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Business News/ Economy / In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head
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In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head

wsj

The government’s antitrust lawsuit is a more streamlined complaint that leaves out some allegations from the FTC chair’s famous law-school paper.

Amazon says it helps its marketplace sellers offer competitive prices and that it won’t promote a bad deal to its customers. Premium
Amazon says it helps its marketplace sellers offer competitive prices and that it won’t promote a bad deal to its customers.

WASHINGTON—Lina Khan made her name in Washington by writing a withering legal broadside against Amazon that condemned the retailer for several forms of anticompetitive conduct. This week, she narrowed her sights.

Khan’s legal dissection of Amazon appeared in 2017, when she was still a Yale law student and Amazon was growing quickly and yielding thinner profit margins than today. Now chair of the Federal Trade Commission, Khan delivered her sequel on Tuesday, suing the world’s fifth-largest public company for abusing its monopoly in e-commerce.

The FTC’s lawsuit against Amazon offers a more streamlined complaint than either Khan’s essay or an earlier congressional report about big technology companies that she helped write. For starters, the central charge is turned on its head.

In her 2017 academic paper, Khan argued that Amazon sweet-talked customers by using predatory pricing, or slashed prices so low that it lost money but rivals couldn’t compete. Her paper acknowledged that predatory pricing was almost obsolete as a legal theory, the Supreme Court having set the bar so high that enforcers stopped trying to prove it.

Now the FTC accuses Amazon of hurting consumers with higher prices, mainly through punishing its marketplace sellers if they offer lower discounts anywhere else. It also says Amazon reaps the fruits of monopoly by requiring sellers to use its fulfillment service.

“It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated with the current complaint," said John Mayo, an economist who leads Georgetown University’s Center for Business and Public Policy. “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."

Speaking on Tuesday, Khan avoided talking about her past appraisals of Amazon. She said the FTC’s lawsuit breaks new ground in antitrust enforcement by tackling the unique aspects of online commerce, in which platforms such as Amazon sit between buyers and sellers, making money from both sides.

“This complaint really reflects the cutting edge and best thinking on how competition occurs in digital markets, and similarly the tactics that Amazon has used to suffocate rivals, deprive them of oxygen and really leave a stunted landscape in its wake," Khan said in an interview this week.

Amazon is a lot bigger than it was in 2017, when it had net sales of $178 billion; last year it reported $514 billion. Today it faces competition from sellers that weren’t major e-commerce rivals in 2017. Walmart’s share of online goods sales has grown in recent years like Amazon’s has, according to the FTC’s lawsuit. Shopping platforms Temu and Shein, which have Chinese roots, are grabbing market share from Amazon by offering lower-priced fashion and other goods.

The FTC’s complaint is a mix of old and new thinking on antitrust, said Matt Stoller, director of research at the American Economic Liberties Project, a progressive group that has supported Khan’s aggressive antitrust agenda. California earlier made similar claims about Amazon inflating prices, and a state court there this year declined Amazon’s request to dismiss the case.

While Khan wrote six years ago that Amazon built its monopoly using aggressive discounting, the company later switched to raising prices after it had market power, Stoller said. The most common theory of harm in antitrust involves alleging harm to consumers, typically through higher prices or reduced output or quality.

“A lot of people want to focus on Lina Khan…but this is bigger than one person," Stoller said. “This is a result of a lot of people rethinking basic assumptions" about antitrust.

Amazon on Tuesday called the FTC’s claims wildly off base and said they would force it to raise prices or offer worse service. Amazon helps its marketplace sellers offer competitive prices and won’t promote a bad deal to its customers, General Counsel David Zapolsky wrote on the company’s policy blog.

“The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer," Zapolsky wrote.

The lawsuit also alleges that Amazon’s advertising practices contributed to its violations. Khan’s 2017 paper didn’t address its advertising business, which was growing at the time but had less than a tenth of the revenue logged in 2022, according to Amazon’s securities filings.

Advertising is part of the FTC’s argument for why it says Amazon has provided worsening service to consumers. The company’s shopping results pages are now “cluttered with advertisements," making it harder to find the products they want, the FTC’s lawsuit said. The ads also create a pay-to-play system for sellers that must “pay for search placements through advertising," according to the complaint.

Amazon is likely to argue that its ads help shoppers find the products they want. “It’s not clear that Amazon has an incentive to degrade the quality of its website," Mayo said. “If it does so, consumers just get unhappy, and then they really do start to look for something else."

The FTC’s complaint doesn’t take aim at several practices Khan targeted in her essay. The lawsuit doesn’t really tackle, for instance, her earlier claim that Amazon used privileged data about its marketplace sellers to create copycat products that compete with them.

The Wall Street Journal reported in April 2020 that Amazon employees regularly accessed documents and data from independent third-party sellers to inform decisions about which private-brand products to launch. In one example, an Amazon employee used data from a bestselling car-trunk organizer sold by a third-party vendor and later introduced an Amazon Basics version of the product, the Journal reported.

Turning that claim into an antitrust violation is difficult under U.S. law, said Joe Coniglio, director of antitrust and innovation policy at the Information Technology and Innovation Foundation, a Washington think tank. The FTC would have to show that Amazon leveraged its dominance as a marketplace to secure or try to grab a monopoly in another area, he said.

“That’s the difference between an academic discussion and the sort of theory that you can actually bring and convince a judge on," said Coniglio, whose organization has accepted Amazon funding and wrote a report critical of Khan’s 2017 paper.

Leveraging still comes up in the FTC’s complaint. It underpins the claim that Amazon abuses its role as a marketplace to force sellers to use its fulfillment services, including its warehousing and delivery systems.

Since vendors are often competing to sell the same product, they need their products to qualify for Amazon’s Prime shopping category, which offers faster delivery. To get that pole position, they have to use Amazon’s own delivery service, “even though other fulfillment options could provide comparable or better service," the FTC’s court complaint says.

Khan wrote about Amazon’s logistics services in her 2017 paper, saying it shows how “Amazon had used its dominance in the retail sector to create and boost a new venture in the delivery sector, inserting itself into the business of its competitors."

Amazon has said that while it once required Prime sellers to use its fulfillment service to ensure their goods arrived on time, it no longer does.

Write to Dave Michaels at dave.michaels@wsj.com

In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head
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In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head

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