The Flawed Analysis Underlying Calls for Antitrust Reform: An Assessment of Lina Khan’s Amazon’s Antitrust Paradox

• DOI: http://doi.org/10.1177/0003603X231163011
• Published date: 01 June 2023
• Date: 01 June 2023

https://doi.org/10.1177/0003603X231163011

The Antitrust Bulletin

2023, Vol. 68(2) 205 –233

© The Author(s) 2023

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DOI: 10.1177/0003603X231163011

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Article

The Flawed Analysis Underlying Calls

for Antitrust Reform: An Assessment

of Lina Khan’s Amazon’s Antitrust

Paradox

Robert D. Atkinson* and Michael R. Ward**

Abstract

In her law journal article Amazon’s Antitrust Paradox, Lina Khan argued, using Amazon as an example,

that current antitrust doctrine cannot identify certain types of anticompetitive conduct in platform and

data-driven markets and, consequently, reforming antitrust is necessary to correct these deficiencies.

Khan’s analysis of Amazon’s conduct and the conclusions she drew from it are flawed because she

ignored or misapplied the economics of two-sided markets, mischaracterized competitive conditions,

and did not consider the pro-competitive effects of Amazon’s conduct. In this article, we review

the economics of two-sided markets and then assess Khan’s analysis of alleged predation in e-books

and in the online sale of diapers, as well as alleged anticompetitive implications of Amazon’s vertical

integration into logistics and its use of data. A careful assessment of Amazon’s conduct does not

support Khan’s conclusion that antitrust reform is necessary because she has not demonstrated that

Amazon’s conduct is anticompetitive.

Keywords

Lina Khan, platforms, Amazon, two-sided markets, private label, data

I. Introduction

In 2017, Lina Khan burst onto the antirust scene with her Yale Law Journal note “Amazon’s Antitrust

Paradox.”1 In the ensuing four years, she went from Yale law student to the youngest chair in the history of

the Federal Trade Commission (FTC). Along the way, she worked as a legal fellow for former FTC

Commissioner Rohit Chopra, advised the House Judiciary Committee’s investigation into digital markets,

and was appointed as an associate professor at Columbia Law School. As a result of her placement in these

influential positions, the ideas she expressed in her note have become central to the call for antitrust reform.

*President and Founder, Information Technology & Innovation Foundation, Washington, DC, USA

**Professor, The University of Texas at Arlington, Arlington, TX, USA; Fellow, Schumpeter Project on Competition Policy,

Information Technology & Innovation Foundation, Washington, DC, USA

Corresponding Author:

Robert D. Atkinson, President and founder, Information Technology & Innovation Foundation, Washington, DC 20001, USA.

Email: ratkinson@itif.org

1163011ABXXXX10.1177/0003603X231163011The Antitrust BulletinAtkinson and Ward

research-article2023

1. Lina Khan, Amazon’s Antitrust Paradox, 126 Yale l.J. 710 (2017).

206 The Antitrust Bulletin 68(2)

Using Amazon as an example, Khan argued that current antitrust doctrine cannot identify certain

types of anticompetitive conduct in platform and data-driven markets. In her view, it fails to recognize

that the platform business model, wherein the importance of scale leads platforms to pursue growth at

the expense of profit, makes predatory pricing a rational business strategy and that vertical integration

and concentrated control over data by platforms may enable new forms of anticompetitive conduct. She

argued that the failure to recognize Amazon’s conduct as anticompetitive has allowed Amazon to attain

a dominant position across multiple lines of commerce. In her view, reforming antitrust is necessary to

correct these deficiencies.

Unfortunately, a careful assessment of Amazon’s conduct does not support Khan’s conclusion. The

analysis she undertook and the conclusions she drew from it are flawed because she ignored or misap-

plied the economics of two-sided markets, mischaracterized competitive conditions in the markets in

which Amazon operates, and did not consider the pro-competitive effects of Amazon’s conduct, which

largely benefits consumers.

In this article, we first review the economics of two-sided markets—including how optimal pricing

strategies, the definition of relevant markets, and the measurement of market power differ from one-

sided markets. Two-sided markets or platforms are characterized by cross-platform, or indirect, net-

work effects. This means that users on at least one side of the platform care about how many users are

on the other side of the platform. These network effects are the key feature that distinguishes two-sided

markets from one-sided markets. Despite the increased value from having many users on both sides of

them, platforms often face a “chicken and egg” problem in attracting users to both sides simultane-

ously, which they often resolve by setting lower prices, sometimes below cost, to one side of the plat-

form. This means that the prices charged to each side are unlikely to reflect the explicit costs of serving

that side and traditional markup measures are unlikely to accurately reflect market power. Therefore,

both sides of the platform should be considered when defining a relevant market or assessing firm

conduct in two-sided markets.

With this overview of two-sided markets in mind, we next assess Khan’s analysis of Amazon’s con-

duct. Many aspects of Amazon’s conduct have been criticized in the popular press, policy circles, and

academic writing. However, we restrict our focus to the specific issues Khan raised in her note. In

particular, we assess her analysis of alleged predation in e-books and in the online sale of diapers, as

well as the alleged anticompetitive implications of Amazon’s vertical integration into logistics and its

use of data.

In the case of e-books, we demonstrate that Khan’s failure to appreciate that e-book retailing has

characteristics of a two-sided market led her to mischaracterize a common pricing strategy in this type

of market as predation. Khan’s analysis focused on Amazon’s alleged predation in the period before

Apple’s entry and collusion with publishers. She argued that the Department of Justice (DOJ) failed to

find evidence of predation because it defined the relevant market too broadly and failed to consider that

Amazon could recoup its losses outside the relevant market—in particular, through higher fees to pub-

lishers. Khan’s analysis does not support a narrower market definition, while her recoupment argument

is consistent with typical pricing in two-sided markets. Despite Amazon’s position as the largest seller

of e-books, the relevant period is characterized by significant entry and very little exit, which is incon-

sistent with predation. Amazon’s conduct is also inconsistent with welfare-reducing exclusionary pric-

ing in two-sided markets.

With regard to the online retailing of diapers, we show that Khan misunderstood key features of

online retailing. In particular, she failed to appreciate the extent to which consumers substitute between

online and offline channels and the ease of entry into online retailing. Khan’s analysis focused on the

aggressive price competition between Amazon and Diapers.com and Amazon’s acquisition of Quidsi,

Diapers.com’s parent company. Khan characterized this outbreak of competition as predation and used

it to argue that contemporary antitrust doctrine was not able to capture this merger to monopoly. Her

implicit assumption that the online retailing of diapers constitutes a relevant antitrust market ignored