Federal Trade Commission Chairwoman Lena Khan testifies during a budget hearing of the House Energy and Commerce Subcommittee on Innovation, Data, and Trade, April 18, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
A day after filing a massive antitrust lawsuit against Amazon, Federal Trade Commission Chairwoman Lena Khan defended the agency’s decision to go after the company and explained how its use of monopoly power allowed it to take advantage of an effective 50% tax on sellers.
In an interview with CNBC’s “Squawk Box” on Wednesday, Khan said the lawsuit is “fundamentally about protecting free and fair competition” and denied suggestions that the FTC is interested in punishing big companies for their success.
The lawsuit marks a major milestone for Khan’s FTC, and has long been anticipated, given that Khan’s rise to fame came from her 2017 Yale Law Journal memo titled “Amazon’s Antitrust Paradox.” This article has elaborated on Khan’s view of how the prevailing approach to antitrust enforcement at the time failed to take into account the broad scale and network effects present in digital markets.
Khan on Wednesday pointed to the expansion as a way for Amazon to leverage its power to snuff out competition.
“Given the economies of scale and network externalities, you have to have a critical mass of shoppers or sellers in order to really benefit from the acceleration and momentum that digital marketplaces can provide,” Khan told CNBC’s Andrew Ross Sorkin. “And Amazon’s tactics were about — once it achieved that scale — it focused on tactics that denied competitors the ability to win that similar critical mass of customers.”
Khan added that any remedies would need to take into account the combined harms of this scale in order to “fully restore competition.” The FTC has not specified in detail what remedies it will seek because it is focused on determining liability, typically the first stage in a monopoly case.
Khan also explained the FTC’s decision to designate a market monopolized by Amazon as the online supermarket.
“The idea of a department store has become well established in the brick and mortar world,” Khan said. “We’ve had a whole host of antitrust cases that have worked when the market is defined as a department store market.”
This complaint applies this idea to the online world, Khan said, adding that there are jobs that only a large online store can serve with the “depth and breadth” of offerings.
In the FTC complaint, it says that online department stores differ from online or brick-and-mortar retail competitors in that they offer an unparalleled assortment and selection of products that are accessible on-demand and around the clock.
However, Amazon has long claimed to compete with a wide range of online and offline retailers. The company downplayed the size of its market, saying it represents 4% of total retail sales in the United States.
However, Amazon dominates the e-commerce market in the United States. Research firm Insider Intelligence estimated last year that the company accounts for nearly 40% of Americans’ online spending.
The complaint also alleges that Amazon monopolized the market for selling services to online merchants. She said “network effects” between Amazon’s large online store and marketplace services allow it to further establish its dominance, as the more sellers the company enrolls, the more targeted, relevant data it can serve them — and as more merchants begin selling on the marketplace. Amazon can attract more shoppers.
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