Late last year, the Federal Trade Commission (FTC), joined by seventeen state attorneys general, filed an antitrust suit against Amazon. The FTC’s legal theory, rooted in Section 2 of the Sherman Act and Section 5(a) of the FTC Act, is that Amazon is illegally attempting to monopolize the “Online Superstore Market” and the “Online Marketplace Services Market” and is using its alleged monopoly power to engage in “unfair methods of competition.” To support its claim, the FTC levies several charges against Amazon, including: (1) Amazon has “quietly and deliberately raised prices for shoppers” and is “overcharging its customers”; (2) Amazon “has hiked [] steeply the fees it charges sellers”; and (3) advertising by third-party sellers on the platform “degrade[s] the services it provides” to consumers. In concert, the FTC asserts Amazon’s actions cause harm by “inflating prices and degrading quality for both shoppers and sellers.”
Amazon is America’s favorite online retailer. If the FTC’s case is successful, then Amazon’s relationship with customers may be materially affected, for good or bad. Thus, the veracity of the FTC’s claims warrants attention. In a new analysis entitled Amazon: A Monopolist That Undersells Its Competitors?, Phoenix Center Chief Economist Dr. George S. Ford tests the veracity of the FTC’s claims and finds them wanting.
Dr. Ford begins with the FTC’s claim about the use of advertising. The online marketplaces of Walmart, Target, eBay, and Etsy, among others, permit third parties to pay to advertise on their platforms (which the FTC claims is “degrading” service to consumers), so advertising appears to be a typical feature of online marketplaces and not unique to Amazon or related to market share. Advertising is also common, if not ubiquitous, in brick-and-mortar stores, including slotting at grocery stores, which research has shown has a procompetitive business justification and is likely to be an efficient contract. Scarce space—whether on the end caps of physical shelves, or at the top of a list of offers—requires some sort of allocation, and price is a reasonable allocation mechanism.
As for the FTC’s other claims regarding consumer prices and third-party seller fees, Dr. Ford—using commercial data that anyone can purchase—compares the prices of Amazon and other large online retailers (Walmart and Target) to determine whether Amazon is “overcharging its consumers.” Neither Walmart nor Target is a third-party seller on Amazon’s website, and thus their prices are independent of Amazon’s third-party seller practices that are a focus of the FTC’s complaint. Dr. Ford finds that Amazon is not overcharging its consumers. To the contrary, the data reveal that Amazon’s prices are, on average, about 3.5% lower than those of these two rivals, a small but statistically significant difference. These results are comparable to other price comparisons between Amazon and its rivals, though the differences found by Dr. Ford are more modest than those found in other studies.
Next, Dr. Ford compares the third-party seller fees of Amazon and Walmart for a varied sample of products. Such fees include a mandatory sales commission and optional fees for warehouse, packing, shipping, customer service, and product return services. Despite a few unique attributes motivated by the business plans of the two retailers, Dr. Ford demonstrates that the fee structures are highly comparable and the fee-to-price ratio between the two retailers is nearly equal and statistically so. Once again, the evidence does not support the FTC’s claim that Amazon is charging unreasonable third-party fees.
For those who care about efficient use of government resources and government overreach, Dr. Ford’s analysis is important. Despite the FTC’s allegations, the data show that Amazon’s consumer prices and its fees to third-party sellers are consistent with, if not better than, other online marketplaces with smaller market shares. In all, the analysis demonstrates that the primary claims levied against Amazon in the FTC’s complaint are unsupported by the data and that Amazon’s conduct is consistent with the routine business practices of online marketplaces. Absent any cognizable harm either to consumers or to third-party sellers, the FTC’s case seems doomed.
So what’s really going on here?
Maybe the case against Amazon falls into the “big is bad” category, which is consistent with the current Neo-Brandeisian thinking of leadership at the nation’s antitrust authorities. But under modern antitrust caselaw and in economics, big is not necessarily bad. Nor is it necessarily a violation of antitrust law to engage in common business practices that the leadership of our nation’s antitrust agencies may find unpleasant. No business conducts its operations to the pleasure of all. What matters in antitrust is that consumers are harmed. And as Dr. Ford shows, the harms claimed by the FTC in the Amazon case are merely imagined.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].