US antitrust has reached a turning point

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Every so often, there’s a moment when public sentiment around a big policy issue shifts in a profound way. For antitrust policy in the US, that moment is now.

It’s not just the sheer number of big cases that have been brought in the last month, against Amazon, Google, private equity and the meat industry. Or even the fact that the Federal Trade Commission is starting to use its full powers for the first time in decades, pushing criminal penalties for individual executives who have committed fraud or deception. Most significant is that conditions are increasingly favourable to a new — and much more holistic — approach to antitrust enforcement.

Nowhere is this more in evidence than in the FTC’s case against Amazon. It has come to light, for example, that Amazon had used a secret algorithm, code named “Project Nessie”, to improve its profits on items across shopping categories, reportedly to the tune of $1bn. Amazon, which controls 40 per cent of all ecommerce in the US, was able to raise prices in entire product categories simply by boosting its own price. Competitors would simply follow what the ecommerce giant did, and customers would thus be charged more.

Amazon says the project was simply a way to stop a race to the bottom towards “unsustainable” prices. But of course, those are a crucial part of the Big Tech business model in the beginning.

Platforms enter a new market with a willingness to sustain losses and grow at the cost of profits. That is what Amazon did in its early days, famously driving competitors like, say, diapers.com, out of business and dramatically lowering the profit margins on eBooks.

It’s only after a platform dominates the market that it starts raising prices. Think of something like surge pricing during times of high demand at Uber.

In the case of Amazon, the FTC has alleged that Amazon actually ends up costing customers money, since it penalises sellers who try to offer lower prices on their own websites or those of competitors, where they might have fewer shipping, referral and advertising fees. 

By focusing on the argument that the ecommerce giant could raise as well as lower prices across the board, the FTC is cleverly using a Chicago school-type argument about consumer welfare to advance what has come to be known as the “neo-Brandeis” approach to antitrust, which, as FTC chair Lina Khan has written, considers the underlying market dynamics that create monopolies.

Indeed, Khan’s own reputation was made with this approach, and in particular the argument that regulators couldn’t “cognise the potential harms to competition posed by Amazon’s dominance” if they measured “competition primarily through price and output”.

The regulators had failed to take into account the interests of producers and the overall health of the marketplace. Moreover, as Khan argued in a 2017 article in the Yale Law Journal, their approach failed “even if one believes that consumer interests should remain paramount”, since it ensured that no preventive action could be taken. Government simply had to wait around for competitors and consumers to be hurt.

The sheer scale of the Amazon case is impossible to know yet, since many of the details have been redacted from public documents. Even by the standards of the tech giants, the number of redactions in the Amazon and Google cases is so extreme that it has provoked outrage on the part of many journalists (who are having trouble just reporting the basics of the case) and activists. Some of the redactions seem particularly damning, particularly those around executives’ efforts to hide internal information from regulators or impede their investigations.

All this draws attention to the fact that companies are under more pressure from the public for openness in these cases. At the end of September, Amit Mehta, the judge in the Google case, called for lawyers to do more questioning in open court, rather than in closed session. That, too, represents something of a turn towards a more neo-Brandesian approach.

When the influence of a doyen of the Chicago school (and author of The Antitrust Paradox), Robert Bork, was at its height, companies were assumed to be acting mostly in good faith. Now, they are — rightly, I believe — under more pressure to be transparent. That’s especially important when it comes to Big Tech, given that platforms so often have unfair information advantages relative to customers, competitors and the public.

Whatever the outcome of the Amazon case, the facts available so far seem to validate Khan and the neo-Brandesian legal approach, at least when it comes to tech platforms. She has been heavily criticised by many people for ignoring “consumer” welfare in the form of the benefits conferred by lower prices. But her belief, implicit in the 2017 article, was always that the big competition problems would come when a company became so powerful and ubiquitous that it had enough clout to raise prices and still dominate a given market.

That’s clearly the situation with Amazon. This is a company with such asymmetric power in the marketplace relative to sellers that it can create a cartel without the other members even knowing they are in the cartel. That’s surveillance capitalism as practised by experts. I suspect that the drumbeat of calls for more antitrust action will only grow as we learn more.

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