Ftc v. Amazon: Market Definitions and Section 5 of the Ftc Act

• Publication year: 2024
• Citation: Vol. 4 No. 1

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Jonathan Rubin ^*

Abstract: The Federal Trade Commission's (FTC) challenge to Amazon.com's practices relating to its participation on its own platform—competing with the many merchants who rely on the powerful commercial hub to make sales—violate the Federal Trade Commission Act. The court's analysis is likely to depend heavily on the FTC's definition of the relevant antitrust markets in which it claims Amazon possesses market power and harms competition. Traditional antitrust economics face significant challenges grappling with the relatively new digital economy. The author examines these and other issues raised in the case, which he anticipates will be a crucial test for antitrust and the FTC Act.

Introduction

The Federal Trade Commission (FTC) and 17 state attorneys general on September 26, 2023, filed their long-awaited antitrust complaint against Amazon.com in federal district court in the Western District of Washington. The complaint is a foreseeable ambition of FTC Chair Lena M. Khan, who as a Yale law school student authored an influential law review article titled "Amazon's Antitrust Paradox." ¹ The article itemized conduct Khan characterized as "anticompetitive," which, when committed by a dominant firm with market power, can be unlawful under the antitrust laws.

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Establishing Amazon's Conduct as Anticompetitive

Establishing in court whether Amazon's conduct is "anticompetitive," or that Amazon possesses market power, can pose challenges, particularly in a "new economy" industry such as Amazon's digital marketplaces for goods and marketing services. The court's analysis is likely to depend heavily on the FTC's definition of the relevant antitrust markets in which it claims Amazon possesses market power and harms competition.

The complaint defines two relevant markets, the "online superstore market" and the "online marketplace services market." The FTC alleges that Amazon is a monopolist in both markets and engages in anticompetitive conduct to maintain its two monopolies (Counts I, II, V, and VI). Although all the counts allege violations of Section 2 of the Sherman Act, which prohibits monopolization, the first two are drafted principally as violations of Section 5(a) of the FTC Act, which makes unlawful all "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce."

The complaint alleges that "a core strategy" pursued by Amazon to maintain its monopolies is to punish sellers on its platforms that offer lower prices anywhere other than on Amazon. As a result of these "anti-discounting" policies, the complaint alleges, Amazon can deprive rival online superstores of sufficient scale and scope to challenge Amazon. Amazon, of course, will argue that its policies are not anticompetitive at all, but merely requirements meant to ensure that Amazon customers are offered the lowest available price.

Faced with these contrasting viewpoints, the court is likely to conduct a detailed antitrust analysis, starting with the alleged relevant markets. The market described in the complaint as "online superstores" seems to describe a particular kind of multiline retail distributor. This is an economically coherent relevant market as long as it makes sense to consider the cross price-elasticity of demand as between two or...