The FTC Has No Business Trying to Break Up Amazon: Part III - The FTC Cannot Prove Consumer Harm by Amazon

I was looking to finish this series on the FTC filing an antitrust complaint against Amazon last week. However, Hamas murdering more Jews than have been murdered on a single day since the Holocaust took precedence in my blogging. Now I am back to present Part III. In Part I, I covered Amazon is a monopoly. While Amazon is a large and successful, it does not constitute a monopoly when looking at Amazon's full market footprint. In Part II, I detailed whether Amazon's practices harm the third-party sellers that use Amazon's platform. Using Amazon as a third-party seller comes at a price, these practices do not disadvantage third-party sellers in an illegitimate manner. This final portion of the series covers whether Amazon harms the consumer.  

Even if the FTC could prove that Amazon is a monopoly, it would still need to prove consumer harm. Why? Because the consumer welfare standard has been the foundation of antitrust policy for the past few decades. FTC Chair Lina Khan wants to do away with the consumer welfare standard. Why? Because focusing on consumer harm gives the FTC a narrower scope. As a contributor at The Hill points out, "Khan's FTC instead has expanded its range of considerations to cover size, industry concentration, and other ancillary factors. In doing so, the agency is pushing the bounds of its congressionally mandated scope and authority." 

It should not surprise us that someone with power wants even more power. That story is old as time itself. If Khan wants to go beyond a congressionally mandated scope, that will legally be an uphill battle. It will also be an uphill battle because as I illustrated a couple of weeks ago, Amazon is not a monopoly. Since antitrust law is still based on the consumer welfare standard, the question I would like to ask today is whether Amazon's practices harm the consumer.

The FTC is going to have a hard time proving that prices increased since a study from Profitero found that Amazon provided the cheapest prices in the e-commerce market, not to mention that e-commerce prices remained lower than prices offline. There is also the fact that Amazon's profit margins have been historically low, especially when compared to the profit margins of various non-retail industries. Given the consumer benefits offered by Amazon, Amazon has an even stronger case than a company who bases its operations on blatantly predatory or deceitful practices. 

One of the criticisms from the FTC is that Amazon Prime tricks customers in wanting to consume more in order to "get their money's worth (FTC, p. 37)." By this logic, using bulk food store memberships, coupons, or "buy one, get one free" should also be outlawed. Consumers use Prime because they like purchasing relatively cheaper products and having it delivered to their home in a short period of time. 

Rather than being anti-competitive, Amazon competed and succeeded by providing consumers with the value they are seeking. As I pointed out in Part I of this series, there are reasons as to why Amazon has such a high approval among Americans.  

The FTC is arguing that Amazon punishing third-party sellers by eliminating "Buy Box" eligibility broadly raises consumer prices. However, it is difficult to see how the "Buy Box" function harms consumers. First and foremost, "Buy Box" arguably exists to offer competitive pricing, as well as reduce the search costs of the consumer. Odds are that they are not going to find lower prices elsewhere. Second, the vast majority of products on Amazon can be found on other retailers, which means that consumers are not deprived of what they are seeking. Third, all retail sites would be incentivized to provide quality search functions and consumer interfaces, which improves the customer experience.

How does "Fulfilled by Amazon" harm the consumer? It is a fulfillment center in which Amazon picks, packs, and ships third-party orders. With Prime, that typically means delivery within two business days. Prime has reached the membership numbers that it has because that sort of convenience is highly valued by millions of Americans. Interfering in the fulfillment center would likely entail a loss in consumer welfare.  

Postscript

I am not here to say that Amazon is perfect. Like any large company, it is bound to have its flaws. Amazon violating consumer privacy with Alexa and having to pay on a $30 million settlement is one example. However, the argument from the FTC is that Amazon is so harmful that it requires government intervention. It hardly surprises me that the FTC complaint does not even consider the possibility of benefit to consumers. It has become clear that the Biden administration does not care whether American consumers are satisfied with Amazon, what their consumer preferences are, or whether they actually pay lower prices. Such is the narrow-mindedness of having an agenda-driven axe to grind. 

Amazon's economies of scale is what allows for its to have a large distribution network that can achieve next-day shipping. According to a recent survey from Adlucent, three main reasons why millions of consumers select Amazon are because of a wide product selection, free shipping through Prime, and good customer service. Speaking of Prime, J.P. Morgan calculated that a $119 Prime membership provides a value of $1,000 to the customer. 

Dismantling that platform would not only hurt Amazon. Breaking up Amazon or forcing third-party sellers off of Amazon could very well make for a worse customer experience and drive up consumer prices, which is the last thing we need with all the inflation we have endured in the past couple of years. 

As previous FTC General Counsel Alden Abbott stated, "Amazon's success derives from an innovative system that consumers enjoy patronizing. This is a manifestation of pro-competitive, consumer-welfare-enhancing innovation, not exclusionary anticompetitive harm. The FTC's plans to dramatically change Amazon's business practices are therefore nothing less than an attack on a vibrant competitive process."

Aside from blatant political motive, the other thing that the FTC is signaling is that it wants to punish a successful and innovative company precisely because it is successful and innovative. Such a worldview is contrary to the notion of progress. That is not the country that our Founding Fathers envisioned and we in the twenty-first century should certainly not use government to disincentivize achievement and prosperity.