The consumer welfare standard has been the subject of a very effective contestation in modern antitrust law and policy literature. This contestation targets mostly United States law but, as we know, ideas travel fast. In spite of differences in law, policy, and institutions, contestations of consumer welfare frameworks have also emerged in slightly different terms in the European Union .

In this article, we lay bare the fundamental flaws of the modern critique of the consumer welfare standard. We show that critics misrepresent the meaning of the consumer welfare standard, distort the U.S. case law, and ignore important facts that do not align with their normative preferences. We conclude with the assertion that many criticisms of the consumer welfare standard among U.S. antitrust scholars reflect a critique of the U.S. judiciary’s attitude toward uncertainty and hard evidence rather than a critique of the consumer welfare standard itself.

Read the full piece here.

In this post—the last planned post for this symposium on The FTC’s New Normal (though we will continue to accept unsolicited submissions of responses)—I will offer some summary of the ideas that have been shared here over the past month, before turning to some of my own thoughts. To keep your attention rapt, I will preview that my thoughts will live up to the title of this post: I will sing some sincere praise for the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) honesty and newfound litigiousness.

Read the full piece here.

The draft merger guidelines that were released July 19 by the Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) indicate a shift by the agencies toward an overreliance on structural market factors to trigger merger scrutiny. 

For example, Draft Guideline 1—titled “Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets”—would lower the bar for what constitutes a “highly concentrated” market on the Herfindahl-Hirschman Index (HHI). Evaluating mergers through this structural lens assumes both that concentration is present or escalating in the economy at large and that concentration always and only leads to harmful anticompetitive effects. Most detrimentally, it likely precludes the more nuanced assessment of a given merger’s impact on competition that the FTC had used over the preceding four decades. This shift will increase Type I errors in antitrust enforcement and rob or delay the benefits of competition-enhancing mergers to consumers. 

Read the full piece here.

In a recently published article in ProMarket, John Kwoka of Northeastern University (who “worked on the draft Merger Guidelines while serving at the Federal Trade Commission as chief economist to the chair in 2022”) asserts that the U.S. Justice Department (DOJ) and Federal Trade Commission’s (FTC) draft merger guidelines aim to improve “deficient merger enforcement” by focusing on “lessening of competition,” rather than on “consumer surplus.”

With due respect to Kwoka, the draft guidelines, if adopted, would not “return antitrust to a sound economic and legal foundation.” Rather, they would generate costly uncertainty by returning federal merger enforcement to the pre-1980s structuralist era, when “efficiencies” was a dirty word. By discouraging welfare-enhancing merger proposals, they would harm the American economy.

Read the full piece here.

tl;dr

Background: The Federal Trade Commission (FTC) and 17 states this month filed a major antitrust complaint against Amazon. The much-anticipated suit comes more than two years after Lina Khan became FTC chair and more than six years since her student note criticizing Amazon’s practices. The complaint describes a broad scheme in which Amazon (1) used various practices to prevent sellers from offering prices at Amazon’s rivals below the level at Amazon (anti-discounting), and (2) conditioned a product’s eligibility for Amazon Prime on whether the seller used Fulfillment by Amazon (FBA). This conduct allegedly violates Section 5 of the FTC Act as an unfair method of competition, Section 2 of the Sherman Act as maintenance of monopoly, and various state laws.

But… It will be difficult for the FTC and the states to prove Amazon’s monopoly power and to discredit the procompetitive justifications for the challenged conduct. Retail competition is robust and the proposed narrow markets are ripe for criticism. Moreover, the challenged conduct is core to Amazon’s offer of important consumer benefits, such as fast and reliable shipping. Whatever remedy the FTC ultimately pursues, it risks undermining the benefits Amazon has created for consumers and sellers alike.

KEY TAKEAWAYS

SEEMINGLY TRADITIONAL THEORIES OF HARM

The complaint relies on two overarching theories of anticompetitive conduct: anti-discounting and conditioning Prime eligibility on a seller using FBA.

The first is reminiscent of a challenge to “most-favored nation” (MFN) provisions, in which a defendant demands terms that are equivalent to or better than those given to its rivals. However, MFNs are agreements typically challenged under Section 1 of the Sherman Act; the FTC doesn’t explicitly claim that Amazon’s unilateral policy constitutes an MFN.

The second theory appears similar to a tying claim. But the FTC doesn’t allege an actual tie between the sale of two distinct products, perhaps because sellers cannot buy the Prime badge; they must qualify for it by meeting the two-day shipping requirement (which FBA ensures).

NARROW RELEVANT MARKETS

Both of the relevant markets put forward in the FTC’s complaint fail to reflect real-world competition.

Amazon allegedly possesses monopoly power in the “online superstore market.” According to the FTC, online “superstores” provide a unique breadth and depth of products and unique services that brick-and-mortar stores and smaller online retailers don’t. Thus the commission alleges that these rivals cannot constrain Amazon’s market power over consumers. 

This alleged market is so narrowly drawn that it appears to include just Amazon, eBay, and the online stores offered by Walmart and Target. This excludes single-brand online retailers, product-category-specific online retailers, and all brick-and-mortar stores. It beggars belief that these rivals don’t exert competitive constraints on Amazon. After all, no consumers shop exclusively online, and price-comparison services like Google Shopping facilitate shopping across all online outlets. This will almost certainly prove to be a sticking point when the case goes to trial.

The FTC also defines a relevant market for “online marketplace services”—i.e., the services needed to sell products online (including access to shoppers, online interface, pricing capabilities, customer reviews). This excludes traditional wholesalers and e-commerce platforms like Shopify that offer software allowing sellers to create their own online stores.

As with the first market, it’s hard to imagine these claims will be borne out by the evidence. Most retail sales still occur offline and manufacturers and brands readily access these outlets. And the recent success of new marketplaces like Shein and Temu—which entered the U.S. market during the FTC’s investigation of Amazon—further undermines both the alleged market and Amazon’s market power.

OVERLOOKING THE BENEFITS OF AMAZON’S CONDUCT

While both unlawful MFNs and unlawful tying would be legitimate theories of harm, both are also vertical restrictions reviewed under the rule of reason, which requires weighing the anticompetitive and procompetitive effects.

The economics literature shows that MFNs can promote efficiency by protecting investments that couldn’t have been recouped without the protections offered by an MFN, such as Amazon’s substantial investment in the infrastructure to deliver products within two days. These provisions can benefit consumers by cutting their search costs and offering retailers incentives to improve the quality of their search and display capabilities.

Economic theory also suggests that it can be cheaper to offer some products together, rather than selling them separately; in some cases, it may be necessary to sell the products together in order to offer the products at all. If Amazon’s FBA services are critical for it to dependably deliver on Prime’s promise of two-day-shipping, then the alleged tying may be procompetitive. 

RESTORING ‘FAIR COMPETITION’

While the FTC’s complaint doesn’t explicitly ask for Amazon to be broken up, it does ask for the court to provide “equitable relief, including but not limited to structural relief, necessary to restore fair competition.” 

It’s anyone’s guess what this means. “Fair competition” isn’t part of U.S. antitrust case law or mainstream economic terminology.

This seemingly innocuous wording may be used to impose the FTC’s idiosyncratic—and nostalgic—vision of online retail on Amazon. Worse, it may be a euphemism for breaking up the company.

 

The FTC—joined (unfortunately) by 17 state attorneys general—on Sept. 26 filed its much-anticipated antitrust complaint against Amazon in the U.S. District Court for the Western District of Washington. Lacking all sense of irony, Deputy Director Newman, quoted above, bragged about the case’s potential to do greater good than almost all previous antitrust lawsuits.

Read the full piece here.

The Federal Trade Commission and 17 states have filed a high-profile antitrust lawsuit against Amazon that could force major changes to the popular Amazon Prime service — which would be bad news for its 167 million American members.

Read the full piece here.

The Federal Trade Commission (FTC) and U.S. Labor Department (DOL) signed a memorandum of understanding (MOU) this past week “to strengthen the Agencies’ partnership through greater cooperation and coordination in information sharing, investigations and enforcement activity, training, education, research, and outreach.” The accompanying Sept. 21 announcement is another example of FTC overreach, as it highlights matters that simply are not part of the agency’s mission.

Read the full piece here.

Competition policy at the Federal Trade Commission (FTC) will naturally ebb and flow, depending on its leadership. Over the years, some commissions have taken a more aggressive approach, while others have granted greater credibility to market forces. Still, regardless of the party in power, the agency was generally able to maintain a solid reputation as an antitrust-enforcement agency that adhered to the law and took a dispassionate approach when evaluating the cases before it.

Not anymore.

Read the full piece here.