To no one’s surprise, last week the Federal Trade Commission, joined by some fourteen mostly blue states, launched its antitrust attack on Amazon by charging that the firm enjoys durable market power in two adjacent markets—the “Online Superstore Market” and the “Online Market.” The basic charge of monopoly insists that Amazon, like other monopolists, raises its prices above their competitive level in ways that reduce welfare for consumers.

But in Amazon’s case, the FTC’s claim is unique in at least two ways.  The first is that the complaint does not make any reference to the well-established consumer-welfare standard, lest it call attention to the Chicago School of Economics whose analysis the FTC rejects. Nor does its complaint ever consider any efficiency justifications, even though these are part of any balanced assessment of Amazon’s business model that has benefited some 170 million Amazon Prime customers, all of whom are free to take their business elsewhere.

But there is indeed a deep ambiguity in the FTC’s complaint that must be identified. The New York Times ran a story that describes a “cage match” between FTC chairwoman Lina Khan and Jeff Bezos, Amazon’s founder and executive chair. The Times notes that Khan has been “relentless in exposing what she sees as Amazon’s monopolistic ways,” while Bezos “would stop at nothing to deliver the low prices and speedy delivery that shoppers craved.” These two titans are talking past each other. Bezos’s search for lower prices should normally be regarded as a lust to outdo the competition, which would mean that the only conceivable antitrust claims that the FTC could bring are that of predation: offering prices so low that it drives out the competition, leaving it free thereafter to raise prices once all competitors have abandoned the field. Indeed, in her oft-cited student note in the Yale Law Journal—“Amazon’s Antitrust Paradox”—Khan puts this predation theory front and center when she writes that “the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible.”

Khan’s relentless attack on the Chicago School includes multiple references to Robert Bork’s famous 1978 book, The Antitrust Paradox, which in part led to the Supreme Court’s decision in Matsushita Electrical Industrial Co. v. Zenith Radio Corp. (1984), largely gutting all predation claims. Her main claim for Amazon’s unique status is that its longer timeframes allow it a greater period to recoup its losses, but Khan never answers the theoretical question of how it could hold out for so long while incurring interim losses that it will take ever so long to recoup. In fact, Amazon had explosive growth early on when it suffered start-up losses, only to turn a profit by 2003 and every year afterwards. It achieved that durability the old-fashioned way, by Bezos’s famous delivery services. It never sustained the repeated short-term losses that are needed for the predation story to work.

Today, Khan has apparently switched 180 degrees by drafting a complaint that never once mentions either predation or Matsushita. Now, Amazon is put into the dock for keeping prices so high that worries of future recoupment, never an issue in monopolization cases, disappear. And so, the FTC complaint achieves a rare double. Amazon keeps prices too high and too low simultaneously.

Consider Paragraph 18 of the FTC complaint.

18. Amazon’s tactics suppress rival online superstores’ ability to compete for shoppers by offering lower prices, thereby depriving American households of more affordable options. Amazon’s conduct also suppresses rival online marketplace service providers’ ability to compete for sellers by offering lower fees because sellers cannot pass along those savings to shoppers in the form of lower product prices.

This paragraph is so badly framed that it can be read as if Amazon’s tactics are so powerful that it prevents its rivals from offering lower prices, an impossible feat even for Amazon. Or, more likely, that by Amazon’s offering lower prices, it keeps its rivals at bay, just like an old-fashioned predation claim. Khan’s FTC has found its antitrust nirvana. Prices rise and there is monopolization. Prices fall and there is predation. Hence, on this view, Amazon always commits an antitrust violation either against rivals or consumers. But this excludes the fact that prices also rise and fall in competitive markets, like the one that Amazon faces.

Khan seeks to pin Amazon as a monopolist by defining small markets in which Amazon necessarily has large shares. As a Wall Street Journal editorial observes, her definition of the Online Superstore Market keeps in the mix Target, Walmart, and eBay, which are not going anywhere soon. It is a routine practice for savvy consumers to compare prices across these markets, so that Amazon does not even have close to a monopoly in this market. The definition also excludes all brick-and-mortar stores, which are often frequented by Amazon’s customers. Its rivals share Bezos’s acute awareness that firms that don’t innovate first falter and then die.

The FTC’s complaint does not offer a single instance of serious price anomalies, either up or down. Nor does the complaint give any explanation of the overall stock price of Amazon, which, after enormous growth in its early years, fell from $162.46 on December 31, 2020, to $127.13 at the end of September 2023. That decline of close to 22 percent, before inflation, is easily explainable by the steep competition that it faces everywhere in marketplace (coupled with the end of the COVID boom in online sales). Far from enjoying inevitable success in all its endeavors, Amazon has had to close warehouses as part of its cost-cutting apparatus. Earlier, it withdrew from its telehealth service in August 2022 because it could not find the right mix of goods and services to break into that highly competitive market. Far from a juggernaut, Amazon looks like a large business that has to adapt to external shocks—just like everyone else.

So what has Amazon done wrong, anyhow? Here are two charges that are subject to conflicting interpretations. First, the FTC claims that Amazon’s preferred “Buy Box” is not made available to companies that sell for less on other sites, making purchases there more difficult. Indeed, Amazon itself says that being kept off the Buy Box will cause any seller’s sales to “tank.” But why is that demotion anticompetitive? To the FTC, the clear moral is that the company will raise its prices elsewhere. But the more likely problem, if this problem should arise, is that the company will lower its price on the Amazon site, precisely because it knows that it needs that Buy Box. Indeed, Amazon engages in this practice to reduce the costs of search for customers who now know that whenever the Buy Box appears (and the FTC redacted complaint never reveals the scope of this supposed problem) their costs of search are reduced, which counts as an efficiency gain by lowering prices. It is a monitoring practice that all firms might well adopt, no matter what their size or their market share.

Amazon’s second supposed vice is “coercing” its sellers to use the Amazon Prime fulfillment services for prompt deliveries. The FTC claims that some sellers would prefer to consolidate all sales from all sites through one centralized service. But it does not acknowledge that Amazon has a legitimate interest in making sure that its goods are delivered in a timely fashion, which some alternative shippers might not do. In addition, Amazon offers its services for 30 percent less than its rivals, and generally makes these services optional, knowing that few sellers will turn down faster deliveries at lower prices. Some coercion!

A close examination of the company’s so-called bad business practices reveals only pro-competitive behaviors that are mischaracterized in the FTC’s complaint. The case here is even weaker that the similar suits against Google and Meta, both of which operate in network industries, where competitive solutions are not possible given the extensive needs for cooperation among competitors. So it appears that this sloppy complaint should fail in court as another of Khan’s ill-conceived forays to push the boundaries of antitrust law outside the consumer-welfare framework that Khan so distrusts.

But suppose she did persuade a court to find some antitrust violation. What next? The FTC complaint is cagey. It asks for injunctive, equitable, and other remedies, without hinting what these might be. But since Amazon is acting alone, there can be no claim of collusion. Breaking up the company is always infinitely messier than stopping mergers, and thus almost never happens. Banning the pro-competitive practices misunderstood in the complaint is wildly anti-competitive. Damages or fines are not even suggested. So this suit incurs large costs for the government while imposing even bigger costs on Amazon—a lose/lose operation.

Khan shows a misguided messianic fervor when she claims the FTC’s suit is an effort to “protect free and fair competition.” Many are the sins done in the name of protecting market competition.

© 2023 by the Board of Trustees of Leland Stanford Junior University.