Antitrust authorities have Amazon.com Inc. in their sights. But experts say they’ll struggle to get a clear shot.
That’s particularly true in the United States, where in recent decades courts have demanded proof that consumers are paying higher prices to justify antitrust action. And Amazon can make a strong case that its growth has helped shoppers obtain lower prices on the goods they buy.
Action is somewhat more likely in Canada and the European Union, where authorities are also investigating allegations that Amazon is using its monopoly position to hurt competitors and sellers on Amazon’s online marketplaces. But even there the experienced antitrust attorneys interviewed by Digital Commerce 360 do not foresee the kind of action that would weaken Amazon in a major way.
This lack of action can be confusing to retail executives not familiar with antitrust law. After all, Amazon clearly dominates online retailing in the U.S. Including sales by marketplace sellers, Amazon accounted for 37.5% of all U.S. online retail sales in 2019, up from 7.7% in 2010, according to Digital Commerce 360 estimates. Given Amazon’s 37% average annual sales growth over the past decade it’s conceivable Amazon could account for more than half of retail ecommerce in the U.S. within a few years.
Doesn’t that kind of market dominance make Amazon a monopolist? The short answer is no, at least not under prevailing antitrust laws in the U.S.
The longer answer is more complicated. We’ll try to sort through the main issues using a question-and-answer format.
Q: Amazon already accounts for nearly 40% of online retail sales in the U.S. What would it take for Amazon to be considered a monopolist that should be broken up?
A: For roughly the past half-century, U.S. courts have mainly judged claims of antitrust violations on the basis of whether the company’s actions have resulted in higher prices for consumers. If there is no evidence that consumers are paying more, courts invariably have thrown out the antitrust cases.
“Courts are extraordinarily reluctant to challenge practices that appear to lead to lower, not higher, prices,” says David Balto, a Maryland lawyer who has served as director of the Bureau of Competition of the U.S. Federal Trade Commission and in the antitrust division of the U.S. Department of Justice.
Amazon has attracted millions of loyal customers by offering, among other things, low prices on a wide selection of prices. That would be its first line of defense against an antitrust lawsuit.
As long as the test is whether a company provides lower prices to consumers, Balto says, “Amazon is probably going to pass muster.”
A: Antitrust action requires demonstrating that a company has monopoly power in a well-defined market. Companies accused of monopoly practices often have market share of 60% or above, says Steven Cernak, an antitrust attorney and partner with the firm of Bona Law PC, whose resume includes more than 20 years as an in-house antitrust lawyer at General Motors Co. Amazon hasn’t reached 40% in just online retail (though some critics put Amazon’s share at 50%, the data doesn’t support that assertion). Plus, Amazon no doubt would argue that the real market it competes in is total retail, where its share is only about 6% in the U.S., according to Digital Commerce 360.
“Supporters of an antitrust case are arguing that Amazon controls half of online retail, but that is an unrealistically narrow definition of Amazon’s relevant market,” says Ryan Young, senior fellow at the Competitive Enterprise Institute, a libertarian think tank. “That does not bode well for a court case.”
What’s more, those arguing that Amazon is violating antitrust laws would have to show that the company has been able to drive out so many competitors that it can then raise prices to consumers, Cernak says. He notes that was the basis for the groundbreaking government action more than a century ago against Standard Oil. The oil company founded by John D. Rockefeller lowered its prices to below cost in competitive markets to drive out rivals, then raised its prices when it no longer faced competition.
To make the same case today, Cernak says, would require showing that by selling products below cost, Amazon crushed all its competitors and raised prices as a result. “Has Amazon been so successful in driving out all those other businesses, Walmart and everyone else, that they’ll be able to jack up the prices on those products?” Cernak says. “It’s going to be difficult to show that they can drive everybody out or otherwise increase their prices online.”
Amazon isn’t the only reason weaker retailers are going bankrupt, Balto says. “Those retailers are going out of business because of the overall change in the retail environment and because consumers are doing what they do in a free market, they’re making choices,” he says. “It’s not just Amazon, it’s Walmart and Costco and all these other companies. That doesn’t make an antitrust case.”
Q: What about those articles in the Wall Street Journal alleging that Amazon uses information about products sold by marketplace sellers to determine what private-label products it should offer itself?
A: Supermarkets and other retailers that sell products from major brands use sales information all the time to improve their own private-label products, Balto says. He says the FTC has investigated this question in the past “and never seen reason for enforcement action.”
How Amazon policies impact marketplace sellers
Q: But what about all the other ways Amazon takes advantage of marketplace sellers, such as by effectively requiring a seller to use Fulfillment by Amazon to win the Buy Box and to not sell a product elsewhere online lower than its price on Amazon?
A: These are actions that Amazon may find harder to defend. One example: It previously had a rule that a seller had to offer on Amazon the lowest price it posted anywhere online. Amazon dropped that in 2013 in Europe after coming under scrutiny from the European Union and modified the policy in the U.S. last year. Now, Amazon says it takes into account how an item is priced elsewhere online when ranking sellers in search results and awarding the coveted Buy Box, which allows a shopper to immediately buy a product.
Balto notes that Amazon modified its U.S. policy after U.S. Sen. Richard Blumenthal, a Connecticut Democrat, and others raised concerns about it. “At the end of the day, that’s what you might wind up with,” Balto says. “The FTC raises concerns and Amazon adjusts some of its practices, rather than some kind of case being filed.”
As for Amazon favoring sellers that use FBA to fulfill orders, Amazon could well argue that using FBA guarantees a higher level of service than a typical merchant provides. Trent Dyrsmid, managing partner of TLK Sourcing, which helps brands sell on Amazon, says his team finds that a seller not using FBA has to price an item 8% lower than competing FBA sellers to win the Buy Box.
That could be a potential antitrust violation if someone could prove that Amazon has monopoly power in a particular market and is forcing sellers to buy services they don’t want—namely, Fulfillment by Amazon—to sell on Amazon, Cernak says. “There’s a lot there to prove, and it’s not so obvious,” he says. “If it were, a lot of people would have sued them.”
Q: What about the investigations of Amazon going on in Canada and the European Union?
A: The EU demands dominant companies take more responsibility to ensure that rivals can compete, providing big companies like Amazon a bit less freedom to operate as they wish, Cernak says. Canada’s antitrust policies fall somewhere between those of the U.S. and EU, though antitrust litigation is less common in Canada, he says.
“It’s probably slightly more likely Amazon would face some kind of action in Canada than in the U.S., and slightly more likely again in Europe than in the U.S. or Canada, Cernak says.
But the kind of threat Amazon might face in Europe likely would be different from the U.S., says Young of the Competitive Enterprise Institute. In the U.S., critics like U.S. Sen. Elizabeth Warren, a Massachusetts Democrat, have called for unwinding Amazon acquisitions of companies like shoe retailer Zappos and Diapers.com owner Quidsi, as well as forcing Amazon to separate its own retail operations from those of its marketplace. That’s not likely on the agenda in Europe, Young says.
“Generally, the EU does not use antitrust law to break up companies but to fine them and get them to agree to ever-stricter regulation,” he says. For example, the European coalition has fined Google $9 billion over the past nine years in three separate cases.
Young says such actions don’t really bother the tech giants. “As those strict rules create entry barriers for competitors, companies are generally happy to pay this toll,” he says.
Would a Joe Biden administration be more likely to take on Amazon?
Q: What about the upcoming presidential election in the U.S.? Might a Joe Biden administration take a more aggressive stance against Amazon?
A: While the administration of President Donald Trump has been more aggressive in at least talking about antitrust issues than the typical Republican administration, if Biden becomes president, Cernak says, “I think there is a greater likelihood of pushing the envelope a little more.”
But Amazon likely will not be the first of the big tech companies to face an antitrust case.
“In the short term, Google or Facebook are more likely targets,” Young says. “Agencies may want to focus their energy on just one case, rather than spreading themselves thinly across several. A U.S. case will not be brought unless the government believes it will likely win.”
Balto expects the Trump Administration will file a lawsuit against Google, which critics say monopolizes online advertising. He expects the suit to be announced around the time of one of the upcoming presidential debates. That would allow Trump to say he’s getting tough on big technology companies, which could be politically popular.
But such a move might help Amazon, Balto says. “Once you bring a Google case, it takes the pressure off the FTC to bring an Amazon case,” he says.
Critics of Big Tech want changes to U.S. antitrust law
Q: So, is there no hope that antitrust action will reign in Amazon, no matter how big it gets?
A: The laws could change. The late July hearings in which Amazon CEO and founder Jeff Bezos appeared before the antitrust subcommittee of the House Judiciary Committee, along with the CEOs of Apple Inc., Facebook Inc. and Google parent Alphabet Inc. could be a first step toward considering new legislation. And that’s particularly true if Democrats sweep the upcoming U.S. elections in November and control both houses of Congress.
The congressman who convened those hearings, Rhode Island Democrat David Cicilline, chairman of that subcommittee, has emerged as a notable figure among those seeking a tougher stance on antitrust. His anti-Big Tech credentials were enhanced earlier this year when he hired as counsel for the Democratic majority of the antitrust subcommittee Lina Kahn, a rising star among legal critics of companies like Amazon and its Silicon Valley peers.
“No one has thought as creatively about theories against Amazon as Lina,” Balto says.
But new laws could take years to pass. And litigation could take even longer. Young points to a 1968 lawsuit brought against IBM Corp. that lasted 13 years and ultimately was “dropped because the technological issue at hand became obsolete, and IBM’s market share was declining anyway.”
Retailers competing against Amazon don’t have the luxury of a decade or more to wait for government help. They likely will have to find ways to survive on their own.
Amazon is No. 1 in the 2020 Digital Commerce 360 Top 1000, an annual ranking of North American retailers by their online sales.
For more on Amazon’s ecommerce growth, strategy, international expansion, finances and political challenges, read the 2020 Amazon Report from Digital Commerce 360. The 88-page report can be downloaded now as a PDF for $499. Digital Commerce 360 Gold and Platinum members receive a complimentary copy of this report as a part of their membership.Favorite