The Federal Trade Commission has filed a lawsuit against Amazon, claiming that it wields monopoly power in online retail.
According to the FTC, Amazon “is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.”
Here are some of the strategies included in the official complaint:
- Amazon used an algorithm to gauge consumer and competitor sensitivity to price changes.
- Amazon demotes third-party sellers in search results if the item is sold at a lower price elsewhere.
- Amazon reserves Prime eligibility for sellers who use Amazon’s fulfillment services.
- Amazon puts its own products near the top of search results.
- Amazon charges advertising fees for sellers to be placed at the top of search results.
- Amazon charges fees to sell on Amazon. (?)
Astute readers will see the contradictions and inanity immediately. You have to wonder if the lawyers at the FTC cracked a smile while accusing Amazon of being a monopoly due to the way it observed competitors’ responses to price changes. Or if they giggled at the thought of going after grocery stores for putting store brand items on shelves at eye level, if they successfully punish Amazon for putting Amazon-branded items at the top of search results.
The contradictions continue in the Wall Street Journal’s reporting on the case:
FTC Chair Lina Khan originally argued in her 2017 Yale Law Review article that Amazon hurt its rivals by heavily discounting. However, the substance of the FTC complaint is focused on Amazon’s ability to raise prices. Antitrust experts pointed out that often the behavior of a company differs when it is building a monopoly, where it may cut prices to hurt rivals and grow market share, and maintaining one, where it has the freedom to now raise prices and degrade services because there are fewer viable rivals.
Apparently, Amazon is damned if they lower prices and damned if they raise prices.
Murray Rothbard dealt with this claim in Man, Economy, and State, concluding that “cutthroat competition” is nothing to fear.
For selling a product at very low prices, even at short-term losses, is a bonanza to the consumers, and there is no reason why this gift to the consumers should be deplored. Furthermore, if the consumers were really indignant about this form of competition, they would scornfully refuse to accept this gift and instead continue to patronize the allegedly “victimized” competitor. When they do not do so and instead rush to acquire the bargains, they are indicating their perfect contentment with this state of affairs.
Thus, businesses can only use this strategy to the extent that consumers will play along and take the “gift” of temporarily low prices.
But, Rothbard continues, this strategy cannot lead to permanent monopoly status. Increasing prices later, once current competitors close up shop, only invites new competitors. And even the threat of new competition limits how much businesses can increase their prices.
What is there to prevent this monopoly gain from attracting other entrepreneurs who will try to undercut the existing firm and achieve some of the gain for themselves? What is to prevent new firms from coming in and driving the price down to competitive levels again? Is the firm to resume “cutthroat competition” and the same deliberate losing process once more? In that case, we are likely to find that consumers of the good will be receiving gifts far more often than facing a monopoly price.
Rothbard’s treatment of monopoly is refreshingly coherent in light of the internal contradictions of other monopoly theories and popular misconceptions about what counts as “anticompetitive” behavior. He concludes that the only meaningful definition of a monopoly is a “grant of special privilege by the State.”
I’m sure Amazon is party to such privileges, but they are conspicuously absent in the FTC’s suit.
