Within this September, the Wall Street Journal reports that the U.S. Federal Trade Commission (FTC) is expected to file an antitrust lawsuit against tech giant Amazon after the company failed to settle claims of antitrust. By filing the lawsuit, the FTC aims to challenge things such as Amazon’s logistics program (“Fulfillment by Amazon”), Amazon Prime, and policies on third-party seller revenue. The FTC is also suggesting “structural remedies” to the company where if the former wins its lawsuit, Amazon could face a “court-ordered restructuring of [its] $1.3 trillion empire.” FTC chair, Lina Khan, is no stranger to Amazon as she had penned a viral Yale Law Journal article in 2017, “Amazon’s Antitrust Paradox.” The article highlighted how outdated antitrust regulations inadequately address the methods employed by tech giants like Amazon to dominate in the digital realm. In May 2023, Amazon has already faced 2 separate lawsuits by the FTC for failing to comply with privacy laws: its doorbell cameras, Ring, spying on users and its speakers, Alexa, and collecting data on children. Both cases were settled with a substantial $30.8 million fine. As the FTC finalizes this long-anticipated antitrust lawsuit, it marks the FTC’s fourth complaint against Amazon this year and underscores the Biden administration’s emphasis on antitrust in their economic policies. The implications of this lawsuit hold significant weight, potentially reshaping the tech industry and addressing concerns about Amazon’s position as a dominant monopoly.

When asked about Amazon, many immediately think of a global online marketplace offering a vast selection of products and fast shipping. However, Amazon’s journey of becoming a $1.3 trillion empire began with its humble beginnings of Jeff Bezos, a young Princeton graduate, launching an online bookstore named “Cadabra” in his rental home’s garage in 1995. However, due to how Cadabra sounded like “cadaver,” Bezos changed his business’ name to Amazon since “it began with the first letter of the alphabet” and “its association with the South American river.” Despite the presence of other online booksellers, Amazon sought to differentiate themselves with their mission statement of “deliver[ing] any book to any reader anywhere.” In fact, Bezos aimed Amazon to be a “technology company whose business was simplifying online transactions for consumers,” rather than a bookstore or a marketplace for consumers. Amazon’s early years became a running joke on Wall Street as Jeff Bezos essentially built “a house of cards,” failing to make a profit after 6 years of operating and dealing with increasing millions of losses. Instead, Amazon opted for pouring its capital into advertising and “steep discounts” that could be later redeemed in terms of market share. This tactic catapulted Amazon into the quintessential e-commerce business with an estimated market share of 46% in online shopping and dubbed as the “most reputable company in America.” FTC chair Khan further elaborated on Amazon’s business strategy in her Yale article as “choosing to price below-cost and expand widely,” integrating itself as a foundation for “other businesses that depend upon it.” Khan’s criticism towards Amazon in the article focuses on Amazon’s positioning of itself as a part of the structural foundation for other businesses and “anticompetitive” behavior, while managing to evade “antitrust scrutiny.”

To understand how antitrust is currently understood in the U.S. legal system, we must understand how antitrust works in conjunction with the consumer welfare standard. The U.S. Congress passed a series of antitrust laws that soon became the “three core federal antitrust laws… in effect today” such as the Sherman Act in 1890 (the first antitrust law in the U.S.) and the Federal Trade Commission Act in 1914 (creating the FTC and the Clayton Act). The Sherman Act and the Clayton Act were used to break monopolies and other companies that had too much market power in the U.S. According to former FTC commissioner and antitrust law professor Joshua D. Wright, the antitrust agencies and courts thought of antitrust laws “as existing primarily to prevent ‘bigness,’ that is to preserve the small, localized businesses.” Federal Supreme Court case, United States vs. Trans-Missouri Freight Association, also solidified the goal of antitrust laws as “protect[ing] ‘small dealers and worthy men.’” The case further stated that “these small dealers and worthy men should be protected even if doing so came at the expense of ‘[m]ere reduction in the price of the commodity,” indicating that the Court “protected competitors.”

This notion of prioritizing “corporate welfare” over “consumer welfare” made economists and legal scholars focus on developing a different framework of antitrust law in the 1960s, resulting in legal scholar and future judge Robert Bork to publish “The Antitrust Paradox: A Policy at War with Itself” in 1978. Bork’s book aimed to redirect the focus of welfare towards consumers, explaining that “competition leads to firms to engage in conduct that benefits consumers—it drives price cuts, output expansions, research and development, and other innovative efforts.” Consequently, Bork’s idea of how antitrust laws “are designed to protect competition and promote consumer welfare” became the foundation of current antitrust laws. His book was cited in the federal Supreme Court’s Reiter v. Sonotone decision and other government guidelines like the Department of Justice and FTC’s 2010 Horizontal Merger Guidelines. Consumer welfare is understood as “the difference between what consumers would have been willing to pay for a good and what they actually had to pay,” essentially the “surplus” that consumers would get after buying a good in economics. This means that as long as the consumers are reaping low prices and good services, the size of the company does not matter. Even though the consumer welfare standard has its weaknesses, it transformed antitrust law from a “subjective and ad hoc” approach to an “objective undertaking with a consistent, measurable condition.”

Amazon kept this principle of the consumer welfare standard in mind when it started its journey of becoming the world’s largest online retailer, focusing on consumer retention and discounting goods. Amazon’s active decision to slash prices bears a strong resemblance to Standard Oil’s routine of “slash[ing] prices in order to drive rivals from the market,” taking on such a sacrifice to ensure their dominance over the market. Even though the consumer welfare standard was not established at that time until much later, Amazon’s tendency to rely on anticompetitive practices reflects its desire to have a strong market share in the industry. In Lina Khan’s Yale article, she names 2 elements of Amazon’s business strategy to have such a hold over the world: “a willingness to sustain losses and invest aggressively at the expense of profits, and integration across multiple business lines.” This strategy of forgoing profits for increased market share while integrating itself across various industries indicates that “to fully understand the company and the structural power it is is amassing, we must view [Amazon] as an integrated entity.” This can be understood in the profits of one of Amazon’s services, Amazon Web Services, a cloud computing business that only started to recently generate “consistent profits.” Despite Amazon’s disinterest in generating profit, investors still poured their money into the company to the point in which an analyst told the New York Times that “Amazon’s stock price doesn’t seem to be correlated to its actual experience in any way.”

In his 1st letter to shareholders, Bezos stated that “a fundamental measure of our success will be the shareholder value we create over the long term” and such value “will be a direct result of our ability to extend and solidify our current market leadership position.” In short, Amazon’s strategy from the very first is to “establish scale” which is done by aggressive investing (slashing prices, expanding infrastructure, etc.) to ensure its position as “consumers’ one-stop-shop.” This also meant that Amazon’s decisions and focus may be different than other companies in pursuit of growth due to their belief that “scale is central to achieving the potential of [their] business model.” Their desire for dominance actualized in how their year-on-year revenue growth was much more ahead of other online retailers to the point big names like Walmart and Macy’s could not win back their market share. 

Amazon’s very own loyalty program, Amazon Prime, was another way in which Amazon asserted its dominance over the online retailer space. Bezos launched Amazon Prime in 2005 and offered customers “unlimited 2-day shipping for $79.” Prime soon grew with bundled deals and add-ons such as same-day delivery, renting books and videos, and online streaming. This loyalty program is thought to be “the retailer’s single biggest driver for growth,” reaching 200 million users by 2022. Similar to other ventures by Amazon, Prime started with substantial losses as in 2011, each Prime subscriber cost Amazon “at least $90 a year” and costing Amazon $1 to $2 billion a year. This does not include additional capital like shipping costs, warehouses, and delivery facilities—things that aided in Amazon Prime’s dominance. Despite increasing its price to $99 in 2014, 95% of surveyed Prime members still opted to keep their membership, indicating the stronghold that Amazon has over online consumers and that “no competitor is currently offering a comparably valuable at a lower price.” 

Amazon also watched out for other competitors that may offer similar services that made them the first choice for online shopping, aiming to undercut them as much as possible with its secretive unit—Competitive Intelligence. This unit’s role was to analyze their competitors by “ordering large quantities of goods from competitors.” In 2020, emails were released by the House Judiciary Committee and ultimately confirmed one longstanding criticism against Amazon: its price war with Diapers.com that ultimately resulted in Amazon’s acquisition of Quidsi. Created by Quidsi, Diapers.com was known for its delivery of baby suppliers and diapers—a commodity that Amazon refused to sell as it was “too bulky and low-margin to be delivered profitably.” To generate profits, Quidsi “optimized their packaging for baby products” and placed their warehouses near metropolitan areas for cheaper ground-shipping rates. This proximity also gave Quidsi the advantage of providing overnight shipping to a majority of consumers, becoming even faster than Amazon’s shipping.

As Quidsi planned to expand its retail categories, Amazon made sure to stop such plans through an intense price war and an eventual buyout of the company. According to journalist Brad Stone, Amazon approached Quidsi for a buyout and Quidsi’s founders refused the offer in 2009, prompting Amazon to slash its diaper prices by 30%. Since Quidsi found themselves losing money and facing slow growth, Quidsi met with Amazon executives to discuss a “possible acquisition.” During the meeting, Amazon continued to launch their offensive where the “Amazon Mom” program offered Prime for free and an extra “30% discount on diapers if users signed up to get them through Amazon’s monthly ‘subscribe and save’ program.” Even the “Amazon Mom” program was causing them “to lose $200 million in a single month from diaper products,” Amazon did not care as Quidsi was bleeding dry. After acquiring Quidsi, Amazon faced scrutiny from the FTC for its closing of the “Amazon Mom” program until it later reopened the program and raised diaper prices.

Aside from engaging in anticompetitive practices with other online retailers, Amazon also “copied products and rigged search results to promote its own brands.” Considering that Amazon is the world’s largest online retailer, third-party sellers often list their products on the website if they want to generate revenue and be noticed by consumers. At the same time, Amazon has been found to knock off third-party sellers’ goods and exploit third-party sellers’ data to “promote its own merchandise at the expense of other sellers.” Reuters examined thousands of internal Amazon documents, revealing that the company ran a “systemic campaign of creating knockoffs and manipulating search results to boost its own product lines in India, one of the company’s largest growth markets.” Amazon’s line of goods in India had used internal data from Amazon. in to knock off popular products sold by third-party vendors and rigged Amazon’s search results to encourage the purchase of their private line. As Amazon had data regarding both the customer and seller, Amazon employees studied this information to identify high-performing products and “replicate” them. The tech giant even went as far as working with the products’ manufacturers as the manufacturers have “unique processes which impact the end equality of the product.” However, third-party sellers are left with no choice in using Amazon since it is where everyone shops, resulting in a catch-22. Should they remove their products from Amazon, they will not generate revenue due to the lack of attention on other online retailers, and if they list their products, Amazon can access all their data such as revenue and traffic.

Beyond online retailers, Amazon established itself as an important core of the Internet as it “controls key critical infrastructure for the Internet economy—in ways that are difficult for new entrants to replicate or compete against.” Amazon Web Services (AWS) is the cloud computing service provider and the primary moneymaker for the tech giant with a whopping 59% of the company’s profits, hosting Netflix and the digital tools that helped create the Moderna COVID-19 vaccine. Beyond cloud computing, AWS also aids in Amazon’s logistics in routing “more than 2.5 billion packages every year to the right address” and “nearly all of Amazon’s other operations.” Bezos’ ambition for Amazon to be a “technology company” includes ensuring that Amazon is at the center of the internet economy through its revolutionary creation of the cloud-computing industry. This impact can be seen in how almost “every large company and government agency in the country” stores their data in some cloud-computing service. According to University of Washington Information School professor Chirag Shah, cloud-computing services are “gateways” and the absence of them makes it “really hard to be alive as a business.” In fact, there are “more than 100 trillion objects” being stored in AWS’ S3 product as the software “allows developers to store and retrieve ‘any amount of data, at any time, from anywhere on the web.’” AWS continues to dominate the cloud computing space with roughly “31% of market share by revenue,” while Microsoft and Google attempts to catch their respective 20% and 7%. 

However, when it comes to transferring from 1 cloud-computing provider to another, AWS makes it very difficult for developers to transition as their “services are tangled with the AWS… [as they’re] using special proprietary databases that AWS has.” One worry include the amount of power that these cloud computing providers have over their customers as seen in Amazon’s decision to make Parler, a conservative free-speech microblogging platform, offline. Another common concern regarding AWS bears similarities to Amazon.com’s tendency to knock off third-party sellers’ products. An anonymous ex-Amazon employee alleged that “in the past, AWS proactively looked at [the] traction of products hosted on its platform, built competing products, and then scraped and targeted [a] customer list of those products.” Even though there was a lack of definitive proof, the House Democrats’ 16-month investigation did reveal that “at least 1 market participant who spoke with subcommittee staff had evidence that AWS engaged in this cross-business data sharing.” AWS employees were also able to gather “valuable competitive data” despite not having full access to their customers’ platforms as “there are a ton of requests to particular data.” For instance, “if Netflix announced 5 new movies this weekend and there’s a ton of data to 5 new objects,” there is not much of a need to have the full information to “know what’s happening.” By making itself the center of the Internet economy, Amazon essentially made itself have an “unrivaled insight into its competitors,” but also helped in their decision-making such as acquisitions. 

Amazon’s engagement with anticompetitive practices was not enough for FTC to target them as a growing monopoly, as Amazon kept the main principle of the consumer welfare standard in mind. This consistent abidance to the consumer welfare standard made Amazon somewhat protected in the eyes of judges as they “looked unfavorably on new interpretations of established antitrust law”—namely Bork’s consumer welfare standard. After all, consumers are still getting the best possible prices from Amazon despite its growing market size and dominance. However, there is a growing movement that opposes having the consumer welfare standard as the foundation of antitrust law. Former Secretary of Labor, Robert Reich, stated in a hearing of the Senate Judiciary Committee: “Antitrust is—or should be—about more than welfare economics. The problems it should be addressing go far beyond helping individual consumers get the best possible deal for themselves.” Dubbed the “New Brandeis” philosophy, this movement focuses more on the firm’s size as a factor to whether it qualifies under the monopoly law. FTC chair Khan also agrees with this movement in her Yale Law article regarding Amazon where “focusing on consumer welfare disregards the host of other ways that excessive concentration can harm us—enabling firms to squeeze suppliers and producers, endangering system stability (for instance, by allowing companies to become too big to fail), or undermining media diversity, to name a few.” Beyond focusing on firm size, followers of the New Brandeis philosophy also aim to have an antitrust policy to promote various social initiatives like “preventing the rise of big firms that have amassed political power” and “mitigating depressed employee wages.” Essentially, this movement aims to substitute the consumer welfare standard with something else—updating antitrust laws to match the definition of “bigness” across all industries for the digital age.

As for the FTC’s expected lawsuit against Amazon, Politico reports that the agency had been focusing on filing an official complaint since 2022 and would likely send this case to federal court. The FTC has already gone through the process of interviewing a variety of witnesses—internal and external—such as CEO Andy Jassy, former CEO and executive chair Jeff Bezos, and others. Khan’s FTC lawsuit also includes existing allegations from attorney generals from Washington D.C. and California, focusing on Amazon’s anticompetitive practice of “requiring third-party retailers to offer their lowest prices on its platform” which diminishes “the possibility of lower prices elsewhere.” Beyond Prime and AWS, the lawsuit also places Amazon’s digital advertising business into the spotlight where Amazon coerces sellers to buy ads for “better placement in customer search results.” According to Politico, the FTC characterizes this strategy as “a tax Amazon can collect after forcing sellers to use its platform through price parity provisions requiring the lowest prices on its site.” Even though there is no official “multistate alliance investigating Amazon,” FTC opens the case up to other states to participate as well and states that it aims to share more information that “can be used to determine whether to join its lawsuit.” 

While Amazon’s adherence to the consumer welfare standard has shielded it from monopoly claims in the past, the FTC’s expected lawsuit would be the ideal opportunity to address the reality of how antitrust regulations are no longer encapsulating the reality of the internet economy. Amazon has already requested FTC chair Khan to recuse herself in this case due to her past statements against them and previous investigations into the tech sector during her tenure as a staffer on the House Judiciary Committee. Nevertheless, Khan remained on board in this case and met with Amazon lawyers to see if Amazon could make concessions on the FTC’s findings. Amazon’s attorney did not “offer specific concessions” to FTC representatives in the meeting, prompting for FTC to come for Amazon in federal court within this month. The FTC’s expected lawsuit against Amazon presents a critical moment in the evolution of antitrust regulations and their application to the Internet economy. The outcome of this lawsuit will undoubtedly have far-reaching implications not only for Amazon but for the entire big tech industry, setting a precedent and potentially reshaping the regulatory landscape for dominant tech companies in the future.

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