Notice & Comment

FTC v. Amazon Should Be Khan v. Khan, by Richard J. Pierce, Jr.

Lina Khan became famous by writing a student note titled “Amazon’s Antitrust Paradox.”[1] She told a fascinating story about the evil practices of Amazon. She has now increased her fame by filing an antitrust action against Amazon in her role as Chair of the FTC. The FTC’s complaint tells another interesting story about the evil practices of Amazon.[2]

Khan’s actions create another paradox, however. The stories she tells are direct opposites. In her note, she argued that Amazon is evil because it harms competitors by charging prices that are too low. She criticized the Supreme Court for making it too difficult to prevail in an antitrust action based on predatory pricing and for adopting and applying the consumer welfare standard.

The FTC’s complaint relies on the consumer welfare standard that Khan has consistently criticized. The FTC argues that Amazon is harming consumers by charging prices that are too high and discouraging other firms from lowering the prices that they charge. The two stories that Khan tells are polar opposites. They are consistent in only one respect. They demonstrate consistent animosity towards Amazon.

This paradox is easy to explain. Once Khan became Chair of the FTC, she began to test her theory in court. Her theory has failed the test. She has experienced a string of defeats. It has become apparent that the courts will reject her effort to turn her idiosyncratic theory into law.

She responded by abandoning her theory and attacking Amazon based on a theory that courts have long accepted. She apparently was not troubled by the inconsistency of that theory with her theory. She now has a different problem, however. 

Khan’s original story about the evil practices of Amazon was easy to support with evidence. Amazon harms competitors by charging low prices that enhance consumer welfare. Her new theory that Amazon is evil because it reduces consumer welfare by charging prices that are too high and forcing other firms to charge high prices has no relationship to reality.

Most of the allegations in the complaint are based on theories of liability that courts have long accepted, but they cannot be supported with evidence. As a starting point, the FTC must prove that Amazon has a monopoly in a relevant market. Amazon has only 6% of the retail goods market and 38% of the online retail market. Neither of those come close to the 60% that courts consider the minimum market share required to establish a monopoly. 

The FTC tries to overcome that problem by alleging that Amazon has monopoly power in the “online superstore” market. It does not tell us what share Amazon has of that artificially narrow market but presumably it exceeds the 60% threshold. FTC argues that brick and mortar retailers and online retailers with more narrow product lines are not effective competitors. It will not be able to support that claim with evidence (I say that as I compare the prices of bird seed on Amazon and Chewy and at several local stores.)   

Amazon has been losing market share to both other online marketers and to bricks and mortar competitors. It overexpanded to meet the surge in demand for online products caused by the pandemic. It now must retrench to return to profitability with a smaller share of the market.    

Even if the FTC could prove that Amazon has a monopoly in a relevant market, it must then prove that its practices produce consumer harm.  It claims that Amazon forces the firms that sell on its platform to charge high prices by prohibiting them from selling at a lower price on a competing platform. To prove that Amazon’s practice harms consumers it must answer the question of why a firm would want to charge a lower price on a different platform and why it would not just cease selling on Amazon’s platform if it wants to sell at a lower price on a different platform. FTC’s answer is the firm’s desire to obtain the superior delivery services that Amazon offers. Amazon charges about 70% of what FEDEX or UPS charge but charging a lower price for a superior service benefits consumers.

It will be interesting to see how the trial in Khan v. Khan progresses. I predict that Khan will add to her long string of defeats.

Richard J. Pierce, Jr. is the Lyle T. Alverson Professor of Law at the George Washington University Law School.

[1] 126 Yale L. J. 710 (2017). 

[2] Complaint, FTC v. Amazon, W.D. Washington Case No. 2:23-cv-01495 (9/26/23). 

Print Friendly, PDF & Email