Authors both in support of and opposed to outgoing Federal Trade Commission (FTC) Chair Lina Khan’s aggressive antitrust agenda often liken her pursuit of Amazon to Captain Ahab’s obsession with the infamous white whale in Moby Dick. For those who have not followed the saga, it may seem like the pundits are leaning too heavily on a literary crutch, but in truth, the analogy is hard to avoid. Like a polished whalebone prosthetic attached below the knee, it just fits. But where Melville’s narrative diverges from the FTC’s is in how costly Chair Khan’s pursuit has been for the wider world, not just for herself and her crew. Look no further than the Commission’s reliance on Temu, of all sources, in its top antitrust case for how much she was willing to sacrifice to hit her target. It came at the expense, yes, of the FTC’s reputation and its observance of legal and procedural norms, but most importantly, it took the FTC’s eye off the real prize: protecting competition and consumers. Worse still, it may cost small businesses dearly.
What Happens if They Get the Whale
Pursued for its whaleness, there was no chance Amazon would avoid a major lawsuit sometime during Chair Khan’s tenure, regardless of its actual conduct. The problem is that, in unmooring the Commission from its core purposes on its warpath, success would mean declaring illegal much of Amazon’s curated online marketplace (COM) management functions that are, in fact, pro-competitive. Even though the hunt is for a specific beast, killing it in court means creating new rules that would apply not just to Amazon but to everyone. In antitrust law, there is no white whale-specific harpoon.
Leaving What, Exactly?
If COM management is illegal, there are some hints as to what kind of online marketplace would receive the FTC’s golden stamp of approval. The most vivid illustration materialized just last week when reports emerged that the FTC had relied on interviews with Pinduoduo-owned Temu to build its pricing claim against Amazon. Temu’s complaint to the FTC was that Amazon would not allow it to raise its prices on Amazon and still benefit from being featured. If Amazon let sellers get away with doing this, consumers would quickly get wise to the scam and look elsewhere. This would make Amazon a less attractive place to do business, especially for small businesses that want assurance that their distribution channels provide access to high-propensity consumers. But the real problem is the FTC’s lawsuit, by favoring Temu and seeking to restrict the marketplace management practices Amazon uses, sends the clear message that Temu’s model is legal—while Amazon’s model is illegal. This would force small businesses to rely more on Temu and marketplaces like it that do not take steps like guaranteeing low prices and providing two-day shipping fulfillment. Bare-bones distribution channels are fine, and small businesses want them as an option—however, the evidence overwhelmingly shows that they do not want them to be the only option. Compounding the issue, Temu does not prioritize privacy or security at all and was actually caught spying on consumers in a major scandal a couple of years ago. Forcing small businesses to rely on less privacy-protective marketplaces, especially those based in countries where companies are partially owned by government agencies that want unfettered access to data about Americans, is unwise from a consumer protection and national security standpoint. But it also defeats any antitrust interest in ensuring access to high-quality, cost-effective options.
Disintegration as a Side-Effect
Casting around for other claims to make, the FTC also landed on Amazon’s practice of requiring sellers to commit to two-day shipping options in order to earn a Prime badge. The Prime badge conveys a certain level of quality, and one measure of quality in retail marketplace consumers’ eyes is, of course, how quickly items arrive after they are ordered. Now, Amazon provides a fulfillment service, fulfillment by Amazon (FBA), that is committed to shipping items within two days. The problem the FTC identified is that it is not fair that Amazon is able to fulfill orders within two days while other independent services cannot meet that commitment, which is certainly not at Amazon’s price point. In other words, Amazon provides a better fulfillment service at a lower price for businesses distributing through Amazon than its rivals. Fulfillment, especially with a nationwide footprint, is a capital-intensive and expensive business with high natural barriers to entry. Thus, the sellers that prefer not to use FBA often have their own fulfillment resources and can supplement their own capabilities with independent fulfillment services. They are larger companies. The businesses that are more likely to lean on FBA are smaller—they do not have the in-house resources, and more importantly, they do not have the time to go shopping for third-party services that must be cobbled together to make a nationwide, fast shipping footprint. Thus, in Chair Khan’s pursuit of Amazon as a company that has become too large, she is pursuing a legal theory that would prohibit COMs from offering wraparound services that disproportionately benefit smaller companies. The industrial policy-esque pursuit of bigness ironically endangers the smallest competitors’ viability and prospects for growth.
Incoming Chairman Andrew Ferguson
Incoming Chairman Andrew Ferguson has his work cut out for him. Taking the reins of an agency that is near bankrupt—both monetarily and reputationally—in the wake of a doomed whale hunt is no small undertaking. And yet the same thirst for bitter revenge animating Chair Khan’s mission to harpoon the great beast still haunts the FTC’s halls. When the Commission has its full complement of five commissioners in the near future, the sum of their inclinations will not favor Big Tech. Fortunately, there is reason to believe, in Chairman Ferguson’s statements and commentary, that he is determined to point the FTC back toward its core mission and away from white whales. Let the damage done to small tech in those stormy seas be reason enough to do so.