to Amazon paying out lots of of tens of millions of {dollars} to plaintiffs — however that’s not some huge cash to Amazon.
In different phrases, though an FTC victory could yield some beneficial properties to particular person shoppers, retailers and personal plaintiffs, Amazon’s dominance of the net retail market won’t change — and it’ll retain nice energy over the retailers who need to entry that market.
Greater than twenty years in the past, the Division of Justice received a slender antitrust victory over Microsoft, however that did little to vary Microsoft’s dominance over working methods for private computer systems. Equally, an FTC victory over Amazon wouldn’t weaken its grip on on-line retail. Whereas it could yield some financial victories, American antitrust legislation is a really restricted instrument to restructure the uneven taking part in subject of American enterprise.
Prasad Krishnamurthy is a professor of legislation on the UC Berkeley Faculty of Regulation.