The New Yorker Radio Hour - Will the Government Put the Reins on Amazon?

Episode Date: November 10, 2023

In a relatively short period of time, Amazon has exerted an enormous amount of influence over a broad spectrum of American life. From the groceries we buy to the movies and television shows we watch, Amazon has been setting the prices and driving potential competition out of business. Its prices may seem low, but “Amazon has actually quietly been hiking prices for consumers in ways that are not always clearly visible,” the Federal Trade Commission chair, Lina Khan, tells David Remnick, but “can result in consumers paying billions of dollars more than they would if there was actually competition in the market.” Khan, who is thirty-four, published an influential paper about applying antitrust law to Amazon before she was even out of law school; now she is putting those ideas into practice in a suit against the company. “Amazon’s own documents reveal that it recognizes that these merchants live in constant fear of Amazon’s punishments and punitive tactics,” Khan said. “Ultimately, our antitrust laws are about preserving open markets but also making sure people have the economic liberty to not be susceptible to the dictates of a single company.” (The company’s response says that the F.T.C.’s argument is “wrong on the facts and the law.”) New Yorker Radio Hour listeners, we want to hear from you.  We have a few questions about the show and how you listen to it. The survey takes about twenty minutes, and your feedback will help us make our podcast better.  Take the survey here.

This is The New Yorker Radio Hour, a co-production of WNYC Studios and The New Yorker. Welcome to The New Yorker Radio Hour. I'm David Remnick. At some point, in the past 30-odd years, you may have contemplated saying no to Amazon. Maybe you were worried about the brick-and-mortar stores you grew up with, or maybe you were upset about labor practices in the warehouses or tactics described as union-busting. Or maybe it was just a spectacle of the marketer. the second richest person in the entire world, wearing a cowboy hat to space. Whatever the case, after having these thoughts, you probably went and clicked add-to-cart anyway.

It's Amazon. It's convenient. The prices are low. The selection is wide. The shipping is so fast sometimes. It's uncanny. But what if that's wrong? What if Amazon only seems like the best and singular option because it's squeezed out all the other options? The FTC's lawsuit alleges that Amazon is now a monopoly, and it's effectively functioning as a gatekeeper, as a key distribution channel that's connecting millions of consumers and thousands of merchants that are dependent on Amazon to reach them. That's Lena Kahn, the chair of the Federal Trade Commission, which has just filed a lawsuit against Amazon. Khan is 34, but before she'd even finished law school, she wrote an influential paper about how to use a law. anti-trust law against the company. But what does it mean for us, for consumers, if Amazon really is a

monopoly? I talked with Lena Khan. You've been involved in investigating, thinking about Amazon and antitrust for a very long time. And I wonder if there's a historical analogy for Amazon's position in the market now, whether it's in the 19th century or the 20th century. You're absolutely right that There have been moments over the last century where the United States has similarly confronted monopolies that have captured control over key distribution channels or key arteries of commerce. If you look at the various antitrust lawsuits that the FTC or the Department of Justice have brought over the last century, you can think about standard oil, you can think about AT&T. There are various companies that similarly have established a monopoly position that ultimately

the United States determined was unlawful. And Amazon is now using this monopoly power in ways that hurt both sets of customers, both the consumers as well as the merchants. Amazon has steadily been hiking the fees that it charges merchants. That's effectively a 50% Amazon tax. We also allege that Amazon has actually quietly been hiking prices for consumers in ways that is not always so clearly visible, but at the end of the day, can result in consumers paying billions of dollars more than they would if there was actually competition in the market. Give me an example of that, if you wouldn't mind. So one of the practices that the FTC's lawsuits alleges are illegal, or what we call its

anti-discounting practices. For merchants, it's more expensive to sell on Amazon, but their price on Amazon has to be lower than it is anywhere else. And practically what that means is that that merchants raise their prices everywhere other than Amazon. And so in effect, Amazon's practices have actually been inflating prices across the Internet. We also note that Amazon has actually been degrading the quality of its service over the last few years in particular. And Amazon's search page is now polluted with all of these advertisements. And what our investigation revealed is that these ads are not always relevant to consumers, but Amazon has determined that it can make more money by showing these users' ads,

even when those ads are not useful to people, even though those ads are actually steering people to higher cost products. Amazon has now been able to exercise its monopoly power in unchecked ways and in a way that means the American public is losing out. Well, let's go back a little bit. How did Amazon get to this position? and what prevents anyone from competing against Amazon? What's illegal about it?

So what our lawsuit lays out is that, you know, in some ways you can see how there is a monopoly lifecycle, right? And in earlier stages, the tactics that a company uses to become a monopoly may in the short term be good for consumers. But what we now see with Amazon is that it's become so powerful. it's now enjoys a monopoly and it's extracting and exploiting that monopoly in ways that is harming both sets of customers. And in a competitive market, it would be disciplined because it would be hiking prices for merchants and merchants would actually have options for selling elsewhere. But that's just not what we see in this market.

And we allege that's because of Amazon's anti-competitive practices. I'm curious, you're 34 and you have an incredibly influential position. I'd just love to know how at law school you became attached to this issue, why this issue? So it's an interesting question, and I actually became interested in this issue before law school, when I was a business reporter and was doing economic research, and my beat was market consolidation. And I was assigned to do a deep dive in all sorts of sectors of the U.S. economy, including chicken farming.

And this is a market that's basically shaped like an hourglass. So you have millions of, of consumers on one end, millions of farmers on the other end, and they're all connected by a handful of chicken processors. If you're a chicken farmer, you're oftentimes actually just dependent on a single company to get to market. And that asymmetry of bargaining power has led to all sorts of abusive practices. And that overall made me aware of the ways in which consolidated power, concentrated economic power can threaten fundamental liberties and freedoms in the same ways that we've long recognized concentration of political power can undermine democracy. And that's really what

got me interested in the antitrust laws, which go back a century. And we're similarly animated by a fear of concentrated economic power. Lawmakers believe that in the same ways that our constitutional system creates checks and balances in our government's fear, we needed a anti-truss and anti-monopoly laws to create checks and balances and our commercial and economic sphere to similarly safeguard against concentrations of power. You faced a crossroads in your life between becoming a journalist going to the Wall Street Journal and going to law school and pursuing the path you did. Why did you choose honest work? You know, it was a tough call in the Wall Street Journal job would have been.

been a commodities beat reporter and at that point I was really interested in commodities markets. But ultimately I thought it would take me away from from antitrust and anti-monopoly issues. And at that time, I thought, you know, the moment was ripe for reinvigorated antitrust. And so law school would be the way to go. Do you use Amazon? Occasionally, I'm not a prime user, but, you know, once in a while if there's something I need. What do you use it for? I recently had a baby, and so, you know, once in a while if I need something, you know, be it diapers or wipes or whatnot, I've used it.

When Amazon first came along, I'm a book reader, and I live in New York. See, there are plenty of bookstores, or they're diminishing, and I made the obvious discovery. I can get anything on Amazon, whereas I can't get anything, even if I try, in bookstores, and it had a certain allure. And I think this goes with other product as well. So how do you deal with that problem? In other words, it's enormously popular as well as a gigantic conglomerate. What this lawsuit is ultimately about is wanting to make sure we have the open competitive markets that allow the next set of Amazon's to come along. And what our lawsuit finds is that because Amazon has insulated itself off from those competitive pressures, it's able to actually hurt its customers. customers with impunity. It's not always going to be visible because Amazon's using these secret

pricing algorithms that are raising prices without people often detecting it. But I think on the quality dimension, people can see how, you know, if you're searching for a product, the first dozen may be for irrelevant products. You may have to scroll down a whole bunch to even find what you're looking for. And then for the merchants as well. I mean, you know, we're consumers, but a lot of people are also entrepreneurs or also small businesses. And Amazon's own documents reveal that it recognizes these merchants live

in constant fear of Amazon's punishments and punitive tactics. And ultimately, our antitrust laws are about preserving open markets, but also making sure people have the economic liberty to not be susceptible to the dictates of a single company. What's an example of a would-be competitor to Amazon getting crushed,

under the wheels of Amazon's tactics? It can be difficult to fully capture the competition that's been lost, the innovation that's been lost, all of the benefits that have been foregone because these are entire trajectories that have been lost to us because of Amazon's practices. Now, what is Amazon arguing in the case? They say that Amazon is highly entrepreneurial. It's responsible for nearly 40% of e-commerce sales and allows 500,000. independent sellers to sell their products online, whereas they might have languished without the

rise of Amazon. What do you say to that? Ultimately, this is about wanting to make sure we have the market conditions for the next set of successful companies to be able to enter the market and compete on the merits. What you really want in an open competitive market is for companies to fail or succeed based on whether customers like their product, based on whether they have, you know, savvy business strategies. And unfortunately, we've seen in this market that even if a retailer was more efficient, even if a retailer had better prices, because of Amazon's anti-competitive restraints and the anti-competitive tactics, those firms would not be able to get a fair shake in the market. What could Amazon do to be less anti-competitive? And how would consumers benefit?

So our lawsuit identifies two sets of practices. One is the set of anti-discount. practices that I described, all of these tactics that they use to basically elevate prices on Amazon but also on other retail channels. We also note that Amazon basically prohibits and makes very difficult what's known as multi-homing, where they effectively require that if you're a merchant that wants to make a whole bunch of sales in Amazon, you have to also use what's known as fulfillment by Amazon. And what this effectively does is makes it much, more difficult for sellers to also sell on other platforms. There was a moment at time when Amazon actually relaxed this coercive tie, and this program was

enormously popular, but Amazon quickly recognized that allowing merchants to use other fulfillment providers could actually also empower other retailers and other platforms, because you would basically have a platform-a-gnostic fulfillment provider. that sellers could use to build up business elsewhere. And ultimately, Amazon recognized that that was a competitive threat, and so it shut it down. And so if you're Amazon, the biggest threat to you competitively would be if a different platform also built up a critical mass of customers, a critical mass of merchants, and started benefiting from the accelerated growth that digital markets can provide.

And so once Amazon itself developed and established, that enormous scale, it's undertaken a whole set of tactics to make sure nobody else can become even remotely as big. In the history of antitrust law, you've had instances where dominant and domineering companies have been broken up, whether it's in the oil industry, the railroads, and so on. Do you want to see Amazon broken up? And when you think about effective remedies, you want to make sure that the competition that's been lost is fully restored. And when you have digital markets, you know, the relationship between the anti-competitive practice and the harm is not one-to-one. It's exponential. The harms in these markets accumulate, they aggregate in

exponential ways. And at the end of the day, that means you may need a more significant remedy. We want everything to be on the table, including breakups. I think you're telling me the answer to my question is, yes, you want to see it broken up. Well, look, again, I don't want to get ahead of the lawsuit, but historically there have been all sorts of remedies, including breakup, but including, you know, other types of commitments that the firms have to make. In this instance, we're really focused on whatever addresses the problem. The important thing here is we need to be sensitive to the particularities of digital markets. And so we're going to want to make sure that we're fully explaining to the judge how these markets work and help the judge reach a determination

about what an effective remedy would look like. I'm talking with Lena Kahn, chair of the Federal Trade Commission. More in a moment. Do you think the tech companies benefited by the fact that unlike, you know, the robber barons and their top hats and their big bellies and, you know, the kind of cartoonish, rapacious imagery that surrounded them, that, you know, these guys and, you know, khaki pants and polo shirts and a very different set of imagery. and also people were very taken with the tech revolution. Do you think that made the government slow to look hard at these companies and monopolistic practices? I think it's certainly true that when we saw the advent of digital markets,

there was a sense that these markets are so new, they're so fast moving, they're so dynamic, that the best thing for the government to do is to step back and get out of the way. And I think unfortunately we've come to regret that. We've seen all sorts of instances in which there were missed opportunities to stop illegal acquisitions or to stop illegal or predatory business models from getting a hold. I think as we see from Congress, there's a lot of concern about people's privacy and the way about how some of these business models incentivize the endless hoovering up of people's sensitive data, be it their geolocation data, be it, their health data. It's undermining people's privacy. It's hurting kids. So I think we're now, you know, reeling from that. I think the government's attention on AI is also now informed by

some of those missed opportunities. And there's a great sense that we don't want to repeat the mistakes of, you know, Web 2.0 and the social media companies. What's the biggest mistake we could be making where AI is concerned? Well, I think we need to be very vigilant about whether we are, again, going to have a system in a market where a handful of companies control all of the relevant inputs, all of the relevant tools and technologies, be it cloud computing, be it the relevant base models and all of the data, especially if AI becomes essential to a whole set of markets. What we don't want is for the rest of the economy to be dependent on the decisions of a handful of gatekeepers. Now, we're talking a lot about Amazon here, but other tech companies,

and he's like Google and meta have been in the crosshairs of federal agencies too. The FTC dropped an antitrust case against meta. But this month, 41 states sued META for a different reason, that their social media platforms are addictive and harm kids in some ways. It's rare that we see this kind of bipartisanship in federal regulation. What do you make of that? I think you're absolutely right that there is just a deep sense in a bipartisan way that some of these companies are now exercising unaccountable power in ways that's really hurting us.

It's hurting our pocketbooks, but it's also hurting our privacy. The state lawsuit that you mentioned really takes after some practices that the states allege are hurting kids, including hurting their mental health. And so I think we are really at a crossroads where there's a bipartisan recognition that unchecked monopoly power is bad for Americans. There's a long and rich American history of us taking on unchecked monopoly power and making sure our markets are open and fair and competitive. Do you have similar bipartisan support around the Amazon case that we've seen in the meta case? Where do you think the politics come down?

So our lawsuit was, we were joined by a whole set of state attorneys general, including a few Republican state. So we've been pleased with that Republican support for the lawsuit. I'll also note that in Congress, you know, there are various efforts to be legislating in ways that would address Amazon and all sorts of other companies. And those efforts are bipartisan as well. Do you find that there's a sophistication about the tech companies in Congress? I say that in a leading sort of way because when I watch sometimes public hearings, committee hearings about tech, the level of cluelessness among members of Congress can sometimes be stunning. Look, I had the great honor of working for a congressional antitrust subcommittee that undertook an investigation into Google, Amazon, Facebook, and Apple. And, you know, the members on our subcommittee were enormously sharp. They enormously understood the very real risks. And we're very proud of the work that came out of those efforts. I think more generally, you know, members of Congress are now hearing directly from their constituents, you know, concerns about kids' privacy, concerns from merchants, concerns from merchants, from startups and entrepreneurs that have been locked out of markets. And so I think in a very real sense,

they're seeing and learning and hearing directly about the power of these companies. And so I think, you know, that's driving a lot of the forward movement. Finally, in the history of trust busting, you saw real breakthroughs during the progressive era and then again during the New Deal era. Do you think we're on the cusp of that kind of situation? I think this is certainly a historic moment in antitrust. And President Biden has identified reinvigorated antitrust and anti-monopoly as a key objective of this administration. We at the FTC are really proud to be on the front lines of that effort. But it's really a whole of government effort right now to be reinjecting fair competition. And, you know, I think all too often people feel like they don't get a fair shake in our economy.

And reinvigorated antitrust is a key part of fixing that. Lena Kahn, thank you so much. Thanks for having me. That's Lena Khan, chair of the Federal Trade Commission. The FTC has filed a landmark anti-trust case against Amazon in September, along with 17 states. You can read more about it from our business reporter Sheila Cole Hatcar at New Yorker.com. Amazon is fighting that suit saying the FTC is, quote, wrong on the facts and the law. I'm David Remnick. Thanks for listening to the show this week. See you next time.

The New Yorker Radio Hour is a co-production of WNYCC. studios and The New Yorker. Our theme music was composed and performed by Merrill Garbess of Tune Arts, with additional music by Louis Mitchell. This episode was produced by Max Walton, Adam Howard, Kalalia, David Krasnow, Jeffrey Masters, and Louis Mitchell, with guidance from Emily Boutin and assistance from Mike Cutchman, Michael May, David Gable, and Alejandro Deccett.

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