Repost: How the U.S. misjudged the power of Amazon’s platform

This piece, originally published last February with an Apple vs. Amazon headline, resurfaced in Google Analytics following Jeff Bezos’ $13.7 billion bid for Whole Foods.

From “Amazon’s Antitrust Paradox” in the current issue of the Yale Law Journal:

In 2012, the DOJ sued the publishers and Apple for colluding to raise e-book prices. In response to claims that the DOJ was going after the wrong actor—given that it was Amazon’s predatory tactics that drove the publishers and Apple to join forces—the DOJ investigated Amazon’s pricing strategies and found “persuasive evidence lacking” to show that the company had engaged in predatory practices. According to the government, “from the time of its launch, Amazon’s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.”

Judge Cote, who presided over the district court trial, refrained from affirming the government’s conclusion. Still, the government’s argument illustrates the dominant framework that courts and enforcers use to analyze predation—and how it falls short. Specifically, the government erred by analyzing the profitability of Amazon’s e-book business in the aggregate and by characterizing the conduct as “loss leading” rather than potentially predatory pricing. These missteps suggest a failure to appreciate two critical aspects of Amazon’s practices: (1) how steep discounting by a firm on a platform-based product creates a higher risk that the firm will generate monopoly power than discounting on non-platform goods and (2) the multiple ways Amazon could recoup losses in ways other than raising the price of the same e-books that it discounted.

In case you’ve missed her basic thesis, here’s how the author, Lina M. Khan, starts her abstract:

Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny.

See also: Whole Foods gives Amazon nearly as many stores as Apple


  1. Gianfranco Pedron said:
    Amazon, doing to retail what China did to manufacturing … and the crowds cheer, “All hail cheap and dirty!” as their livelihoods get obliterated by the giant snowball racing to the bottom of the mountain gaining mass and momentum as it goes.

    June 19, 2017
  2. Gregg Thurman said:
    The “Market” is often described as the most efficient way to establish value for equities.

    By extension the “Market” should be the most efficient way to value goods and services. In the case of Amazon, the least efficient arbiter of value (government) has monumentally erred in favor of a predatory monopoly, the very entity that Sherman is supposed to protect consumers from.

    The only way the government can rectify its error is to sue Amazon, place the Company under 10 years of compliance oversight, and use Amazon’s fine to reimburse Apple et al.

    June 19, 2017
  3. John Kirk said:
    I suggest we change the name of the U.S. government’s division from anti-monopoly to anti-competition.

    June 19, 2017

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