Today, Explained - Why the US is suing Amazon

Episode Date: September 27, 2023

The Federal Trade Commission has brought a landmark antitrust suit against Amazon. The Verge’s Makena Kelly and former FTC director Bill Baer explain how it’s part of chair Lina Khan’s effort to change the way the US regulates monopolies. This episode was produced by Amanda Lewellyn and Haleema Shah, edited by Amina Al-Sadi, fact-checked by Hady Mawajdeh and Jon Ehrens, engineered by David Herman, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

The United States government is suing Amazon.com. So this case is ultimately about competition and competition that has been foregone because of Amazon's unlawful tactics, as the complaint lays out. It's a clash of the titans. Biden versus Bezos. Prime versus Priority Mail Express. FTC versus AMZ. Okay, truth be told, it's a lot more complicated than any of those things. What it is, is it's coming up on Today Explained. People are paying higher prices, right? Consumers are paying more than they otherwise would. Small businesses are having to pay a 50% Amazon tax right now. And so ultimately, the complaint is seeking to restore the lost promise of

competition. Greater competition will mean lower prices, better quality, better selection and greater innovation. And that's ultimately what this case is about. This NFL season, get in on all the hard hitting action with FanDuel, North America's number one sportsbook. You can bet on anything from money lines to spreads and player props, or combine your bets in a same-game parlay for a shot at an even bigger payout.

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we reached out to McKenna Kelly at The Verge to find out why. It's a really big case, and it's something that folks have been expecting for a couple of years now. If not, like under the Trump administration, then definitely when our current FTC chair, Lena Kahn, was confirmed in 2021 when President Biden was first inaugurated. Has anything like this ever happened before? Is this like the first time the government's gone at Amazon? The state governments have issued similar cases in the past, D.C. and California being like the only two that have challenged Amazon at this scale on state antitrust laws. Amazon's practices prevent basic price competition. California Attorney General

Rob Bonta is suing Amazon, accusing the company of engaging in unfair business practices by pushing sellers to maintain higher prices on products sold on other sites. But this is the first time at the FTC a federal agency has gone after Amazon and basically its entire business model, which is wild to think that the government is taking up, you know, such a popular company that people use every day and looking at just even the most basic ways that it operates. Well, tell us what the FTC is saying. What is Amazon's sin here? So the lawsuit accuses Amazon of basically leveraging its market dominance to stamp out would-be competitors. These are a set of tactics, but ultimately Amazon has pursued them

to deprive actual and potential competitors of the ability to gain the scale and momentum needed to effectively compete online. There's a variety of different competitors here, others being, you know, just other online marketplaces. Ass assume like you're going on walmart.com to try and find a similar product, or also the third party sellers that use Amazon's platform in the first place. So in order to maintain that dominance, Amazon is accused of deploying a variety of different strategies, like burying listings that some third party sellers are offering, you know, lower prices on other sites. So they'll bring those down in search results or even charging sellers these exorbitant fees to even use the platform and list their products in the first place on Amazon. What did I buy last on Amazon? I bought cat food.

And so when I just type in cat food, what do I see at first? I see advertisements for a variety of different, whether it's the wet food, the dry food, whatever. It's these different third-party sellers, whether that is, I don't know, like the Rachel Ray cat food. A great taste that your cat or cats are going to love. The Purina, whatever it is. They will buy these ads in the search results in order to have their products shown higher up than everything else. And Amazon has power over, you know, the search listings because it runs the website, right? And so in order for these third-party sellers to know

that people are going to see their products, it is actually, you know, better for them to buy the ads in the first place, rather than leaving it up to whatever Amazon's, you know, black box of an algorithm is. And so in order to even use the platform, folks kind of prefer using the ads, which then of course, you know, puts more money in Amazon's pockets, which can even create its own competing, you know, dog food. There's like an Amazon basics, like pet food or something. Then of course, like they're in the running against the other brands and third party sellers as well. Which is like plausible. They own Whole Foods. Yeah, they do. Along with a bunch of other different kinds of businesses. So if Amazon wants to sell ads to boost, I don't know, like Chairman

Meow's like pet food into the search results a little higher up or whatever. Is that technically illegal? That's kind of what Chair Khan and the FTC is trying to test right now. For however long, probably since the 70s and the 80s, American antitrust school of thought is basically saying that, well, it's not anti-competitive as so long as the business is reducing prices. What Kahn, the FTC, and even the Biden DOJ right now is testing in a variety of their antitrust cases is a different way of thought, which is looking at competition first, rather than just the prices and the short-term effects on consumers. This case is about the competition that has been lost

because of Amazon's monopolization and their unlawful tactics. And consumers should be entitled to lower prices, to more competition, to more innovation. Similarly, sellers should be entitled to greater competition. And this alternative universe to greater competition. And this alternative universe of greater competition, greater innovation, lower prices, better quality has been lost because of these tactics. And that's what we're really trying to get justice for. What do they want Amazon to do about it? Or what do they want Amazon to do instead?

It called for what it said was structural remedies. And for the keen observer and reporters who read these press releases all the time, that typically means a breakup. What would break off and what would happen? Even just earlier on Tuesday, Khan was pretty tight lipped on what she was looking for if something was to get pulled out of Amazon. But it does look like they're trying to, you know, shake down the company out of, you know, these different parts and businesses that it's accusing it of being, you know, so anti-competitive. Did Amazon respond? Yeah, Amazon and, you know, different industry trade groups are really quick to point out that a lot of the lawsuit, which mind you, is 172 pages, it was very long, uses the word

sellers more than it uses the word consumers. And so essentially, they're pointing out that Amazon and of course, these industry trade groups, these people who, you know, end up being a bit more supportive of business, these folks are basically pointing out that it sounds like the FTC wants to create more competition against Amazon rather than doing what is in the best interest of consumers. Amazon, of course, not the only company getting some antitrust attention in tech. We recently covered Google on the show. How does this suit compare to that one? So the Amazon case is fairly similar to the DOJ's Google antitrust case.

You know, the Google case going on right now, like you mentioned, is a search trial having to do with Google's search engine and how it ranks, you know, its competitors in its search. But the government under Biden has been pursuing a ton of antitrust cases. The FTC itself has gone after Meta. Mark Zuckerberg taking the stand today in a San Jose court, and he's making the case that The FTC itself has gone after Meta. Mark Zuckerberg taking the stand today in a San Jose court, and he's making the case that the FTC should allow Meta to buy the VR studio within Unlimited. They make a popular fitness app called Supernatural. The DOJ has gone after Google several times. Lawyers for the Department of Justice arrived here this morning to present their case alleging that Google got to its 90% market share

by breaking the law and engaging in anti-competitive practices. The search case is just the first one to really hit the courts and start taking place. But there has been this really big ramp up in attention in competition and antitrust in markets over the last couple of years. I think that has a lot to do with like our current economic state with inflation and folks, you know, really kind of suffering to pay bills and stuff. And I think it also has to do with just like this change in thinking that is finally, you know, finding some support under the Biden administration after, you know, how many years. What happens next? Is Amazon going to end up in an actual federal courtroom or is this just gonna resolve itself peacefully what what do you think there is always room for there to be a settlement

but from amazon's statement on tuesday responding to it i would be shocked if they reach some kind of settlement but you know how long did it take to prepare this case? At least, you know, three years, if not more. We're going to be looking at, if not five, ten more years of litigation waiting for this day at the courts. Even though this Amazon case could be Lena Kahn's legacy in this role, it is going to outlive her for sure, and probably even the Biden administration itself. You can read McKenna Kelly at TheVerge.com. When we're back on Today Explained, we'll have a former FTC director weigh in on this lawsuit.

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And because we're all connected over text message, it was just so easy to send a link to everybody. You can save on the perfect gift by visiting AuraFrames.com to get $35 off Aura's best-selling Carvermat frames with promo code EXPLAINED at checkout. That's A-U-R-A-Frames.com, promo code EXPLAINED. This deal is exclusive to listeners and available just in time for the holidays. Terms and conditions do apply. Today Explained listeners meet Bill. I'm Bill Baer. I'm a visiting fellow at the Brookings Institution in Washington, D.C., previously served in the Justice Department as head of antitrust enforcement and before that as head of antitrust enforcement at the Federal Trade Commission. Okay, so you know a thing or two about the FTC, I imagine. I sure hope so. Tell me about the boss over there.

Tell me about FTC chair, Lena Kahn. I hear she and Amazon go way back. She wrote a piece as a law student that was published in the Yale Law Journal. The Amazon Antitrust Paradox by Lena Kahn. Unprecedented for a law student to get that kind of prominent placement in one of the preeminent legal journals. And the piece was about Amazon as a monopolist. How and why antitrust enforcers up to now and the courts have failed to adequately challenge behavior by a successful tech platform by Amazon. The company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other

businesses that depend upon it. Elements of the firm's structure and conduct pose anti-competitive concerns, yet it has escaped antitrust scrutiny. It was symbolic of a rethinking of antitrust among many progressives. The concern, one I share, is that antitrust enforcement had gotten way too conservative in the last 30 or 40 years. The courts weren't applying the literal language of our antitrust statutes. They were imposing on the government a very high standard of proof to challenge monopolies, to challenge mergers that increase concentrations. The current framework in antitrust, specifically its pegging competition to consumer welfare, defined as short-term price effects, is unequipped to capture the architecture of market power in the modern economy. The lightbulb moment in Lina Khan's paper was that these tech platforms, including Amazon, which had

been providing a new kind of service to us as consumers, were not benefiting us in many ways that competition should. That these tech platforms, which claim to be providing us a free service, actually are costing us a lot. We pay not with money to go on the Amazon platform and shop or to go on the Google platform and search, but we pay with our personal data. And that personal data is then sold or used by the companies to make money. And traditional antitrust thinks about consumer injury as having to pay more for a product or a service than we would in a competitive market. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output. She focused on the notion that we are paying something, but it is a cost that's hidden from us. And that is a problem that requires a new look, a new approach to antitrust

in order to address problematic behavior by tech platforms like Amazon. Consumer interests include not only cost, but also product quality, variety, and innovation. Protecting these long-term interests requires a much thicker conception of consumer welfare than what guides the current approach. Does she offer any solutions in this paper, or was it more diagnosing a problem? She both diagnosed a problem and suggested we needed various restrictions on what a dominant platform like Amazon can and cannot do to limit opportunities for competitors. She also raised the possibility that a company like Amazon should be broken up into various component parts. So what does Lena Kahn do between writing that paper and becoming the chair of the FTC at the probably unprecedented age of 32? She came to Washington.

She spent some time working on antitrust issues at the Federal Trade Commission. She then joined the House Judiciary's Antitrust issues at the Federal Trade Commission. She then joined the House Judiciary's Antitrust Subcommittee as a staffer, and she helped run a series of hearings in the fall of 2020, where the Antitrust Subcommittee brought the CEOs of these successful tech platforms to Washington for a series of hearings. How do you sustain a business model in which users don't pay for your service? Senator, we run ads. I see.

Interestingly, both Republicans and Democrats began to express concerns about dominance of these companies, the personal data they had on us, what they were doing with that data, and whether or not they were improperly excluding competitors from online market competition. She was a principal author of an extensive report that summarized the findings and made a series of recommendations challenging tech platforms, including Amazon, under the U.S. antitrust laws. A 450-page report found Amazon, Google, Facebook, and Apple have abused their market dominance by charging excessive fees and extracting valuable data from users. Recommendations include forcing the firms to divest related businesses. How surprising is it when Biden gives her the top job at the FTC? It was not surprising that he appointed her as a commissioner. But the day she was confirmed by the

Senate, the president, who has the authority to designate who will be the chair of the commission, said, and I want this person to be chair. That was a surprise, but, you know, it was the president's right to make the choice he did. And she went out of the agency and got to work right away. She has brought a number of cases, challenged a lot of transactions, forced companies to abandon some deals that she and her fellow commissioners thought problematic. In court, though, some of the challenges have not been successful. Are you bringing cases that you expect to lose? Absolutely not. Okay, well, your track record seems to suggest otherwise. She challenged a meta acquisition of a company called Within that is in the virtual gaming space.

A federal judge shot them down summarily. Even as Khan tried to argue that Meta could make a similar product themselves. The FTC more recently challenged Microsoft's effort to buy Activision. Activision makes some of the leading online and council games like Call of Duty. The FTC wanted to ban that transaction entirely. The judge has denied that preliminary injunction, meaning Microsoft at least will likely try to go forward here in the U.S. to buy Activision for $69 billion. But this is a big loss for FTC chair Lina Khan.

She came out swinging against big tech and hasn't really delivered. She did get concessions in which Microsoft promised it would make that game available to other makers of gaming consoles. So it was a loss in terms of not blocking the deal entirely, but a win in terms of making sure Microsoft did not abuse the power it would get from buying Activision and controlling access to two of or three of the most popular games for gamers.

I'm certainly not somebody who thinks that success is marked by a 100% court record. I think we need to be, as public enforcers, we have a special obligation to be bringing the hard cases. I think it's also really important to be having the institutional dialogue among the three branches. So if the antitrust agencies look at the market, think that there's a law violation, think that, you know, the current law might make it difficult to reach, there's huge benefit to still trying. Because if you don't try, the message that sends out to the world is that the enforcers don't think there's a problem in the market. Bill, you've worked inside these systems. You've worked on these types of cases. I wonder,

you know, we've been hearing about reigning in big tech for years now, to the point where it's become sort of cliche and it falls on deaf ears, not much has happened. It seems like big tech is still in charge, is still calling the shots, only, you know, concedes when they themselves want to, when they see a business opportunity, like Apple recently saying that, you know, we're going to be carbon neutral by 2030 or 2050 or whatever it is. Has the government had any success here? And might this be the first time if she wins this suit? Well, there are a bunch of challenges pending. The problem with antitrust litigation is it takes a long time. So we've got the FTC

having sued Facebook in the Trump administration, the Department of Justice having sued Google, also in the Trump administration. Those cases are just making their way to trial three years after they were initiated. So what happens is the government identifies a problem, brings a challenge, then things kind of appear to go quiet because discovery is going on. Documents are being exchanged. Depositions are being taken. And it's only when, as is happening as of last week with Google, when the trial starts that the evidence gets presented and we begin to see progress towards an outcome, whatever that might be.

So government moves slow. Antitrust moves slow, tech famously moves fast and breaks things. Is government ill-equipped in this country to regulate tech? That is a concern. At the same time, once a case is brought and litigated, it establishes precedent that courts, that companies rather, that want to be antitrust compliant will follow. There's more than just the one case at stake here. It's providing guidance to companies and antitrust enforcers about what is illegitimate, anti-competitive behavior and how it can be challenged and stopped.

You sound hopeful. I am. Looking at the Amazon complaint, the allegations in there, although we can't see them all because the company has claimed confidentiality over the public version of the complaint, but the allegations suggest a pattern of conduct by Amazon that is problematic. And if those facts, as alleged, are proven in court, Amazon is in a world of hurt. Bill Baer, find him at Brookings. Amanda Llewellyn, Halima Shah, Amina Alsadi, David Herman, John Ahrens, Hadi Mawagdi.

Find them at Today Explained. you