Pro Antitrust – Amazon is Even Bigger than the River

It merits a look back in history to understand how antitrust laws were written (e.g., the Sherman Antitrust Act of 1890) and enforced… and what the harm they were intended to curb. From Teach Democracy: "‘Captains of industry’ like John D. Rockefeller and J.P. Morgan formed huge corporations owned by stockholders. The companies grew through two strategies—vertical integration and horizontal integration. In vertical integration, a company operates on more than one stage of production and distribution. For example, the Pabst Brewing Company owned breweries, saloons, and even forest lands for the wood to make beer barrels.

“In horizontal integration, a company expands by merging, usually by buying out rival firms. Between 1897 and 1901, more than 2,000 mergers took place in the United States. This horizontal integration reduced the number of competitive companies in an industry.

“Defenders of ‘corporate bigness’ claimed that the new super-corporations created jobs and efficiently produced and distributed goods and services at a lower cost. They further argued that property and contract rights permitted businesses to pursue their economic interests as they saw fit without government interference. This reflected the laissez faire (let business alone) idea of capitalism.

“Others, however, attacked corporate abuses practiced by those they called ‘robber barons.’ The large corporations sometimes sold their products below cost until they drove competitors into bankruptcy or forced them to merge. Once a dominant firm eliminated most of its competition, it became a monopoly that could charge whatever prices and pay whatever wages it wanted.

“By 1880, John D. Rockefeller had merged about 100 independent oil refineries with his Standard Oil Company. He controlled about 90 percent of the U.S. oil business. (Oil was used to light kerosene lamps, utilized throughout the country.) In 1882, Rockefeller formed the Standard Oil Trust. He set up a board of trustees to take control of all the stock from his many vertically and horizontally connected companies.” The remedies granted to the courts included treble damages and corporate divestiture (breaking up the monoliths). And indeed, those robber barons saw their companies broken apart, and many of those surviving entities endure to the present day.

The Federal Trade Commission and the Department of Justice were given the legal authority to enforce the antitrust laws and bring actions in federal court. Over time, large corporate mergers and acquisitions were even subject to pre-merger review under the 1976 Hart-Scott-Rodino Act that established the federal premerger notification program (filed with the FTC). Unlike the European Union antitrust laws, where mere corporate size and dominance is sufficient to give rise to major remedies, including massive fines and extraordinary divestiture orders, the US statues require abusive mergers (or collusion, including “conscious parallelism”) and/or manipulative market practices (like price-fixing or other unreasonable restraints of trade) to trigger enforcement.

Hart-Scott-Rodino seemed as if it would be a remedy for the merger mania of the 1960s, but it actually made antitrust enforcement much worse. The FTC prereview often required minor merger-acquisition divestiture as a condition of approval under that law, but once such approval were granted (and the approvals were exceptionally lax), the resulting monolith need only be concerned with any parallel issues overseas (most the European Union). For example, when Disney bought 21st Century Fox in 2019, with a price tag of $71.3 billion, the overlaps between Fox Sports and Disney’s ESPN required a divestiture of 22 Fox Sports local cable telecasters. A tiny slap on the wrist, given the magnitude on the entertainment industry.

In the Trump era, antitrust laws were pretty much ignored. When Joe Biden was elected, he appointed an aggressive young lawyer, Lina Khan, to run the FTC antirust unit. Khan’s nascent pledge was to resurrect the Sherman Act and related statutes to rein in massive corporate monoliths now dominating the US market. Often the new corporate monoliths grew mostly organically without relying as much on mergers and acquisitions… they were building in a new Internet-driven space where there literally were no preexisting players. Facebook/Meta, Microsoft and Amazon redefined economic (and political power) at warp speed. Despite a plethora of law review articles and Congressional hearings pointing out the obvious harm, these new monoliths had size and revenues that mirrored the GDP of major nations. As the European Union tackled these giants, the United States held hearings. And nothing happened here.

Having struggled with certain earlier efforts, on September 26th, the Federal Trade Commission, joined by 17 states, filed a massive (174 pages) lawsuit against Amazon. This time, Lina Khan sidestepped the traps that had cost her earlier efforts… and the remedies were not simply limited. On September 28th, LA Times columnist Michael Hiltzik, tackled the case: “The [Amazon]’s public response to the lawsuit is that it would result in ‘fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses,’ its general counsel, David Zapolsky, said in a prepared statement, adding that the agency is ‘wrong on the facts and the law.’

“But most of the FTC’s allegations are familiar enough. Consumers know how hard it is to determine whether Amazon’s prices are the lowest available. They know that when they’re searching for an item on Amazon.com, the varieties pushed at them most assiduously are those from Amazon’s commercial partners or marketed by Amazon itself… [It’s] it’s especially important in this case, because there are so very few corporations that dominate their markets so powerfully.

“The FTC points to Amazon’s ability to leverage its various businesses, which include its ‘fulfillment’ services — the warehousing, packing and shipping of sellers’ merchandise — and Prime eligibility, which gives sellers’ products preferential placement on the website and by eliminating shipping charges lowers the cost of their products for buyers.

“That suggests that one answer would be to break up Amazon, say by forcing it to divest its fulfillment operation. FTC Chair Lina Khan dodged that issue in her statements about the lawsuit, possibly because she knows that the remedy to Amazon’s misdeeds, assuming it’s found guilty, would be in the hands of a federal judge… ‘At this stage, the focus is more on liability,’ she told reporters in a briefing session Tuesday [9/26]. On Wednesday [9/27], during an appearance at a Washington, D.C., conference sponsored by Politico, she noted that in the lawsuit ‘we don’t specify any one type of remedy.’… She also observed, however, that ‘the harms here are really mutually reinforcing, and have basically created a really distorted and competitive landscape ... that may require significant relief.’”

You can bet that no matter how many government lawyers and investigators the FTC and the plaintiff states throw into this mix, Amazon can employ more. If a micro-dot of an economic player like Donald Trump can hose the judicial system for years – delay tactics are his signature move – you can only imagine what the phalanxes of Amazon lawyers will do in this case. And if Donald Trump were to win the presidency in 2024, I suspect this case would quickly die.

I’m Peter Dekom, and this case is absolutely the most import government filing in the world of private commerce in America’s history.