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Sunday, November 5, 2023

Why the FTC Should Stop Going after Amazon

Amazon is a huge company, but that doesn’t mean it’s hurting consumers.

Image: 'Man Controlling Trade' (1937) by Michael Lantz — FTC Building | Image Credit: Ron Cogswell - Flickr - CC BY 2.0

The global e-commerce market is growing at an impressive rate. Amazon is undoubtedly the sector’s leader with a roughly 37 percent market share, but new competition is always on the rise. Sites like AliExpress (China), Rakuten (Japan), and Flipkart (India) are just a few of the new e-commerce platforms attracting attention and new shoppers.

Temu and Shein, both based in China, are the leading contenders encroaching upon Amazon’s target market, and these firms are finding that Americans will easily switch shopping sites when the price is right. In fact, online traffic has been dropping for Amazon as a substantial number of mobile buyers migrate to other sites. Temu and Shein are now the most downloaded shopping apps worldwide.

Amazon’s biggest battle, however, isn’t with its new rivals. It is with its own government.

The Federal Trade Commission, under the direction of chairwoman Lina Khan, views Amazon as a monopolist with little concern for competition. Amazon’s bigness is held by the FTC as being bad for Americans, but its status did not come without growing pains or without concerns for consumer interests.

How Did Amazon Get Here?

Amazon was founded in 1995 as an online book retailer. For context, Lina Khan was only six years old at the time. Bezos had plans to “get big fast,” and that’s exactly what Amazon did. After enabling third-party sellers on the platform, Bezos began to scale Amazon’s e-commerce capability and focused on improving efficiencies related to distribution, as well as responsiveness to consumer interests.

Amazon’s quick surge in both sales and partner sellers was not enough though for it to go head-to-head with what Khan and her FTC colleagues would have likely called a monopoly power at that time: eBay. In fact, Khan might have applauded Amazon’s stated ambitions to develop its own auction-style marketplace to challenge eBay’s entrenched position (which did attract an antitrust lawsuit).

The 1999 launch of Amazon Auction turned out to be a flop, however, and it was shut down just two years later. Other ambitious and costly ventures that Amazon scrapped over the years include: Amazon’s Fire Phone, Amazon Webpay, Amazon Wallet, Amazon Tickets, Amazon Test Drive, and Amazon Destination. All very public failures. Amazon also got burned on several investments and acquisitions, notably and

No matter how great the market share or how impressive the profit margin, even the largest firms are not impervious to externalities, competitive pressures, or marketing mishaps. And sometimes, the bigger they are, the harder they fall. Just ask eBay, or even Lina Khan.

The FTC, under Khan’s leadership, has had a lackluster success rate and has been facing mounting criticism over their recent selection of cases. The court battle with Amazon is speculated to be one that is drawn out and expensive, and we must all wonder at what cost and for whose benefit.

Questionable Allegations

One of the FTC’s core complaints against Amazon is that it has blocked sellers from featuring lower prices on competing e-commerce sites and that vendors who use Amazon’s logistics and advertising services receive better site placement and priority listings. It’s one thing for the government to promote competition, but it’s quite another thing for the government to penalize common business sense.

For instance, let’s say you own a coffee shop and carry some products from local bakers. You receive a portion of the profit or charge a fee for featuring the baked goods in your shop, as well as compensation for handling the transaction. The bakers aren’t burdened with the overhead of having their own store, and they gain both exposure and sales thanks to the popularity of your shop.

Now let’s say the marketing position of your shop hinges on affordability, rather than specialty, and you do all you can to ensure the best price on all that is being offered and sold at your store. It would be problematic if a café across the street sold the same scones as you but at a lower price. This situation would not only hurt the credibility of your brand but also savvy shoppers would be incentivized to take their dollars elsewhere for more than just the scone.

To take the analogy a step further, let’s say your coffee shop has a strong reputation for customer satisfaction. You require scones to be packaged and promoted in a very particular way. You’re not just selling coffee and baked goods, you’re selling an experience and a brand. It is, after all, your shop. If the baker of scones doesn’t adhere to your standards, you may decide to prioritize the sale of muffins by another vendor who does respect your stipulations. The muffins will get featured at the checkout counter while the scones will be stored in the back until a consumer orders one. If at any point the bakers are unhappy with vending out of your store due to the terms or costs incurred, they can simply withdraw.

The FTC as Economic Nanny

If sellers on Amazon feel they are being taken advantage of then they can choose not to use Amazon as a platform—they can opt for Walmart, Target, Etsy, Wayfair, Bed Bath and Beyond, or establish their own networks for distribution. Similarly, consumers are not forced to shop on Amazon and can adjust their behavior when better prices or better quality can be found elsewhere. As noted in the cases of Temu and Shein, they frequently are.

Lina Khan’s case against Amazon is therefore patronizing and paternalistic to its vendors and its customers, and it is problematic for America’s competitiveness in the global marketplace.

Furthermore, if Khan truly cared about the pocketbooks of consumers and producers then she should be aiming to conserve the costs of her own agency rather than requesting an increase for the FTC’s fiscal budget to be at $590 million so she can continue to pursue questionable cases like this one.

Considerations for Business Appreciation

Amazon’s future remains dependent on the value it provides and, as noted by Benjamin Franklin, “in this world, nothing is certain except death and taxes.” As such, the FTC could better serve everyone by letting the market run its course.

The FTC would also do well to heed to words of famed management consultant Peter Drucker, who noted that being big is not bad as long as growth is achieved in the right way.

“The idea that growth is by itself a goal is altogether a delusion,” Drucker wrote. “There is no virtue in a company’s getting bigger. The right goal is to become better. Growth, to be sound, should be the result of doing the right things.” And Amazon knows this.

So, before the FTC files another lawsuit against corporate America, it would be worthwhile for agency members to appreciate how far some firms have come, how much pressure they face, and how much consumer surplus and industry networks they create.

Amazon is truly a multifaceted institution: it enables entrepreneurs, empowers small businesses, incentivizes innovation, supports online sellers, provides funds for nonprofits, and is even a top service provider for numerous government agencies.

Amazon is huge, there is no doubt about that, but its success is derived from the individuals who work for the company, sell their goods on its platform, and who make their purchases from Amazon. It’s powered by people and sound incentives.

Those who don’t like it—such as the Lina Khans of the world—need not apply to or buy from Amazon.