Amazon, Antitrust Law, and the Consumer Welfare Standard

By KAARISH MANIAR


Early in the year 2000, United States District Judge, Thomas Penfield Jackson, ruled that Microsoft Corporation, in “unlawfully tying its Web browser to its operating system,” behaved in an anticompetitive manner, thereby violating the Sherman Antitrust Act. Later that year, in June, the court ordered Microsoft to break up the two functions into separate units.[1] The antitrust action against Microsoft created an opportunity for new tech giants to rise;[2] among those younger monopolists was Amazon. Enjoying baffling 75% and 44% market shares in the electronic books and online commerce industries respectively, Amazon seems to be infiltrating every sector of consumer-focused commerce.[3] Likewise, companies like Wal-Mart, Apple, Google, and Facebook also dominate their markets, creating a situation akin to one in which the nation found itself just over a century ago. In 1911, President William Howard Taft declared that the country needed to decide between a socialist future, or one with “legitimate and independent competition.”[4] If we are to choose the latter, as did Presidents Taft and Wilson, American antitrust laws must be reformed so as to be made relevant to the economic issues confronted today.

As the law is currently written, the American consumer’s interest is paramount. Dating back to 1890, the Sherman Antitrust Act was designed to prevent large railroad and oil conglomerates from becoming monopolistic behemoths and subsequently causing a significant restraint on free trade. Thus, it aimed to ensure that large corporations were competitive on the grounds of low prices and high quality, but the Supreme Court limited its scope to prohibit ‘unreasonable’ restrictions on free trade, not just any restriction.[5] In 1914, Congress passed the Federal Trade Commission and Clayton Acts which further specified the Sherman Act. While the FTC Act slightly expanded the Sherman Act, to include “unfair methods of competition,” the Clayton Act prohibits mergers that may substantially lessen competition or have monopolistic tendencies.[6] These three pieces of legislation form the consumer welfare standard, which essentially narrows the scope of antitrust violations to acts which have the tendency of harming the consumer via price hikes, compromised quality, or reduced access.

However, unlike the “respected but unloved” commercial giants to whom these antitrust laws were originally addressed, the companies in question today enjoy warm reception from consumers.[7] Specifically, Amazon has become the ever-expanding entity it is precisely for its ability to provide efficient customer service while offering low prices for the same high-quality products. Amazon’s immediate threat is not to the customer. Rather, it poses a threat to the livelihood of capitalism as a system. In systematically wiping out its smaller competition, Amazon has made itself a commodity for both consumer and supplier. Amazon has become online customers’ go-to for any type of product. Moreover, it has come to control the way small businesses go about their business. Without selling as a third-party through Amazon, small businesses have little chance of winning substantial profits in the world of e-commerce. But with Amazon’s strict customer service policies, these small businesses are forced to sell at margins and abide by policies they simply cannot afford.

Furthermore, Amazon has managed to pose a challenge to some of the most stalwart names in retail for the past several decades. Companies such as Macy’s, Sears Holdings, JCPenny, and Kohl’s are closing massive portions of their brick-and-mortar storefronts, creating a surplus in available retail real estate. The blows to these massive companies will in turn impact the 16.5 million Americans, nearly 10% of the workforce, employed by the retail sector.[8] Although this “Amazon Effect”[9] is not necessarily detrimental to the consumer in the short run, by systematically removing competition from every industry, it proves to be a present threat to capitalistic competition. Indeed, Amazon, among other large rising giants, displays market shares similar to the trusts of the late 19th and early 20th century.[10] However, unlike those earlier trusts, these mammoth conglomerates prey on different victims. If we are to protect smaller and small businesses, as well as retail jobs, Amazon, and similar companies, must be domesticated with methods appropriate to the new creature. Antitrust laws from the 20th century simply will not suffice.

Thus far, little has been done to hinder Amazon’s growth. The lack of action is partly due to the government’s inability to sufficiently prove a violation of either the Sherman or Clayton Acts, and partly due to a fear of stifling innovation. Like similar leading tech companies, Amazon re-invests a large sum of its earnings in researching and developing new products and technology.[11] However, the idea behind a capitalist system is that more competitors yield more innovation. If we buy into the idea of a capitalist economy, we must ensure that it functions per capitalism’s principles. Currently, antitrust laws speak nothing of the issues Amazon raises. If the government is unwilling to creatively apply the existing law to the issue at hand, as they did with Microsoft, then Congress must re-design the laws to create a proper framework in which to foster competition.

An alternative to the consumer welfare standard is the Democrats’ “Better Deal” proposal. Such a scheme would aim to prevent mergers that “reduce wages, cut jobs, lower product quality, limit access to services, stifle innovation, or hinder the ability of small businesses and entrepreneurs to compete.”[12] Unlike the consumer welfare standard, a multifaceted guideline such as the Democrats’ is certainly more subjective. While the language demonstrates a move in the right direction, the nation needs a middle ground that reflects the same intent with more practicable provisions. Whereas the Sherman, Clayton, and FTC Acts were adequate in controlling companies that preyed on the consumers, new legislation is unquestionably required to protect America’s small businesses, retail jobs, and long-term technological innovation.


[1] Joel Brinkley, ” U.S. Judge Says Microsoft Violated Antitrust Laws with Predatory Behavior,” The New York Times, April 03, 2000, accessed March 07, 2018, http://www.nytimes.com/2000/04/04/business/us-vs-microsoft-overview-us-judge-says-microsoft-violated-antitrust-laws-with.html.

[2] Jed Graham, “The Amazon Monopoly Problem: Prime Time For Antitrust Action Vs. Internet Giants?” Investor’s Business Daily, September 18, 2017, accessed March 07, 2018, https://www.investors.com/news/technology/amazon-monopoly-problem-antitrust-action-vs-amazon-facebook-google/.

[3] Greg Ip, “The Antitrust Case Against Facebook, Google and Amazon,” The Wall Street Journal, January 16, 2018, accessed March 07, 2018, https://www.wsj.com/articles/the-antitrust-case-against-facebook-google-amazon-and-apple-1516121561.

[4] Harry B. McMeal, Telephony, vol. 61 (The University of Michigan, 1911), 451, October 30, 2009, accessed March 7, 2018.

[5] “The Antitrust Laws,” Federal Trade Commission, December 14, 2017, accessed March 07, 2018, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

[6] Id.

[7] Supra note 3.

[8] Adam Hartung, “How The Amazon Effect Will Change Your Life And Investments,” Forbes, March 02, 2017, , accessed March 07, 2018, https://www.forbes.com/sites/adamhartung/2017/02/28/how-the-amazon-effect-will-change-your-life-and-investments/#4212e52a5e76.

[9] Id.

[10] Supra note 3.

[11] Id.

[12] Supra note 2.

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