“If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade.”

—Senator John Sherman (R-OH), 1890

On Tuesday, October 13, I got up at 3:00 a.m. to watch the start of Prime Day, Amazon’s self-invented annual sales “holiday.” The kickoff arrived with a livestream of celebrities, festivities, and promotions, a tribute to American consumerism. Amazon created the sales holiday in 2015 to boost sales during the summer months. In 2019 alone, Amazon sold 175 million items and generated over $2 billion in revenue for third-party sellers, more than its combined sales on Black Friday and Cyber Monday. In 2020, after rescheduling the holiday due to the pandemic, Amazon announced that Prime Day would now be two days of steep discounts on Amazon’s goods—for Prime members only. Of course, when almost half of Americans are prime members, that leaves plenty of customers.

Amazon’s ability to create a holiday to boost its own sales is a testament to its staggering power and presence in the market. During July congressional hearings that brought Amazon alongside Google, Apple, and Facebook CEOs to testify, Representative David Cicilline (D-RI), Chair of the House Subcommittee on Antitrust Law, noted that Amazon captures 43 percent of the E-commerce market (including 89 percent of E-books and 84 percent of E-readers). Its nearest competitor, eBay, captures six percent. Aside from its own retail platform at Amazon.com, the company produces movies, publishes books, manufactures household goods, and acts as a platform for other retailers. It also controls 33 percent of the U.S. web services market, providing cloud storage and other functionality to over a million organizations including T-Mobile, Netflix, NASA, ICE, the 17 U.S. intelligence agencies, and various parts of over 40 states’ election systems.

Despite its size, Amazon has continued to grow at rapid speed. From 2016-2018, it built more warehouse space than it had in the rest of its history cumulatively. By 2019, it topped 288 million square feet of physical presence. In 2020 alone, while the S&P 500 has grown 3.33 percent, Amazon’s stock has surged 69.7 percent. It is even making headway in new markets, such as Italy, where sales have increased 26 percent since January 1.

One great question arises from these various statistics about the incredible size and growth of Amazon: are they bad? It is not difficult to look at the success of Amazon and compliment the company for delivering products and services in high demand at cheap prices to around half of America’s households. Yet to secure its dominance, Amazon has also employed its massive size and breadth in a variety of unsavory, anticompetitive business practices. Until around 40 years ago, those practices would likely have been illegal, but a new paradigm in the oft-neglected field of antitrust law has created opportunities for big businesses to wield their power with few checks. While the shift in antitrust law was driven by economic rationale, we must recover the econo-legal, political foundations of the field to address the unique threats that Amazon and its fellow titans pose to our country and world.

American antitrust law was born at the end of the First Gilded Age. The combination of the robber barons of the railroad industry and titanic companies like U.S. Steel and Standard Oil prompted Congress to protect the free market and limit the power of the giants that ruled the day. Over the course of 25 years, Congress passed three laws (the Sherman Act of 1890, the Clayton Act of 1914, and the FTC Act of 1914) that offered guidelines for how companies could and could not compete fairly.

From their inception, the laws were the purview of the court. The FTC Act established the Federal Trade Commission (FTC), the body responsible for bringing lawsuits against companies that violated antitrust law, but the FTC largely relies on the courts to support its decisions—either because it sues companies or companies sue it. This grounding in the court has allowed antitrust enforcement to change drastically over the years with essentially no legislative direction.

The first paradigm of antitrust law enforcement in the court was economic structuralism. As described by Lina Khan in “Amazon’s Antitrust Paradox,” economic structuralists argue that antitrust enforcers must understand how a company fits into its market(s) and the types of business strategies that market structure incentivizes and permits. Structuralists worry about unfair competition, particularly as a result of size.

Amazon embodies the danger that structuralists saw in big companies. The company wields its market power to crush competitors without providing better services. Two of its tactics stand out: predatory pricing and vertical/cross-industry favoritism. Predatory pricing is selling a product for lower than production costs in order to drive competitors out of the market on the bet that one company (the larger one) can sustain losses for longer than the others (the smaller). 

A textbook example is the case of Quidsi. In 2008, Quidsi was an up-and-coming business selling home products, among them, diapers. Amazon, looking to expand its presence in the market, approached Quidsi to acquire them, but the company refused. In 2009, Amazon subsequently dropped diaper prices on its website by 30 percent and unveiled a new “Amazon Mom” program to offer Prime at steep discounts to mothers. Representative Mary Gay Scanlon (D-PA) noted that Amazon was willing to lose an estimated $200 million in a single month as a result of its price cuts. Sure enough, by the end of the year, Quidsi sold its business to Amazon. Soon after, diaper prices rose, and Amazon Mom faded. Amazon won its battle with Quidsi not because it was better but because it was bigger, and it could lose more money, faster. In the long run, it did not offer higher quality or cheaper goods or services. Economic structuralists labeled this behavior predatory and for many years penalized companies that did the same (some examples are Standard Oil and American Tobacco).

While predatory pricing is an anticompetitive business tactic Amazon uses, vertical/cross-industry favoritism underlies its entire organization. Put briefly, within each of the many industries in our market, there are firms that compete with each other “horizontally” (manufacturer v. manufacturer, seller v. seller), and firms that interact along the supply chain “vertically” (manufacturer to seller). Horizontal domination (monopoly) is blatantly detrimental to a free market: if only one firm grew apples, it could sell those apples at any cost. The threat of monopoly is why regulators balk at Amazon’s control of E-books and web services. However, structuralists also fear anticompetitive behavior outside the horizontal market, through vertical mergers and cross-industry influence.

The paramount example of how Amazon exploits its influence around horizontal markets is the vertical relationship between Amazon Marketplace and Amazon’s own brands. Amazon Marketplace is a program that allows businesses (2.2 million of them) to sell their products on Amazon.com—for a fee. Of the 2.2 million businesses that use Amazon Marketplace, 37 percent sell nowhere else, on- or offline. Yet Amazon also sells its own products on Amazon.com, making the website a vertically-merged platform and seller. With this combination, Amazon can collect massive troves of market research data from guest sellers and adjust its own products to better compete with those third-parties. When it finds a product performing well, Amazon can copy the design, cut the price, and change search algorithms to favor its version. A couple recent examples of this tactic include the Fortem trunk organizer and Rain Design’s laptop stand. 

The relationship between Amazon Marketplace and Amazon’s own brands is just one example of the vast network of leverage that Amazon has over its simultaneous partner-customer-competitors. Amazon also stores and manages data for Netflix while competing with Netflix’s production company. It pressures its Marketplace sellers into using its own shipping and handling services, Fulfilled by Amazon. These conflicts incentivize anticompetitive behavior in Amazon’s business for the sake of profit. Amazon weaponizes its size to copy and crush innovation, retrench its barriers, and stake out its next conquest. 

Why then, if its businesses practices are structurally anticompetitive, is Amazon still around? Economic structuralism no longer holds sway in federal courts. Instead, we operate under a new antitrust paradigm: consumer price theory. 

The most influential book in American antitrust law is The Antitrust Paradox, by former Yale Professor of Law, Judge Robert Bork. Bork synthesizes work from neoliberals including Richard Posner, Friedrich Hayek, and Milton Friedman to argue that antitrust law should not be concerned with promoting competition for the sake of competition but rather only for the sake of lowering prices for consumers. Bevvied by a litany of court cases and analyses, Bork shows that promoting competition also can promote inefficiency, waste, and bad management—on top of the fact that it is a subjective and hazy goal in general. Thus, he concludes that the only way to determine how and when to intervene in the market is to follow the prices consumers pay.

Bork’s book was an incredible success among the lawyers and judges across the country. It has been cited by over 100 courts since its publication, including the U.S. Supreme Court in dozens of cases, and it has thus reshaped antitrust law in America. In place of complex analysis of predatory pricing, vertical mergers, and cross industry influence, courts need only (or at least chiefly) look at price. In practice, Bork doubted that monopolistic companies would keep prices low for consumers, but in theory he had no skepticism of big businesses, unlike his predecessors. Big is not bad, he claims, only overpriced is bad.

Amazon’s business practices fit perfectly with the new antitrust paradigm. The company posts low prices and can thus engage in empire-building free from much regulation. At least, Amazon maintains that it sets low prices. Without competitors, it can be hard to tell. 

A great weakness of Bork’s account is his dependence on immediacy. In the case of Quidsi, it is impossible to determine what quality of diapers would be sold at what price online if the company still existed, because it does not. When Amazon rolled back Amazon Mom and raised diaper prices after acquiring Quidsi, no one brought a predatory pricing suit against it because Quidsi did not exist to bring the suit. By abandoning the structuralist viewpoint, Bork sacrifices the bigger picture of the market and how companies fit into it. Amazon has exploited this missing analysis to legitimize its practices and, when necessary, to cover its tracks.

Nevertheless, some signs point to coming changes in antitrust law. Critics of the price paradigm note that consumer welfare might be more complex than price, that big business stifles innovation, that the online marketplace might have some barrier of entry in the form of consumer data, or that competition is a better model than welfare. In October 2020, the House Judiciary Committee issued a slate of policy recommendations to revamp the structuralist view of antitrust law targeted specifically at Silicon Valley. Among the recommendations are banning marketplace/seller combinations, limits on mergers, and empowering regulators while curbing their corporate ties. (Amazon, for its part, published its response, titled “Fringe notions on antitrust would destroy small businesses and hurt consumers.”) I encourage interested readers to explore these critiques and draw their own conclusions.  

Beyond all of them, there is a broader critique, a bigger picture of which we have lost sight: antitrust law does not only steward the economy. When the law that bears his name was up for its final vote in 1890, Senator John Sherman spoke the words that started this column. His speech ties together economics and politics not as parallel disciplines but as interconnected ones. When Bork touts consumer welfare above all else, he takes consumers in the economy as only analogous to citizens in a state. That distinction is fiction. Consumers are citizens, and the economy is inseparable from the state. States have to protect consumers, and economies have to protect citizens.

Antitrust law is the econo-legal bridge in our country. Only through this dual lens can we understand the complexity and paradox of Amazon. The success of Amazon has brought convenience to somewhere around half of American households—and great wealth to the company and its CEO—but it has done so at the price of competition and equality. Since January, Jeff Bezos has made $72 billion as a result of Amazon’s growth during the pandemic, even while millions of Americans lost their jobs. That wealth contributes to massive—and growing—income inequality in America, which in turn threatens our political systems. Even if we write off all of the economic effects that Amazon has on prices, competition, and general market health, the company promotes an economy that is bad for democracy. Its non-economic effects alone ought to be grounds for demanding change.

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