ICYMI: Experts sound off on FTC’s faulty case against Amazon
Since the FTC announced its antitrust lawsuit against Amazon, experts have criticized the validity of the case. Here’s what you need to know:
— Chair Khan and her FTC colleagues are abandoning the long-established Consumer Welfare Standard to mount a political campaign against one of the most trusted brands in America.
— Competition in retail is robust, with new entrants and innovation delivering options for customers every day.
— Amazon’s affordable prices benefit consumers.
— Sellers find success on Amazon in a myriad of different ways, thanks to the diverse set of tools and services Amazon offers to small and medium sized businesses.
Chair Khan and her FTC colleagues are abandoning the long-established Consumer Welfare Standard to mount a political campaign against one of the most trusted brands in America.
Some critics, including the first director of the FTC’s Bureau of Competition during the Reagan administration, Tom Campbell, believe Chair Khan and her colleagues are putting their political pursuits above the interests of consumers. “Khan’s professed goal is to expand the FTC beyond the precedent of protecting victims from fraud, monopolistic prices, and other direct consumer harms. Now her vision is focused on the FTC becoming a government agency set on restructuring American industry. It’s not about protecting consumers from harm, but about exerting control over anything that can be called big business.”
“The FTC’s antitrust case against Amazon will hurt consumers, small businesses,” writes Patrice Onuwuka of Independent Women’s Forum. “Regular people care about how government policies will impact them. Most simply, this FTC complaint and recommendations could lead to at least three outcomes:
— Breaking Amazon Prime – Amazon Prime is a popular and beloved service that is enjoyed by one of their most favorite benefits. A whopping 84.6% of users polled pointed to the free and fast delivery as the platform’s best feature. This lawsuit could force the end of the fulfillment service that makes it possible and break Amazon Prime.
— Higher prices – It could become more difficult to get a wide variety of affordable products.
— Chinese companies benefit while U.S. companies lose – Chinese companies like Temu and Shein compete by offering low prices on goods but at slower shipping rates. They don’t have the same regulatory rules that American companies do. If companies like Amazon can’t offer fast and free shipping (see point #1), they lose their competitive edge and their Chinese competitors win.”
“Khan believes regulators should disregard consumer welfare and sue businesses large and small whenever they wish and for any reason,” writes Grover Norquist, President of Americans for Tax Reform. “Khan’s appointment typifies the Biden approach to nominees – being committed to far-left economic ideology is far more important than being qualified for the job at hand. In a recent keynote, Khan said the government does not do enough to shape ‘economic outcomes’ and called for using antitrust to do so via government and legal ‘intervention.'”
“Although the lawsuit, which has little merit under existing antitrust statutes, is likely to be struck down by courts, it sends the wrong message to companies, investors, and entrepreneurs alike: that America is increasingly waging an ideological struggle against capitalism and technological innovation,” writes former U.S. Senator and Ambassador and Chair of the Competitiveness Coalition Scott Brown. By discouraging future acquisitions and tech investment, the Commission’s increasingly hostile approach risks weakening American innovation, while doing little to address legitimate consumer concerns like online fraud and scams.
Competition in retail is robust, with new entrants and innovation delivering options for customers every day.
Despite the FTC’s claims, competition is on the rise, including amongst Amazon’s competitors. “Walmart’s U.S. e-commerce revenue has averaged 39% annual growth over the last four years” and “Shopify has more than tripled its revenue over just the past three years,” according to reporting from the Wall Street Journal.
One flaw in their case is that the FTC too narrowly defines Amazon’s competitors as including only online superstores like Walmart and Target. In reality, purchases from Amazon account for “less than a third of total e-commerce sales in the U.S. over the last four quarters, according to the government’s latest retail sales data” and only 6% of all retail sales. “That’s no monopoly,” writes the Wall Street Journal Editorial Board.
The Commission is relying on pulling loose and scattered threads, with the hope their claims would stand up in a court of law. Experts are doubtful, including Joe Coniglio, director of antitrust and innovation policy at the Information Technology and Innovation Foundation. “That’s the difference between an academic discussion and the sort of theory that you can actually bring and convince a judge on.”
Retail marketplaces have seen a meteoric rise globally, meaning sellers have a multitude of places to find customers.
“Amazon’s policies are not only a common business practice in the retail industry, but they are procompetitive as they incentivize robust competition between sellers and provide consumers with low prices for attractive offerings,” writes competition advocates Project DisCo. “Amazon shows the most competitive prices to consumers, giving priority to the lowest price over overcharged products. This benefits consumers and is common practice in retail.”
The FTC’s case against Amazon is the culmination of Chair Khan’s long standing desire to break up the retailer, dating back to a 2017 academic paper she published. Since publishing the paper, Khan’s allegations have changed significantly. Despite earlier claims by FTC Chair Lina Khan that Amazon’s pricing strategy relies on “[slashing] prices so low that it lost money,” the FTC’s case against Amazon rests on the assertion the retailer is “hurting consumers with higher prices.”
Georgetown University economist John Mayo criticized Khan’s apparent flip-flop: “It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated…The earlier complaint was that prices were going to be too low and therefore anticompetitive. And now the theory is they are too high and they are anticompetitive.”
Sellers are not forced to use Amazon’s fulfillment centers for delivery, including for two-day shipping. “Many sellers have stuck with Amazon since its fulfillment fees are on average 70% less expensive than comparable two-day alternatives by other shippers such as FedEx and UPS,” writes the Wall Street Journal Editorial Board.
The rise of marketplaces and marketplace tools like those provided by Amazon allow small and medium sized businesses to customize their retail solutions. According to research by the Connected Commerce Council, 83% of SMB Sellers using Amazon’s Online Marketplace use five or more sales methods.
Sweet Water Decor and Naturally Nature said Amazon does not force sellers to advertise. If anything, Mr. Slamans said, advertising on Amazon has provided better results compared to other e-commerce platforms. “The value you get from running ads is exponentially more than other brands,” he said. “Seventy percent of our sales come from Amazon.”
The FTC’s lawsuit does not take into account the perspectives of third-party sellers on Amazon. Sellers themselves, like Evans Richards, owner of reVend, an online-only seller of collectibles and toys, say the FTC’s claims about fulfillment center requirements simply aren’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.”