The Significant Economic Mistakes of the FTC’s Case Against Amazon
As the Federal Trade Commission (FTC) continues its monopolization case against Amazon in anticipation of next year’s trial, the government continues to struggle answering a key question which is essential to proving anticompetitive behavior: Who does Amazon actually compete against?
Almost six years after the initial investigation started and more than a year after the lawsuit was filed, the FTC is finding it difficult to argue who Amazon’s competitors are by defining the relevant markets. A properly-defined market is an important tool to help antitrust enforcers objectively analyze the competitive behavior of any given firm, evaluating the impact of a firm on the competitive dynamics of the relevant market.
The FTC first relied on artificially narrow market definitions for this case: claiming that Amazon competes in the “online superstore market” for consumers and the “online marketplace services market” for third-party sellers. Yet, courts are generally skeptical of artificially narrow definitions, such as those used by the FTC in its case against Amazon. Enforcement actions based on flawed analyses pose a significant risk to otherwise healthy competitive environments, potentially creating higher prices and fewer choices for consumers.
It now appears that the FTC is moving in another direction entirely. During a recent “Economics Day” hearing, the FTC is now suggesting that it is possible Amazon might not be competing against anyone in those “online superstore market” or “online marketplace services markets,” leaving an open question of what relevant market definition the agency now prefers.
The agency’s contradictions and current troubles identifying Amazon’s competitors stem from their implausible market definitions. Regarding the FTC’s first allegation of Amazon’s dominance in the “online superstore market,” studies have shown time and time again how online and brick-and-mortar retailers compete head-to-head with each other, with firms such as Costco, Walmart, CVS, and Target engaging in “omnichanneling,” broadening their market presence by selling products in both digital and physical stores. The truth of the retail market shows that Amazon only accounts for four percent of overall retail sales.
The FTC likewise fails to define a relevant market accurately in its allegation that Amazon is one of a few companies operating as a purveyor of “online marketplace services.” Small and medium-sized businesses sell goods at the best price for the highest volume, with flexibility on which retail marketplaces drive the most business. While the FTC includes only a few companies in its narrow market definition, a significant number of other firms consider Amazon a key competitor, including American booksellers and more than 20 companies in the retail market explicitly list the company as a key competitor in their 10-K statements.
As the Court analyzes the arguments presented during the “Economics Day,” it should carefully scrutinize the FTC’s evolving market definition analysis and the agency’s insistence on basing its theories of harm on unsubstantiated economic data. These arguments fall flat when objective, fact-based economics are properly considered.
When looking at the FTC’s original theory and current designation, both are ultimately flawed. Strategically defining a narrow market likely fails based on the realities of the retail market. Similarly expanding the marketplace may be more applicable, but would ultimately result in making clear that Amazon has a relatively small share of the overall retail space. Before we get there, however, the FTC will need to actually settle on a market definition to answer the question that bases their theory of the case – who do they even believe Amazon is competing against?