ICYMI: FTC Chair Lina Khan struggles to answer tough questions on the agency’s case against Amazon
Chair Lina Khan sat down with Bloomberg’s Washington Bureau Chief Peggy Collins yesterday, hours after the FTC announced it was bringing an antitrust suit against one of the nation’s most admired companies. She appeared on CNBC’s Squawk Box this morning to discuss the case again.
In the interviews, Khan struggled to provide a clear answer on what remedies and structural changes the FTC would like to see if they win the case.
The lack of clarity begs the question of how can this case be good for innovation and consumers if the FTC cannot articulate what changes Amazon should be making.
Here are a few of the FTC’s claims vs. the facts of the case:
Claim: The FTC claims Amazon uses a set of anti-discounting tactics to prevent sellers from lowering prices. The FTC alleges this raises prices for customers on Amazon.
Fact: Amazon’s own pricing policy is designed to induce competitive prices. Amazon states publicly on its price policy page that prohibited pricing practices include setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon.
What’s more, digitalization generally and ecommerce in particular have exerted downward pressure on prices. Alleging higher prices doesn’t make them material, and the FTC fails to provide evidence for the supposed price pressure customers are facing on Amazon.
Amazon’s fulfillment services
Claim: Amazon requires sellers to use its fulfillment services (Fulfilled By Amazon, known as FBA), stunting the development of independent fulfillment providers and limiting actual and potential rivals of scale.
Fact: Sellers themselves, like Evans Richards, owner of reVend, an online-only seller of collectibles and toys, say this simply isn’t true. Richards writes, “I think the FTC is going to have a tough time proving these allegations, as myself and many other large Amazon sellers who choose not to utilize FBA will happily dispute them.”
The FTC tips its hand about what its complaint against Amazon’s fulfillment services might really be about—much like its concerns over retail rivals, large logistics providers are also poised to benefit from the agency’s inventive ideas about markets: The FTC also gives a nod to wanting to help America’s largest logistics companies—FedEx and UPS—achieve more “scale.” It notes that Amazon incentivizing sellers to use its own logistics service to deliver Prime offers in two days nationwide deprives other logistics companies of a “source of scale that is necessary to develop efficient fulfillment networks” (see FTC complaint para 366).
Competition with competitors
Claim: Amazon limits potential competitors from the ability to gain the scale to compete effectively online.
Fact: Antitrust is about protecting competition, not competitors. As Matt Schruers at CCIA points out: “The FTC identifies just three other companies as ‘online superstores:’ including Walmart, the biggest retailer in the US by revenue, and Target, the sixth biggest retailer by revenue, (see FTC complaint para 170 and 171). These firms are, the Complaint would have readers believe, ‘distinct from, and not reasonably interchangeable with, brick-and-mortar stores’ (see FTC Complaint para. 140).”
— He continues: “Given that the FTC defines Amazon’s rivals as “superstores” that have enormous scale, even if its case were to help prospective rivals, those rivals would need to necessarily be the next biggest retailers in order to compete in the ‘market’ that the FTC has chosen. Query whether Costco, Kroger, Home Depot, Lowes, CVS, or Walgreens—all retailers with over $100 billion in revenue—need the FTC’s help to achieve the ‘scale’ necessary to rival online superstores.”
Forcing Amazon to break up its products and services to the benefits of big retailers, like Walmart and Target, not only limits the competition between companies but would result in consumers paying more.
Seller Fulfilled Prime (SFP) program:
Claim: Independent sellers have always been able to satisfy the Prime two-day shipping guarantee, regardless of fulfillment method.
Fact: Amazon has innovated relentlessly to improve offerings to sellers, including expanding options for fulfilling orders that qualify for the Prime two-day shipping guarantee. One such innovation was Seller Fulfilled Prime, which allows sellers to purchase their own fulfillment services rather than using the network built by Amazon. Over 86% of the time, however, SFP orders failed to meet the Prime Two-Day delivery promise, forcing Amazon to iterate on how the program works. Most recently, Amazon announced it would reopen the program with enhanced support for sellers to satisfy the high-quality expectations of Prime customers. For more on the FTC’s case against Amazon, see here for a one-pager of core problems with the case and here for a primer on how the case harms consumers and small businesses.