The boots finally hit the ground. After successive lawsuits against Google and Meta, the U.S. government finally filed an antitrust lawsuit against e-commerce giant Amazon. "Antitrust Czarina" Lina Khan has been preparing for this for six years. On Tuesday, U.S. time, the U.S. Federal Trade Commission (FTC), one of the two major antitrust regulators in the United States, joined 17 states to formally file an antitrust lawsuit against the Internet giant Amazon.
Amazon strikes back hard
The FTC filed a 172-page complaint in the U.S. District Court for the Western District of Washington, where Amazon is headquartered in Seattle, accusing the e-commerce giant of abusing its market dominance to suppress competitors.
The 17 states sued together with the FTC are mainly economically wealthy blue states such as New York, Connecticut, New Jersey, Oregon, and Massachusetts. But it is worth mentioning that there is no Washington state, where Amazon is headquartered, nor California and the District of Columbia, which have previously sued Amazon.
FTC Chairman Lina Khan said after announcing the lawsuit, "The lawsuit documents demonstrate how Amazon illegally maintains its monopoly through a series of punitive and coercive tactics. This lawsuit is intended to require Amazon to take responsibility for its monopoly operations and restore its lost commitment to free and fair competition."
She also said Amazon is focused on preventing any competitor from gaining the same scale of consumer users. This lawsuit embodies the cutting-edge concepts of competitive behavior in the digital market, revealing Amazon's operations to suppress competitors and depriving them of oxygen (users), which will have a profound impact on the future (antitrust).
Faced with the FTC’s serious accusations, Amazon issued a statement to fight back hard. David Zapolsky, Amazon’s general counsel, said that the FTC’s lawsuit contains obvious errors in fact and legal basis, and only shows that the agency’s regulatory focus has seriously deviated from its mission of protecting consumers and market competition.
Lina Khan previously said that if the lawsuit is won, market competition will be restored and consumers will benefit from lower prices, better quality and more choices. In response to this statement, Zapolsky responded tit-for-tat, saying that if the FTC wins the case, the result will only be fewer consumer choices, higher prices, slower delivery, and fewer choices for small businesses. This is exactly the opposite of the original intention of the antitrust law.
After being hit with an antitrust lawsuit, Amazon's stock price closed down 4% on Tuesday, wiping out more than $50 billion in market value. But for Amazon, which has a market value of nearly $1.3 trillion, this is nothing. Amazon's stock price remained stable on Wednesday, closing essentially flat. As Amazon's stock price has increased steadily this year, founder Bezos's personal assets still exceed US$150 billion even if the family property is divided due to divorce.
American e-commerce giant
In 1994, Bezos founded the e-commerce platform Amazon in Seattle. It initially started as an online bookstore and later developed into an e-commerce giant that sells everythingstore. According to eMarketer estimates, Amazon’s share of the U.S. online retail market last year was close to 38%, while the second-ranked Walmart’s market share was only 6.3%, less than a fraction of Amazon’s.
In specific market segments, Amazon’s dominant advantage is even greater. In the online book and magazine market, Amazon’s market share is about 80%. In the electronic products, toys and other markets, Amazon’s market share exceeds 50%. These major market segments account for more than one-third of U.S. online retail sales.
Even based on the overall online and offline retail market, Amazon's market share has reached 10.40%, second only to Wal-Mart's 12.67%. According to the current growth rate, Amazon will surpass Walmart by next year and occupy the top spot in overall retail sales in the United States.
According to the lawsuit, Amazon’s market share in U.S. online third-party market sales is approximately 55%. In 2021, Amazon accounted for 58% of e-commerce traffic in the United States. The California government stated that for third-party sellers who do not have their own channels, Amazon is almost the only third-party sales platform they can rely on.
The U.S. federal government has been preparing to sue Amazon for several years. As early as 2019 during the Trump administration, the two major antitrust regulators, the FTC and the Department of Justice, began antitrust investigations into the four major technology giants: Amazon, Google, Meta and Apple. The pressure Amazon’s e-commerce business puts on third-party sellers is the focus of the investigation.
At the end of 2020, the U.S. government filed antitrust lawsuits against the two giants Google and Meta, and made clear demands for the spin-off of Meta's two major social assets, WhatsApp and Instagram. After the Biden administration took office, it continued to advance these two lawsuits and updated and supplemented the content of the lawsuits.
Before the federal government sued Amazon, two U.S. state and district governments had already filed antitrust lawsuits against the e-commerce giant. In May 2021 and September 2022, the government of the District of Columbia and the government of California filed antitrust lawsuits against Amazon in their respective high courts, accusing the e-commerce giant of abusing its dominant position, violating California's market competition law, using unfair means to suppress third-party sellers, hindering market competition, and raising online prices. Of the two lawsuits, the District of Columbia government's lawsuit was rejected by a District judge, while the California government's lawsuit is still pending.
Small sellers have no choice
What exactly is the FTC accusing Amazon of doing? They stated in the lawsuit document, "Amazon is one company that controls a disproportionate share of the online retail economy. Amazon uses its monopoly power to benefit itself and harm its customers. This includes tens of millions of American families who regularly consume on its platform, as well as hundreds of thousands of small businesses that rely on the Amazon platform to obtain consumers."
The monopolistic behaviors listed in the lawsuit documents include: Amazon requires platform sellers to use Amazon's logistics services in order to enjoy Prime and other benefits and give priority to recommendations to consumers. This operation also harms market competition. In addition, Amazon also preferentially recommends its own products in searches over third-party sellers' products, which reduces the user's shopping experience.
Amazon also forces sellers to sell at the lowest price on the entire network on its own platform, and does not allow sellers to reduce prices on other e-commerce platforms, making it impossible for Amazon's competitors to compete fairly with it. This operation has previously been subject to an antitrust lawsuit from the California government.
The FTC stated that because of Amazon’s dominance in the e-commerce field, third-party sellers have no choice but to accept Amazon’s terms, which increases sellers’ costs, artificially raising the prices paid by consumers and reducing the shopping experience.
The FTC asked the court to issue an injunction to prohibit Amazon from engaging in "illegal operations" and changing Amazon's business. Although it did not explicitly call for the split of WhatsApp and Instagram like it sued Meta, the FTC also recommended in the lawsuit that the judge make "structural adjustments" to Amazon, which is the legal code for breaking up the business.
Lina Khan explained that the lawsuit is currently focused on liability determination, but does not rule out the possibility of breaking up Amazon. The FTC is interested in pursuing any solution that can effectively prevent Amazon from suppressing competition.
It is worth noting that Lina Khan also said that if there is sufficient evidence that Amazon executives need to be held responsible for Amazon’s illegal behavior, the FTC may also list names and add these executives to the lawsuit. "We want to make sure the prosecution is brought against the right person and we won't hesitate if we feel there is merit."
Six years in the making
For Lina Khan herself, suing Amazon has a more important meaning. This is a milestone in her own antitrust research journey and an important step in putting her antitrust ideas into practice. Reena Khan has been planning this for six years. She first became famous for her antitrust research on Amazon.
In 2017, Amazon spent US$13.7 billion to acquire Whole Foods, an offline high-end organic fresh food supermarket chain, officially expanding its e-commerce territory from online to offline. Since Amazon had no offline retail business before, this horizontal expansion acquisition was not rejected by antitrust regulators.
In the same year that Amazon acquired Whole Foods Market, Lina Khan, a 27-year-old female doctoral student at Yale University, published an antitrust paper “Amazon’s Antitrust Paradox” (Amazon’s Antitrust Paradox), which not only clearly criticized Amazon’s monopolistic behavior, but also directly challenged the antitrust regulatory standards that have dominated U.S. regulation for decades.
Lina Khan believes that the traditional Chicago School antitrust standards are no longer suitable for the current Internet platform. She analyzed Amazon's business and competition model and pointed out that although Amazon temporarily allows consumers to enjoy low prices by lowering prices, its platform continues to strengthen its monopoly advantage, which actually reduces market competition and is not conducive to the long-term interests of consumers.
In addition to publishing papers, she also wrote a column in the New York Times, speaking out against Amazon's acquisition of Whole Foods. She criticized the FTC's regulatory decision to approve Amazon's acquisition of Whole Foods Market as being too naive and allowing Amazon to continue to expand its monopoly power in the e-commerce and logistics fields.
Lina Khan, a young scholar who was still unknown at the time, became famous because of this paper and became a representative of the "New Brandes School" in the field of antitrust. She herself also attracted the attention of progressive left-wing politicians such as Democratic Senator Elizabeth Warren, paving the way for her subsequent entry into politics.
Antitrust hawks come to power
Since taking office, Biden has successively appointed hawks to powerful antitrust positions. In 2021, Lina Khan, who is only 31 years old, received the most important nomination and became the chairperson of the antitrust regulator FTC, becoming the youngest chairperson in the history of the FTC. Her colleague at Columbia University, Xiu Ming Wu, served as the Special Assistant to the President for Market Competition at the U.S. National Economic Council. U.S. antitrust lawyer Jonathan Kanter has also served as the head of the Antitrust Department of the Department of Justice.
The three most powerful antitrust positions are now in the hands of hawkish academics. It is worth noting that the installation of Lina Khan and Kanter was not resisted by Senate Republicans, and the Senate confirmation votes for both of them were 69:28 (Wu Xiuming’s appointment does not require Senate confirmation). Obviously, strengthening the supervision of Internet giants and curbing their ever-expanding economic and social influence has become the consensus of American political circles in the past few years.
After Lina Khan became FTC chairperson, the two giants Amazon and Facebook even publicly proposed that due to Lina Khan's long-term criticism of them, she was unable to enforce the law impartially and without bias, and should actively recuse herself from antitrust investigations involving Amazon and Facebook. Of course, Reena Khan did not accept the request.
In the past two and a half years, Lina Khan has led the FTC in launching a series of antitrust lawsuits: continuing to press for the spin-off of Meta, suing Nvidia to successfully block the acquisition of Arm, suing Microsoft to block the acquisition of Activision Blizzard, and suing Meta to block the acquisition of Metaverse startup Within.
Although the latter two lawsuits ended in the FTC's defeat, this did not dampen Lina Khan's fighting spirit. Instead, it prompted her to be more active in launching new lawsuits against technology giants. Since the FTC has no administrative enforcement power, it must use litigation to promote major regulatory adjustments. What Lina Khan really wants to do is to push for the re-legislation of antitrust laws in the United States through lawsuits one after another.
In April last year, she clearly stated her idea of "using litigation to force legislation." "If the FTC believes that (a certain transaction) is suspected of antitrust, and existing antitrust laws may not be applicable, then it should be promoted through litigation, because this will bring huge help. Even if the lawsuit is lost, it can send a clear signal to the legislative body, urging them to update antitrust laws to adapt to the current status of the Internet economy. I am obviously not the kind of person who thinks that winning a lawsuit is considered a success."
New Brandeis School
In the past few years, as American antitrust hawks have taken full power and successively sued Internet giants, the concept of antitrust supervision in the United States has been undergoing a change in recent years. The era of neoliberalism and the Chicago School that became dominant in the 1960s and 1970s is ending. Strengthening the intensity and scope of government supervision and curbing the scale and influence of corporate giants have become the mainstream consensus for future antitrust supervision in the United States. Even small-government Republicans want to rein in the super-powerful Internet companies.
In the Internet antitrust investigation report released by the U.S. House of Representatives in 2020, it clearly called for changes to U.S. antitrust laws. Previously, the basic judgment standard of U.S. antitrust regulatory laws was to focus on consumers, that is, whether the monopoly affected the economic interests of consumers. The U.S. House of Representatives investigation report recommended that Congress re-write antitrust laws to adapt to new changes in the Internet era, and change the monopoly judgment standard to focus on industry competition, that is, whether the monopoly affects the innovation of other competitors in the industry.
Technology companies today have become the same monopoly power they were in the days of oil barons and railroad barons. In a sense, today's Apple, Google, Amazon and Facebook can be compared to several major families a century ago: Rockefeller (oil tycoon), Morgan (financial tycoon), Vanderbilt (transportation tycoon), Carnegie (steel tycoon), all of which also occupy unshakable dominance in their respective industries. However, compared with traditional industry monopoly giants occupying resources and production capacity, the giants in the Internet era dominate data and algorithms. Whoever controls user data controls the market.
Today’s user data has greater value than previous unsustainable physical assets. Moreover, data is sustainable. Users will continue to generate new data when using products. Large amounts of data continue to promote algorithm improvements and continue to expand the dominant advantages of the giants. Apple, Google, Amazon and Facebook are also giants in the field of AI. They control users’ network access and control almost all data on users’ social contacts, shopping, interests and hobbies.
What is rising in the United States today is the "Neo-Brandeisian" school that emphasizes equality. Lous Brandeis is the first Jewish justice of the U.S. Supreme Court and the earliest promoter and banner figure of antitrust regulatory legislation in the United States. Because he provides free public welfare services, advocates raising the minimum wage, limiting the maximum working hours, and curbing the monopoly of corporate giants, Brandeis is also called "the people's lawyer and society's judge."
The New Brandis School believes that the neoliberal antitrust framework is no longer suitable for the digital economy era of technology giants. Internet giants usually provide free services. Their business models cannot be measured by traditional regulatory models, and regulatory authorities have not fully considered the user data issues caused by Internet giants. These scholars believe that the U.S. antitrust regulatory system should be systematically and in-depth restructured just like Brandeis did more than a hundred years ago.