Will Amazon Survive the Wrath of Khan?

Amazon Critic Lina Khan is the New FTC Chair

On Monday, President Joe Biden named Lina Khan the new Chair of the Federal Trade Commission, making it a very – ahem – “subprime” day for Amazon.

Confirmed to the Commission on a rare, bipartisan, 69-28 vote, Khan, 32, said in a statement, “I look forward to working with my colleagues to protect the public from corporate abuse.” In her young career, Khan has overturned conventional thinking about antitrust law, focusing on Amazon and other platform giants. The term, “corporate abuse” could easily be read as, “monopolistic behaviors by tech titans that must be stopped.”

A Law School Prodigy Upends Antitrust Thinking

In January 2017, while still a law student, Khan published, Amazon’s Antitrust Paradox in The Yale Law Journal, arguing that antitrust law in the ‘70s and ‘80s had come to focus primarily on “the short-term interests of consumers, not producers or the health of the market as a whole.” Acknowledging that, “by this measure, Amazon has excelled,” she went on to argue that this narrow focus “blinds us to the potential hazards.”

Khan wrote that it was necessary to consider “whether a company’s structure creates certain anticompetitive conflicts of interest” that “incentivizes and permits predatory conduct.” In other word, antitrust isn’t just about whether a company is maximizing consumer welfare (i.e., price) but also about its ability to control, manipulate or harm competitors and gain monopolistic power along the way.

Regarding Amazon’s many years of financial losses, Khan wrote, “Amazon’s strategy has enabled it to use predatory pricing tactics without triggering the scrutiny of predatory pricing laws.” Claiming that Jeff Bezos’s frequent use of the term, “market leadership” signaled that Amazon “intended to dominate,” Khan noted that investors were buying it – literally: Wall Street poured money into the stock despite its lack of regular profits. “Under these conditions,” she argued, “predatory pricing becomes highly rational—even as existing doctrine treats it as irrational.”

She also wrote that, “because online platforms serve as critical intermediaries, [they] control the essential infrastructure on which their rivals depend [which] enables a platform to exploit information collected on companies using its services to undermine them as competitors.”

The Legal Community Reacts – and So Does Amazon

No idea lauded as revolutionary escapes attacks from detractors. Khan’s critics didn’t hold back;  in what was otherwise a flattering profile of her in The New York Times in September 2018, one scholar cautioned against “the populist goal of leveling playing fields and checking bigness.” Another claimed Khan’s proposals could “quickly drive the economy back into the Stone Age, imposing hysterical costs on everyone.” The article also noted that two former FTC officials had published a paper comparing Amazon to the defunct A&P grocery chain, strangely linking government antitrust action against the firm in 1949 to its ultimate demise in 2016.

Some contemporary FTC officials, on the other hand, were intrigued with Khan’s thinking. One commissioner hired her as a legal advisor in July of 2018, and the agency scheduled public hearings called, “Competition and Consumer Protection in the 21st Century.” The purpose of the hearings was “to examine whether broad-based changes in the economy, evolving business practices, new technologies or international developments might require adjustments to competition and consumer protection law, enforcement priorities and policy.”

The hearings kicked off at Georgetown University on September 13, 2018. That same morning, Amazon CEO Jeff Bezos announced on Twitter that he was establishing a $2 billion “Bezos Day One Fund,” to “focus on funding existing nonprofits that help homeless families, and creating a network of new, non-profit, tier-one preschools in low-income communities.” The next day, Bezos was in DC where he told The Economic Club: “Whatever regulations are promulgated, that will not stop us from serving customers.”

Three days later, the company announced the launch of “Amazon Storefronts,” which claimed that “Amazon is actually a ‘Big collection of Small’” [sic]. The press release went on to state that, “Amazon first invited businesses to sell on Amazon nearly two decades ago, and today, small and medium-sized businesses are a vital part of Amazon’s large selection and commitment to customers.” The announcement was accompanied by a commercial featuring one of the program’s participants, the The Little Flower Soap Company, a real business with one of the cutest and most disarming names one could imagine.

Two weeks later, Amazon announced it was implementing a $15 an hour minimum wage across the company. Two months after that, apparently not convinced that Amazon was merely a “big collection of small,” Germany announced it was investigating Amazon for antitrust violations. With Lina Khan heading the FTC, it’s likely that Amazon’s regulatory problems will get worse soon.

What Can We Expect from FTC Chair Lina Khan?

What should be most concerning to Amazon (and thus most encouraging to its competitors and critics) is Khan’s enthusiastic bipartisan support.

• President Biden nominated Khan to the FTC and named her Chair but she worked for the Commission under President Trump, and was cited by one of his nominees, Assistant Attorney General Makan Delrahim, in a speech in Chicago in 2018.
• During her confirmation hearing, Senator Ted Cruz (R-Texas) told Khan, “I look forward to working with you,” and Senator Elizabeth Warren, D-Mass, called it “tremendous news” when she was confirmed.

Khan is no stranger to Washington, as she recently co-led a 16-month investigation into digital markets as legal counsel to the House Committee in charge of antitrust matters. That may be scant experience for most leaders in a job like Khan is taking, but given her meteoric career rise so far, she will likely translate it into significant action.

In terms of her views on Amazon and antitrust, her very first publication, cited earlier, was quite literally on that subject: “Amazon’s Antitrust Paradox.” It is not a flattering or supportive analysis of the company.

For now, it appears that companies concerned that Amazon may be engaging in monopolistic practices (or stealing data, as alleged by The Wall Street Journal and other sources), have an ally at the FTC. Over the next few years, we will see if this results in new policy, new legislation, Federal investigations or lawsuits.

In the meantime, look for Amazon to take additional PR steps. Perhaps Bezos will announce a new, larger, charitable fund next week or the company will begin describing itself as a “not-that-big collection of really small” with a new initiative spotlighting even tinier companies.

It’s unlikely that Lina Khan will be persuaded by such actions. Instead, she’ll probably move quickly to develop regulations and persuade Congress to formulate policies designed to diminish the power of or even break up tech companies that violate the spirit of antitrust as defined by her thinking.

Over the past 27 years, Amazon has vanquished countless competitors and set major rivals on their heels, including Walmart, Microsoft, Google and many others. Perhaps, in a 32-year-old, London-born woman of Pakistani heritage, the company has finally met its match.