Yesterday, Bloomberg reported that the rumored Federal Trade Commission (FTC) case against Amazon’s Prime service is likely to be filed in the coming weeks.
The lawsuit will apparently assert that Amazon is breaking antitrust law by offering a broader and more comprehensive set of retail tools to sellers who opt-in to their fulfillment center program than they do to retailers who don’t participate.
The role of the FTC and wider antitrust law is to protect consumers from harm. That means it’s crucial for the FTC to consider how a business’ offering impacts consumers directly, rather than getting caught up in the opinions of competitors who have a vested interest in skewing antitrust enforcement in their favor.
Unfortunately, Chair Khan has made it clear that her FTC won’t focus on consumer welfare. Instead, she’ll be focused on trying to preserve her own subjective view of how the American economy should operate. That’s not just misguided, it also represents a dangerous overreach of bureaucratic power at the FTC.
It is clear that Khan’s incoming attack on Amazon represents a threat to American consumers and the FTC’s evidence-based and non-partisan history:
Consumers Love Amazon Prime. Khan Doesn’t Care What They Think, Though.
Amazon Prime membership has long offered benefits to consumers that other retailers have been unable to provide, such as free, fast shipping options and the ability to return products at a number of convenient locations. These popular benefits can be offered because of the way Prime is structured, allowing participating retailers to benefit from Amazon’s impressive logistics systems and leading to quicker deliveries to consumers at competitive prices.
And it’s clear that consumers are pretty satisfied with Amazon’s offerings, too. In a recent Morning Consult poll, the company ranked No. 3 among the most trusted brands in the U.S. According to a recent Harvard/CAPS opinion poll, Amazon is one of the most favored institutions in America, even slightly edging out the U.S. military. In an Axios Harris Poll, which looks at the 100 most visible companies among American consumers, Amazon is No. 8, marking its 15th consecutive Top 10 ranking. In Boston Consulting Group’s annual Most Innovative Companies report, Amazon ranks No. 3.
Americans benefit from receiving many benefits through Amazon Prime, such as music and TV streaming, cloud storage and quick delivery on a huge amount of goods. If the FTC is tasked with protecting consumers from harm, Khan’s FTC has clearly lost its way by launching suits against popular businesses and their services that Americans love and benefit immensely from, instead of investigating legitimate, proveable instances of consumer harm.
The Lawsuit Further Proves the FTC Has Become Politicized.
The FTC is supposed to be an independent agency focused on protecting consumers, not politics. However, the current FTC chair, Lina Khan, is a self-described “antitrust radical” who has made no secret of her desire to attack Amazon. Khan made her name among progressive antitrust enthusiasts for criticizing Amazon and clamoring for the company to be broken up.
Rather than being interested in fair and impartial antitrust enforcement focused on identifying and remedying consumer harm, Khan is focused on advancing her own ideological agenda. Other than redirecting the FTC away from the consumer welfare standard, she has also silenced FTC staff with a gag order, undermined FTC staff morale and has launched a number of unsuccessful, wasteful lawsuits against businesses she has long, vocally disliked.
Before Khan, the FTC had a strong reputation and was lauded for being particularly non-political at a time when other agencies, such as the Federal Communications Commission (FCC), had succumbed to partisanship. Khan’s attacks on the agency’s non-partisan and research-based history have thus turned a largely uncontroversial agency into a political one. The House Judiciary Committee’s upcoming hearing on Khan’s overreach at the FTC will make that clear.
The FTC’s Case is Weak…But if it Succeeds, it Will Harm Consumers.
The FTC’s case against Amazon is based on a feeble claim that Amazon is using its market power to favor its own fulfillment center program to the detriment of sellers that don’t sign up and their customers. A quick conversation with the American consumer proves the weak stranding of this case. If Amazon were to abuse their sellers, unfairly raise prices and provide worse customer experiences, those consumers could easily go elsewhere.
Not only does Amazon face stiff competition from traditional forms of retail, such as big box stores like Target, the online space is also filled with aggressive competition, too. Walmart’s membership service that offers quick shipping is battling to take Amazon’s customers. TikTok Shop’s recent success, especially with younger consumers, has pushed the fast-growing social media app into the retail space. Such vigorous competition on multiple fronts is likely why Amazon’s retail sales fell in several recent quarters.
However, if the FTC were successful in its lawsuit, consumers will be harmed. Amazon Prime is a popular service that millions of Americans rely on. If the FTC forces Amazon to make changes to Prime, it will likely lead to higher prices and fewer benefits for consumers.
If successful, the suit would likely ban Amazon from offering quick shipping for sellers integrated into its fulfillment program. This is because sellers who don’t opt-in to this program wouldn’t be able to offer the same delivery and return guarantees, and Khan’s FTC considers that unfair. Such an outcome would directly and clearly harm consumers, who would be faced with inefficient shipping and higher prices.
Such an unnecessary attack on a popular service won’t just harm consumers who rely on that service today. It will also harm consumers in the broader retail market who benefit from Amazon’s competitive impact on other retailers and on market innovation.
Effectively, attacking leading retailers with unnecessary antitrust lawsuits can undermine healthy market competition by giving the government the power to pick winners and losers in the marketplace according to the political preferences of a small handful of politicians and bureaucrats, rather than rewarding businesses that best serve Americans.
Khan’s incoming attack on Amazon Prime unfortunately falls squarely within her track record at the FTC of bucking important precedent, ignoring consumer welfare and pursuing an ideological agenda. We don’t expect Khan to take a moment to consider the negative consequences of her antitrust crusade, but lawmakers should be primed to hold her to account when she uses the power of an independent government agency to pursue her progressive policy goals.