FTC v. Amazon: All You Need To Know About The Upcoming, High-Profile Antitrust Lawsuit

Zinger Key Points
  • FTC Commissioner Lina Khan has long argued against Amazon’s monopolistic position of its core retail business.
  • It is claimed that Amazon indulges in predatory behavior that hurts competition and exerts control over smaller businesses.

The Federal Trade Commission (FTC) is coming down hard on Big Tech. President Joe Biden-appointed commissioner Lina Khan is expected to soon file a new antitrust lawsuit against Amazon.com, Inc. AMZN that risks breaking apart some parts of the company.

The FTC recently lost an antitrust lawsuit which tried to stop Microsoft Corp.’s MSFT $69 billion acquisition of Activision Blizzard Inc. ATVI. The Department of Justice is reportedly reading an antitrust lawsuit against Apple Inc. AAPL and has already sued Google’s parent company, Alphabet Inc GOOGGOOGL, for monopolizing digital advertising technologies, in a case that now has 17 U.S. states involved.

The FTC's upcoming lawsuit against Amazon's core business, which could be filed as soon as August, has the potential to make a lasting impact on the company's dominance over the retail market across the country.

Lina Khan's Case Against Amazon

In 2017, current FTC Commissioner Lina Khan was a student at Yale Law School. The third-year law student, then 29 years old, published a groundbreaking paper in the Yale Law Journal which marked a historic moment in U.S. antitrust law.

The paper, praised by academics and bipartisan politicians, shed a new light on the interpretation of what a monopoly can look like after a look at Amazon's business model.

Antitrust law in the U.S. had so far been focused on "consumer welfare." This means that the most important data used by antitrust regulators to analyze whether a company's operations were against public interest was pricing data.

In traditional economic theory, competition incentives lower prices and for that reason is more desired than a monopoly, where one company dominates that market and is able to manipulate prices at will.

Since Amazon is known for offering low prices to the public, it was kept out of antitrust scrutiny for years. What Khan observed was that this framework was obsolete when looking at Amazon's control and power over the retail market in modern times.

"We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output," wrote Khan.

Amazon's platform approach creates incentives for it to pursue growth over profits, using predatory pricing structures that hurt competition, she argues. Additionally, integration across business lines positions the company "to control the essential infrastructure on which their rivals depend."

Four years later, after serving as a legal fellow at the FTC, Kahn was nominated by Biden to lead the agency and was voted in by a bipartisan Senate, which emphasized the scholar’s original views on Amazon as a reason behind their support.

Khan's FTC v. Amazon

This is not the first time the FTC, under Khan’s leadership, has brought its might down on Amazon.

Earlier this year, the e-commerce giant agreed to pay $30.8 million in settlements with the FTC over allegations of spying on customers through Ring doorbell cameras and violating children's privacy rights with Alexa recordings. 

The FTC has interviewed over 30 Amazon employees under oath during 2022, according to a Bloomberg report.

Another lawsuit was filed last week by the agency, claiming that Amazon has been tricking consumers into signing on to its Prime service and then making it too difficult to cancel the subscription.

The FTC is separately investigating Amazon's proposed acquisition of automatic vacuum cleaner maker iRobot IRBT.

Yet the upcoming antitrust lawsuit is the biggest move in Khan's playbook yet.

The original probe was launched in 2019 but was put on the back burner as most of the agency's workforce was focused on a probe against Meta Platforms Inc. META, which cost the company (then called Facebook) a $5 billion fine for mishandling user data. The investigation into Amazon resurfaced when Khan came into FTC leadership.

The new antitrust lawsuit could be filed as soon as August, people familiar with the matter told Politico, and if won, it has the potential to impose a court order for restructuring Amazon.

A key issue in the upcoming lawsuit is Amazon's control over the commercial success of third-party sellers. The company, it is claimed, to direct sellers to use its own delivery and warehousing services by penalizing those who choose to work independently and rewarding the ones that do by giving them better positions within product listings.

A pressure that forces sellers to use Amazon's ad services to better place products on the site is also under scrutiny.

Amazon's platform approach through Amazon Prime, which now includes book publishing, TV and film productions as well as music and video streaming, could also be part of the probe, which could claim Amazon exerts excessive control over the market through the advantages provided to consumers by Prime subscriptions.

Amazon has claimed that Khan's previous criticism of the company should warrant her recusal from the case. The FTC is expected to file the lawsuit in a federal court instead of its own in-house tribunal, which would mute that claim.

Amazon Price Action: Amazon shares are up 1.8% on Thursday, recovering from losing over 2% on Wednesday before the market opened.

While some analysts blamed the looming FTC lawsuit for the drop, CNBC's Jim Cramer said he believed it was related to plans by Microsoft's CFO to upsize investment into its cloud service arm, which competes with Amazon.

Image by Midjourney AI, edited by Benzinga.

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