President Biden has assembled the most aggressive antitrust team in decades. Amazon appears to be one of the large platform companies in their gun sights. If Amazon were to the lose a lawsuit, and face a breakup, one of the most storied supply chains in the world would look very different. The Amazon supply chain, the recent second quarter report shows, spent over $69 billion on fulfillment and shipping activities.
Lina Khan was Biden’s choice to lead the Federal Trade Commission. Ms. Khan reframed the debate over what kinds of companies should face antitrust suits. The Biden team also includes Tim Wu, a longtime proponent of breaking up Facebook and other large companies. Mr. Wu is the special assistant to the president for technology and competition policy. Mr. Biden recently named Jonathan Kanter to lead the Justice Department’s antitrust division; he has not yet been confirmed by the Senate. Mr. Kanter spent years as a lawyer fighting Facebook and Google on behalf of competitors.
Ms. Khan, in one of the most influential legal scholarly articles of our time, argued that the current American antitrust law framework, which focuses on keeping consumer prices down, cannot account for the anticompetitive effects of platform-based business models such as that of Amazon, Facebook, and Google.
Amazon, perhaps, will be the easiest target of the three platform behemoths. Third party sales account for 30% of Amazon’s retail sales so far this year. Third party sellers are independent sellers who offer a variety of new, used, and refurbished items on the Amazon.com website. independent sellers who offer a variety of new, used, and refurbished goods on the Amazon.com web site. In many cases, Amazon takes a fee for delivering these items to consumers. This means in addition to being one of the world’s largest retailers, Amazon is also a very large provider of logistics services.
It is claimed that Amazon has made a seller’s ability to generate sales on its site largely contingent on the sellers purchasing its warehousing and shipping services. Sellers who subscribe to fulfillment by Amazon are favored in two ways. First, they are given a branding advantage – they are allowed to add the Prime badge to their products. Secondly, they’re significantly more likely to be chosen by the site’s algorithm as a product to be shown on the first page when consumers search for products. When a product falls off page one of the search, sales then fall by over 40%.
A Wall Street Journal investigation found that Amazon uses data from third-party sellers to help develop the private-label goods it sells on its website. Amazon executives had access to data on products from third party sellers whose products were selling very quickly. Amazon then used that data to develop the company’s own products, despite it being in violation of company policy. This directly contradicts testimony one executive gave to Congress last year on how they use this data.
Further, in March 2020, a lawsuit filed in the Western District of Washington alleged price fixing arrangements between Amazon.com and third-party sellers. It is alleged that Amazon requires third party sellers to offer a lower price on their product on their site than any other competing web site. This tactic raises prices that consumers are forced to pay.
Biden would have bipartisan support for breaking up Amazon. A 15-month investigation by the House Judiciary Committee concluded that Amazon “has monopoly power over many small- and medium-sized businesses.” A growing number of US lawmakers from both parties believe the Amazon should be split up, that it should separate its major business lines into stand-alone firms and that its online marketplace should be tightly regulated to ensure that sellers are treated fairly.
If the Biden administration does go after Amazon, what would their likely approach be? It is likely that they would seek to separate third-party marketplace and its retail division into separate companies. They might also seek to have Amazon spin its cloud services business line into a separate company. This, it is argued, would remove “the incentive and ability for Amazon to exploit its gatekeeper status to favor its own interests and harm competition.”