New kind of trust | Columns
Lina Khan was recently confirmed to head the Federal Trade Commission. I strongly suspect that he, and the agency, will often be in the news over the next several years.
Khan represents a leading, progressive set of ideas about the role of government in the economy. His ideas about Amazon in particular gained attention and influence when he published a lengthy paper in 2017, entitled “Amazon’s Antitrust Paradox.” It is worth understanding his arguments in detail because they appear to both guide the FTC’s actions and represent sophisticated thinking about modern capitalism.
In this paper, published by the Yale Law Journal, Khan said Amazon presents a unique and new challenge to antitrust law. The guiding principle of current antitrust law is to look at the prices charged by consumer companies. If a company becomes an abusive monopoly, so the story is, customers will be overcharged.
Khan pointed out how this logic overlooks the new behavior in our economy; Amazon is the prime example. In fact, he wrote, “it’s as if (Amazon founder Jeff) Bezos founded the company’s growth by first drawing a map of antitrust laws, then building routes to properly surpass them. “
The strange scenario begins by observing that Amazon has enormous size, both in annual sales ($ 386 billion) and in net worth ($ 1.8 trillion, fourth in the world), but it has not been shown to be consistent. , huge income. Why?
Investors realize, however, that Amazon’s investment in expansion throughout the 1990s, 2000s and 2010s was more important than profit.
One aspect of expansion is the maintenance of low prices, which has driven many competing companies out of business or out of specific markets. As Amazon’s stock increases, investors can always make a profit by selling the stock.
The principle of investment, widely accepted for some companies, is profit growth. As long as investors continue to invest, the value of the stock will increase. And investors continue to invest because they see Amazon’s market share increasing in many markets.
The classic antitrust view would end that, as long as the price is low, consumers are good. However, that could be simpler.
Khan explains how this works in the example of e-books. Amazon famously sold many photo e-books worth $ 9.99, which cost less and, thus, a loss for the company.
However, for consumers to buy well-priced e-books, they first had to buy the Amazon device on which to read them. Moreover, the device is usually locked into Amazon purchases for e-books.
Compare this situation to a more traditional retailer, such as Walmart. If Walmart offers a very strong sale of, say, socks, customers tend to buy more of them. While in the store, a person can also buy other items, say a shirt. However, if a customer buys socks and shirts on Monday, they probably don’t prefer Walmart for, say, milk next Wednesday.
If someone buys a James Patterson book using the Amazon system, however, they must have an Amazon device that will only work with the Amazon system. That means when the person wants to buy another book later, they will likely buy it from Amazon.
If Amazon is going to make money in the long run with this scheme, it will have to raise prices eventually. However, prices are becoming harder and harder to keep track. Amazon is pretty famous for changing prices millions of times a day. Moreover, it is common for retailers to offer discounts based on each person’s shopping history. This means that it is very difficult to know when prices will rise.
Now e-books are not an enormously large or important market. The ideas in this example, however, can be widely applied to many technology sectors. The general and popular idea is that investors are looking for income growth. Companies typically intend to do this by offering low prices, or free services, to become the dominant platform. That platform could be an e-reader or a social network or a shopping platform or a search engine or a telephone operating system.
Remember, this behavior can hurt consumers. In the long run, this leads to worse competition, worse prices, worse innovation and a worse economy. There is nothing pro-capitalism here.
So we need a Federal Trade Commission that is skeptical of this kind of behavior. It must look for evidence of monopoly abuse, especially in creative ways that only technology companies can discover. Khan, as chairman of the FTC, will be a kind of man.
Christer Watson, of Fort Wayne, is a two -time assistant professor of physics at Purdue University Fort Wayne. The opinions expressed are individual. He wrote it for The Journal Gazette, where his columns usually appear on the first and third Tuesday of each month.