NRPLUS MEMBER ARTICLE {T} he Federal Trade Commission (FTC) and 17 attorneys general have brought an antitrust suit against Amazon, stating “that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.” The suit alleges that various business practices Amazon engages in, from pricing requirements to advertising placements, are illegal. But proving Amazon’s monopoly position is critical to finding those specific practices illegal.
As is standard in antitrust cases, it’s necessary for the FTC first to prove Amazon is, in fact, a monopoly in order to assert that it is abusing its monopoly position. (Otherwise, the business practices in question could simply be rejected by the other party and it could take its dealings elsewhere, with more agreeable terms.) Indeed, the complaint asserts, “Amazon is a monopolist,” but it fails to convincingly support that claim.
The first relevant market the FTC claims Amazon monopolizes is “the online superstore market.” This created market is tantamount to claiming that McDonald’s has a monopoly on the Big Mac. Meaning, if you define the market narrowly enough, you can find a monopoly anywhere. This flies in the face of the actual experience of consumers who have many options for purchasing goods.
While it may be true that, as the claim asserts, “Amazon’s share of the overall value of goods sold by online superstores is well above 60%,” it’s hard to believe that consumers really only have, as the FTC claims, Walmart, Target, and eBay from which to choose to buy many of those products. Because of brick-and-mortar stores, product websites, sellers through social media, catalogue purchases, and others, Amazon makes up only 1 percent of total global retail and 10.4 percent of total U.S. retail sales.
The FTC attempts to justify its narrowly defined market, but those justifications are not persuasive. Excluding brick-and-mortar competitors because of the 24/7 nature of Amazon ignores 24-hour Walgreens, 7-Elevens, and others where retail sales take place. Walmart, included in the FTC’s market definition of competitors to Amazon, previously offered 24-hour stores but, after the Covid-19 pandemic, changed that policy to allow for enhanced cleaning of their stores. That the retail behemoth has not gone back to being open around the clock but retains the capability to do so suggests that the overnight hours may not be a significant source of revenue and not a relevant distinguishing factor for the FTC to cite. (Plus, Walmart.com is still an option for consumers at 2 a.m.) At the very least, the FTC would have to prove orders made on Amazon in the wee hours of the night are significant enough to raise antitrust concerns.
More broadly, the rise of omnichannel shopping, where customers combine their online and offline shopping, seems to be driving price parities between the two and suggest the FTC’s bright-line distinguishing between physical stores and online superstores is arbitrary. A recent study found that “online and offline prices are identical 95% of the time for the same product, retailer, location, and date,” and that “online and offline prices appear to be tightly constrained by one another.” That suggests direct competition between Amazon and many other retailers that the FTC erroneously excluded from the market it defined.
Incorrectly defining the market and failing to prove that Amazon is a monopolist lays bare that the specific “crimes” the FTC charges Amazon with committing are nothing more than business practices consumers and third-party sellers are free to reject by taking their business elsewhere. If fees are too high for the likes of sellers or lowest-price contracts are objectionable, they are free to sell elsewhere. If ads appearing in search results displease consumers, they can shop elsewhere. These arrangements are voluntary and, absent consumer harm that has not been demonstrated, it is not a matter in which the government needs to meddle.
In order to gore its preferred ox, the FTC is ignoring the realities of today’s retail world in asserting that Amazon is a monopolist. Amazon is only a monopolist of Amazon. That’s not illegal, that’s just running a business. The FTC’s case against Amazon is a waste of taxpayer money, but consumers will pay the price if it’s successful.