By Ebbie Yazdani, Federal Policy Director, TechNet

The Federal Trade Commission (FTC) filed its antitrust lawsuit targeting the practices that have made Amazon one of the most trusted brands in the country.  This lawsuit is the culmination of FTC Chair Lina Khan’s belief that the internet economy, and the value it has provided for the American people, runs counter to our nation’s antitrust laws.  While long-standing case law demonstrates the low likelihood of Chair Khan’s lawsuit being successful, innovators, startups, and entrepreneurs all across the country will be left wondering whether their efforts to provide value to customers, create jobs, and grow their businesses are worth the risk of costly and prolonged litigation.

Between 1890 and 1914, Congress enacted several antitrust laws to promote competition in markets for the benefit of consumers.  These laws include the Sherman Act of 1890, the Federal Trade Commission Act of 1914, and the Clayton Act of 1914.  While the goal of America’s antitrust laws is to protect competition, courts rightfully evaluate a particular business practice’s effects on consumers, commonly known as the “consumer welfare standard.”  This means that the goal of antitrust law is not to protect competitors’ profit margins and pricing power, but rather to prevent exclusionary actions that harm consumers, such as fixing pricing through agreements by competitors in the same sector.  The consumer welfare standard’s adoption has demonstrably led to a reduction in real prices, greater production and investment in research and development, increased innovation, and more entrepreneurial activity.  Chair Khan disagrees that the consumer welfare standard is the proper way to assess harm to competition.

Chair Khan’s 2017 Yale Law Journal article titled “Amazon’s Antitrust Paradox” serves as a concerning roadmap for her view of competitive markets.  Throughout Khan’s article, she critiques Amazon’s pro-consumer practices when in fact, they are practices common not only in e-commerce but in brick-and-mortar retail as well.

Take, for instance, Amazon’s Prime membership.  Prime customers are able to get a variety of benefits, including free shipping, grocery delivery, and access to TV shows, movies, and music.  Amazon Prime bears many similarities to the Membership-only warehouse club retail business model employed by Costco and others.  Members of Costco are eligible for home delivery, low gas prices, the ability to fill new prescriptions or get a refill either in-store or for delivery, and access to discounts on vacation packages.  Khan devotes a significant amount of time to alleging Amazon Prime is a form of predatory pricing.  Not surprisingly, there is zero mention of Costco’s business model in Khan’s article.

Another Amazon service targeted by Chair Khan is Fulfillment-by-Amazon (FBA), which provides logistics and delivery for independent sellers.  According to Khan, not only is Amazon violating America’s antitrust laws by lowering prices and providing more value to their retail customers, but it is also violating antitrust laws by lowering barriers to entry for independent retailers.

Khan’s central thesis is that each of these services, which are commonplace across retail, are inherently “anti-competitive” because customers are choosing to shop at Amazon, among a variety of retailers, and independent retailers are choosing, among a variety of logistics providers, to also sell their products on Amazon’s marketplace and utilize FBA.  According to Khan, these customers’ preferences for lower prices and better service, in turn, are evidence of antitrust violations because they undermine the “structure” of the marketplace and force other retailers and logistics providers to offer lower prices and better customer service.  Meanwhile, Costco has increased its shareholder dividends for 19 consecutive years, and UPS has increased its shareholder dividends for 14 consecutive years.  Wal-Mart and Target have increased shareholder dividends for 50 consecutive years and 56 consecutive years, respectively.  Amazon, notably, does not pay a dividend to shareholders and chooses to reinvest that money in their business to lower prices and provide an improved customer experience.

Yet, Khan’s arguments leave more questions than answers, including one question in particular: Should America’s economy remain stagnant, fixed in rigid market shares for existing companies, and discourage innovation that is at the heart of America’s economy?

Chair Khan takes this analysis a step further and alleges that antitrust laws’ focus on the consumer welfare standard is ill-equipped to address competition in the “internet economy.”  In her view, the economy is a zero-sum game where the “internet economy” is successful at the expense of other sectors of the economy.

On the contrary, the Internet economy provides a wide range of benefits for all sectors of the economy, businesses of all sizes, and most importantly, consumers.  As early as 2011, studies identified the Internet economy as a tremendous tailwind for small and medium-sized businesses.  In 2022, 93 percent of small business owners reported using at least one type of technology platform to help run their business, with the average owner utilizing three different platforms.

Unfortunately, these benefits go unnoticed in Khan’s interpretation of America’s antitrust framework.  As the FTC seeks to fundamentally transform America’s antitrust laws, they should be wary of an enforcement action that not only misinterprets these laws but would also undermine the spirit of customer-focused entrepreneurship that is at the heart of America’s economy and our leadership in innovation.