A prime battle: Amazon faces an antitrust crusader

SEATTLE — Antitrust law was once simple, or so it seems now, when the Sherman Act was passed during the Gilded Age in 1890 and used by President Theodore Roosevelt more than a decade later to make him “the Trust Buster.”

Today, in our Digital Gilded Age, laws meant to protect customers and ensure competition have gone through so many alterations that proving, much less breaking up, monopolies is exceedingly difficult.

Now our trust buster is Lina Khan, chair of the Federal Trade Commission, and she’s set her sights on Big Tech, including Google and especially Amazon.

As my colleague Lauren Rosenblatt recently reported, the commission has sued Amazon, alleging the company employed anti-competitive, illegal practices to create a monopoly and raise prices for customers. Seventeen states joined in the suit, although not Washington … yet.

In addition, The Wall Street Journal reported that Amazon also “used an algorithm code-named ‘Project Nessie’ to test how much it could raise prices in a way … to improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more.”

Yet proving all this is easier said than done.

For example, Project Nessie ran only from 2015 to 2019, and using algorithm-based methods to assess prices is hardly confined to Amazon. University of Pennsylvania law professor Herbert Hovenkamp, called the Dean of American Antitrust Law, posted on the former Twitter, “Nessie sounds like pretty standard behavior in imperfectly competitive markets, and it happens every day.” California regulators investigated Nessie and found nothing amiss.

The Seattle-based tech giant has denied the commission’s allegations, but also received backing from an unlikely source. New York Times columnist Farhad Manjoo argued that a 1945 lawsuit against Alcoa defined a monopoly as controlling 90% of a market.

He wrote, “Amazon’s share of American retail is nothing close to that, and even its slice of the overall e-commerce business (is) around 40%.”

While Amazon reported North American sales of $316 billion in 2022, Walmart’s sales for the same period were $393 billion. And all this is a small portion of the $7 trillion annual retail sales in the United States.

Looking back, antitrust enforcement in America has several important milestones.

In addition to Roosevelt’s successful breakup of the Northern Securities trust in 1904, which controlled all the major railroads across the northern United States, he initiated suits against 43 other major companies with monopolistic power.

After the Rough Rider was out of office, the Sherman Antitrust Act was used again to break up Standard Oil, led by John D. Rockefeller, America’s first billionaire. It was split into 43 companies, including those that became the “Seven Sisters” such as Texaco, Standard Oil of California and Standard Oil of New York (Mobil).

In the 1980s, the government forced the breakup of AT&T, which controlled 80% of its market. And as Seattleites well know, the Other Washington spent a decade in antitrust pursuit of Microsoft (which controlled about 90% of its market).

Yet antitrust actions carry unintended and unpredictable consequences. For example, the old Ma Bell was split into Regional Bell Operating Companies. But most of these reconstituted themselves into corporate giants, including, yep, AT&T. The new AT&T has a combined market share of nearly 64% nationally in landlines and cellular service.

Microsoft wasn’t broken up and is stronger than ever after its lost decade. The former Beast of Redmond is among the most admired companies in America.

Interpretation of the law changed considerably, too. Robert Bork, who was denied a Supreme Court seat (by a Senate Judiciary Committee chaired by a guy named Joe Biden), was highly influential in altering the focus of antitrust. Instead of market share, the measure largely changed to “consumer welfare” and “economic efficiency.”

Thus, from the 1970s on, industries became more concentrated and more imprisoned by the demands of Wall Street.

Despite the lawsuit and criticism, the company continues to attract small businesses to use its expansive e-commerce network.

According to Amazon, “most sellers tell us they choose to sell in the Amazon store because it’s a great value … in a store that many customers trust, they get access to powerful tools, services and programs to drive their business growth, and sellers can do all of this at a cost that is typically lower than their alternatives.”

But Amazon faces a formidable opponent.

As a law student at Yale, Khan, now chair of the FTC, wrote a 2017 paper titled The Amazon Paradox.

It argued: “Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, 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.”

One of her remedies was to restore traditional antitrust enforcement. Now she has the means to attempt it.

Still, the commission will be required to prove in court that small businesses and customers are really being hurt by Amazon.

Michael Carrier, a law professor at Rutgers University, told the Financial Times: “When you hear things like Amazon is increasing price and degrading service, these could be real issues, but the question is, are they supported? Is the FTC able to show that these are real harms that consumers are suffering?”

We’ll find out. With Seattle’s largest private-sector employer and major taxpayer in the crosshairs, the stakes are large.