National debate continues regarding Amazon’s proposed $13.7 billion acquisition of Whole Foods. On July 28, the Washington Post — a publication owned by Amazon’s founder and CEO, Jeff Bezos — published an in-depth piece by business and economics columnist Steven Pearlstein detailing the antitrust concerns over Amazon’s growth.
Pearlstein’s column, “Is Amazon Getting Too Big?,” focused in large part on Lina Khan, who wrote a comprehensive and attention-grabbing article in the Yale Law Journal, “Amazon’s Antitrust Paradox,” and also discussed the efforts by New America, a progressive think tank, to shed light on how Amazon just might be entering monopoly territory.
In his article, Pearlstein reports that, since its publication in January 2017, Khan’s 24,000-word article has garnered more than 50,000 readers online, “an extraordinary reach” for a law review piece. “Her work has been cited by the Economist, the Financial Times, Forbes, Wired, the Wall Street Journal, and the New York Times, and she has appeared on major broadcast media. Last spring, she was invited to join some of the most prominent academics in antitrust law to speak at an economic conference at the University of Chicago.”
In Khan’s piece for Yale Law Journal, she contends that the current antitrust framework, tying competition to consumer welfare, is not adequate to capture the architecture of market power in the modern economy. Measuring the potential harm to competition posed by Amazon’s market dominance simply through price and output does not provide an accurate assessment as current antitrust doctrine “underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive.”
The current legal antitrust view, Pearlstein explains, stems from Robert Bork’s influential book The Antitrust Paradox, published in 1978, in which Bork argued that judges should use “rigorous analysis of economic consequences in deciding antitrust cases,” the article noted. Prior to the book’s publication, judges were more apt to base their antitrust legal analysis on the size of a company — and how it might use its size to “drive rivals from the market, raise prices, buy favorable treatment from legislators and regulators,” Pearlstein sums up. Indeed, in 1963, the U.S. Supreme Court declared that any merger that achieved more than a 30 percent share of any market should be considered unlawful, Pearlstein writes.
In contrast, Pearlstein writes, “Bork argued that rather than helping consumers, most antitrust enforcement was likely to do the opposite, stifling innovation and preventing companies from realizing efficiencies of scale and scope that could be passed on to consumers in the form of lower prices, more choice, and greater convenience.”
No surprise then that this began a 30-year stretch where the federal government blocked very few mergers and “prosecuted almost no companies for monopolizing competition.”
Despite Bork’s assertions, some economists and others have begun to argue that this view of antitrust law is likely not good for consumers in the new economy. Three-quarters of mergers have resulted in price increases without any offsetting benefits, according to research by John Kwoka of Northeastern University. “And even former antitrust officials acknowledge that their approval of Google’s purchase of YouTube and ITA Software and Facebook’s acquisition of Instagram and WhatsApp look naive in hindsight, eliminating the kinds of companies that might have someday challenged the tech sector’s most dominant firms,” Pearlstein points out.
In the current economic and business environment, companies that jump into an early lead can gain such an overwhelming advantage that new rivals find it nearly impossible to enter the market, while even experienced ones find it difficult to stay in the game.
Amazon, due to its breadth and complexity, confounds traditional antitrust analysis, Pearlstein states. “What began as an online book retailer now sells just about everything under the sun — not just online but, more recently, also through physical stores and pickup depots. In hundreds of high-volume categories, Amazon is not only a retailer but also produces its own branded line of merchandise.”
The problem is not so much Amazon, but how antitrust laws are perceived, Khan told the Washington Post. “Amazon has brought us to a new and better place,” Khan said. “So did the early railroads and steel company giants. But I don’t think Amazon is the problem — the state of the law is the problem, and Amazon illustrates that in a powerful way.”