Amazon’s Antitrust Paradox | Yale Law Journal

Amazon’s Antitrust Paradox | Yale Law Journal
Volume
126
January 2017
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Note
Amazon’s Antitrust Paradox
31 January 2017
Lina M. Khan
Antitrust Law
Consumer Law
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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.
This
Note argues that the current framework in antitrust—specifically
its
pegging competition to “consumer welfare,” defined as
short-term price effects—is unequipped to capture the architecture of market
power in the modern economy. We cannot cognize the potential harms to
competition posed by Amazon’s dominance if we measure competition primarily
through price and output. Specifically, current doctrine underappreciates the
risk of predatory pricing and how integration across distinct business lines
may prove anticompetitive. These concerns are heightened in the context of
online platforms for two reasons. First, 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. Second, because online platforms serve as critical intermediaries,
integrating across business lines positions these platforms to control the
essential infrastructure on which their rivals depend. This dual role also
enables a platform to exploit information collected on companies using its
services to undermine them as competitors.
This
Note maps out facets of Amazon’s dominance. Doing so enables us to make sense
of its business strategy, illuminates anticompetitive aspects of Amazon’s
structure and conduct, and underscores deficiencies in current doctrine. The
Note closes by considering two potential regimes for addressing Amazon’s power:
restoring traditional antitrust and competition policy principles or applying
common carrier obligations and duties.
author.
I am deeply grateful to David Singh
Grewal for encouraging me to pursue this project and to Barry C. Lynn for introducing
me to these issues in the first place. For thoughtful feedback at various
stages of this project, I am also grateful to Christopher R. Leslie, Daniel
Markovits
, Stacy Mitchell, Frank Pasquale, George Priest,
Maurice
Stucke
, and Sandeep
Vaheesan
Lastly, many thanks to Juliana
Brint
Urja
Mittal, and the
Yale
Law Journal
staff for insightful comments and careful editing. All errors
are my own.
Introduction
“Even
as Amazon became one of the largest retailers in the country, it never seemed
interested in charging enough to make a profit. Customers celebrated and the
competition languished.”
The New
York Times
“[O]ne of Mr. Rockefeller’s most impressive
characteristics is patience.”
Ida Tarbell
A History of the Standard Oil Company
In Amazon’s early years, a running joke among Wall Street
analysts was that CEO Jeff Bezos was building a house of cards. Entering its
sixth year in 2000, the company had yet to crack a profit and was mounting
millions of dollars in continuous
losses,
each
quarter’s larger than the last. Nevertheless, a segment of shareholders
believed that by dumping money into advertising and steep discounts, Amazon was
making a sound investment that would yield returns once e-commerce took off.
Each quarter the company would report losses, and its stock price would rise.
One news site captured the split sentiment by asking, “Amazon: Ponzi
Scheme
or Wal-Mart of the Web?”
Sixteen years on, nobody seriously doubts that Amazon is
anything but the titan of twenty-firstcentury
commerce. In 2015, it earned $107 billion in revenue,
and, as of 2013, it sold
more than its next twelve online competitors combined.
By some estimates, Amazon
now captures 46% of online shopping, with its share growing faster than the
sector as a whole.
In addition to being a retailer, it
is 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
provider of cloud server space and computing power. Although Amazon has clocked
staggering growth—reporting double-digit increases in net sales yearly—it
reports meager profits, choosing to invest aggressively instead. The company
listed consistent losses for the first seven years it was in business, with
debts of $2 billion.
While it exits the red more regularly now,
negative returns are still
common. The company reported losses in two of the last five years, for example,
and its highest yearly net income was still less than 1% of its net sales.
Despite the company’s history of thin returns, investors have
zealously backed it: Amazon’s shares trade at over 900
times
diluted earnings, making it the most expensive stock in the Standard &
Poor’s 500.
10
As one reporter marveled, “The
company
barely ekes out a profit, spends a fortune on
expansion and free shipping and is famously opaque about its business
operations. Yet
investors .
. . pour
into the stock.”
11
Another commented that
Amazon is in “a class of its own when it comes to valuation.”
12
Reporters and financial analysts continue to speculate about
when and how Amazon’s deep investments and steep losses will pay off.
13
Customers, meanwhile, universally
seem to love the company. Close to half of all online buyers go directly to
Amazon first to search for products,
14
and in 2016, the Reputation
Institute named the firm the “most reputable company in America” for the third
year running.
15
In recent years,
journalists have exposed the aggressive business tactics Amazon employs. For
instance Amazon named one campaign “The Gazelle Project,” a strategy whereby
Amazon would approach small publishers “the way a cheetah would a sickly
gazelle.”
16
This, as well as other reporting,
17
drew widespread attention,
18
perhaps because it offered
a glimpse at the potential social costs of Amazon’s dominance. The firm’s
highly public dispute with Hachette in 2014—in which Amazon delisted the
publisher’s books from its website during business negotiations—similarly
generated extensive press scrutiny and dialogue.
19
More generally, there is
growing public awareness that Amazon has established itself as an essential
part of the internet
economy,
20
and a gnawing sense
that its dominance—its sheer scale and breadth—may pose hazards.
21
But when pressed on why,
critics often fumble to explain how a company that has so clearly delivered
enormous benefits to consumers—not to mention revolutionized e-commerce in
general—could, at the end of the day, threaten our markets. Trying to make
sense of the contradiction, one journalist noted that the critics’ argument
seems to be that “even though Amazon’s activities tend to reduce
book prices, which is
considered good for consumers, they
ultimately hurt consumers.”
22
In some ways, the story of Amazon’s sustained and growing
dominance is also the story of changes in our antitrust laws. Due to a change
in legal thinking and practice in the 1970s and 1980s, antitrust law now
assesses competition largely with an eye to the short-term interests of
consumers, not producers or the health of the market as a whole; antitrust doctrine
views low consumer prices, alone, to be evidence of sound competition. By this
measure, Amazon has excelled; it has evaded government scrutiny in part through
fervently devoting its business strategy and rhetoric to reducing prices for
consumers. Amazon’s closest encounter with antitrust authorities was when the
Justice Department sued other companies for teaming up against Amazon.
23
It is as if Bezos charted
the company’s growth by first drawing a map of antitrust laws, and then
devising routes to smoothly bypass them. With its missionary zeal for
consumers, Amazon has marched toward monopoly by singing the tune of contemporary
antitrust.
This Note maps out facets of Amazon’s power. In particular,
it traces the sources of Amazon’s growth and analyzes the potential effects of
its dominance. Doing so enables us to make sense of the company’s business strategy
and illuminates anticompetitive aspects of its structure and conduct. This
analysis reveals that the current framework in antitrust—specifically its
equating competition with “consumer welfare,” typically measured through
short-term effects on price and output
24
—fails to capture the
architecture of market power in the twenty-first century marketplace. In other
words, the potential harms to competition posed by Amazon’s dominance are not
cognizable if we assess competition primarily through price and output. Focusing
on these metrics instead blinds us to the potential hazards.
My argument is that gauging real competition in the
twenty-first century marketplace—especially in the case of online
platforms—requires analyzing the underlying structure and dynamics of markets.
Rather than pegging competition to a narrow set of outcomes, this approach
would examine the competitive process itself. Animating this framework is the
idea that a company’s power and the potential anticompetitive nature of that
power cannot be fully understood without looking to the structure of a business
and the structural role it plays in markets. Applying this idea involves, for
example, assessing whether a company’s structure creates certain
anticompetitive conflicts of interest; whether it can cross-leverage market
advantages across distinct lines of business; and whether the structure of the
market incentivizes and permits predatory conduct.
This is the approach I adopt in this Note. I begin by
exploring—and challenging—modern antitrust law’s treatment of market structure.
Part I gives an overview of the shift in antitrust away from economic
structuralism in favor of price theory and identifies how this departure has
played out in two areas of enforcement: predatory pricing and vertical
integration. Part II questions this narrow focus on consumer welfare as largely
measured by prices, arguing that assessing structure is vital to protect
important antitrust values. The Note then uses the lens of market structure to
reveal anticompetitive aspects of Amazon’s strategy and conduct. Part III
documents Amazon’s history of aggressive investing and loss leading, its
company strategy, and its integration across many lines of business. Part IV
identifies two instances in which Amazon has built elements of its business
through sustained losses, crippling its rivals, and two instances in which
Amazon’s activity across multiple business lines poses anticompetitive threats
in ways that the current framework fails to register. The Note then assesses
how antitrust law can address the challenges raised by online platforms like
Amazon. Part V considers what capital markets suggest about the economics of
Amazon and other internet platforms. Part VI offers two approaches for
addressing the power of dominant platforms: (1) limiting their dominance
through restoring traditional antitrust and competition policy principles and
(2) regulating their dominance by applying common carrier obligations and
duties.
I. the chicago school revolution: the shift away from competitive process and market structure
One of the most significant changes in antitrust law and
interpretation over the last century has been the move away from economic
structuralism. In this Part, I trace this history by sketching out how a structure-based
view of competition has been replaced by price theory and exploring how this
shift has played out through changes in doctrine and enforcement.
Broadly, economic structuralism rests on the idea that
concentrated market structures promote anticompetitive forms of conduct.
25
This view holds that a
market dominated by a very small number of large companies is likely to be less
competitive than a market populated with many small- and medium-sized
companies. This is because: (1) monopolistic and oligopolistic market structures
enable dominant actors to coordinate with greater ease and subtlety, facilitating
conduct like price-fixing, market division, and tacit collusion; (2) monopolistic
and oligopolistic firms can use their existing dominance to block new entrants;
and (3) monopolistic and oligopolistic firms have greater bargaining power
against consumers, suppliers, and workers, which enables them to hike prices
and degrade service and quality while maintaining profits.
This market structure-based understanding of competition was
a foundation of antitrust thought and policy through the 1960s. Subscribing to
this view, courts blocked mergers that they determined would lead to anticompetitive
market structures. In some instances, this meant halting horizontal
deals—mergers combining two direct competitors operating in the same market or
product line—that would have handed the new entity a large share of the market.
26
In others, it involved
rejecting vertical mergers—deals joining companies that operated in different
tiers of the same supply or production chain—that would “foreclose
competition.”
27
Centrally, this approach
involved policing not just for size but also for conflicts of interest—like
whether allowing a dominant shoe manufacturer to extend into shoe retailing
would create an incentive for the manufacturer to disadvantage or discriminate
against competing retailers.
28
The Chicago School approach to antitrust, which gained
mainstream prominence and credibility in the 1970s and 1980s, rejected this
structuralist
view.
29
In the words of Richard
Posner, the essence of the Chicago School position is that “the proper lens for
viewing antitrust problems is price theory.”
30
Foundational to this view is a faith
in the efficiency of markets, propelled by profit-maximizing actors. The Chicago
School approach bases its vision of industrial organization on a simple
theoretical premise: “[R]
ational
economic actors
working within the confines of the market seek to maximize profits by combining
inputs in the most efficient manner. A failure to act in this fashion will be
punished by the competitive forces of the market.”
31
While economic
structuralists
believe that industrial structure predisposes firms toward certain forms of
behavior that then steer market outcomes, the Chicago School presumes that
market outcomes—including firm size, industry structure, and concentration
levels—reflect the interplay of standalone market forces and the technical
demands of production.
32
In other words, economic
structuralists
take industry structure as an entryway for
understanding market dynamics, while the Chicago School holds that industry
structure merely reflects such dynamics. For the Chicago School, “[w]hat exists
is ultimately the best guide to what should exist.”
33
Practically, the shift from structuralism to price theory had
two major ramifications for antitrust analysis. First, it led to a significant
narrowing of the concept of entry barriers. An entry barrier is a cost that
must be borne by a firm seeking to enter an industry but is not carried by
firms already in the industry.
34
According to the Chicago School, advantages
that incumbents enjoy from economies of scale, capital requirements, and
product differentiation do not constitute entry barriers, as these factors are
considered to reflect no more than the “objective technical demands of
production and distribution.”
35
With so many “entry barriers . . . discounted, all firms
are subject to the threat of potential
competition . . . regardless of the number of firms or
levels of concentration.”
36
On this view, market power is always fleeting—and hence antitrust enforcement
rarely needed.
The second consequence of the shift away from structuralism
was that consumer prices became the dominant metric for assessing competition.
In his highly influential work,
The
Antitrust Paradox
, Robert Bork asserted that the sole normative objective
of antitrust should be to maximize consumer welfare, best pursued through
promoting economic efficiency.
37
Although Bork used “consumer
welfare” to mean “allocative efficiency,”
38
courts and antitrust authorities
have largely measured it through effects on consumer prices. In 1979, the
Supreme Court followed Bork’s work and declared that “Congress designed the
Sherman Act as a ‘consumer welfare prescription’”
39
—a statement that is widely viewed
as erroneous.
40
Still, this philosophy
wound its way into policy and doctrine. The 1982 merger guidelines issued by
the Reagan Administration—a radical departure from the previous guidelines,
written in 1968—reflected this newfound focus. While the 1968 guidelines had
established that the “primary role” of merger enforcement was “to preserve and
promote market structures conducive to competition,”
41
the 1982 guidelines said
mergers “should not be permitted to create or enhance ‘market power,’” defined
as the “ability of one or more firms profitably to maintain prices above
competitive levels.”
42
Today, showing antitrust injury
requires showing harm to consumer welfare, generally in the form of price
increases and output restrictions.
43
It is true that antitrust authorities do not ignore non-price
effects entirely. The 2010 Horizontal Merger Guidelines, for example,
acknowledge that enhanced market power can manifest as non-price harms,
including in the form of reduced product quality, reduced product variety, reduced
service, or diminished innovation.
44
Notably, the Obama Administration’s
opposition to one of the largest mergers proposed on its watch—Comcast/
TimeWarner
—stemmed from a concern about market access, not
prices.
45
And by some measures, the
Federal Trade Commission (FTC) has alleged potential harm to innovation in
roughly one-third of merger enforcement actions in the last decade.
46
Still, it is fair to say
that a concern for innovation or non-price effects rarely animates or drives
investigations or enforcement actions—especially outside of the merger context.
47
Economic factors that are easier to
measure—such as impacts on price, output, or productive efficiency in narrowly
defined markets—have become “disproportionately important.”
48
Two areas of enforcement that this reorientation has affected
dramatically are predatory pricing and vertical integration. The Chicago School
claims that “predatory pricing, vertical integration, and tying arrangements
never or almost never reduce consumer welfare.”
49
Both predatory pricing and
vertical integration are highly relevant to analyzing Amazon’s path to dominance
and the source of its power. Below, I offer a brief overview of how the Chicago
School’s influence has shaped predatory pricing doctrine and enforcers’ views
of vertical integration.
A. Predatory Pricing
Through the mid-twentieth century, Congress repeatedly
enacted legislation targeting predatory pricing. Congress, as well as state
legislatures, viewed predatory pricing as a tactic used by highly capitalized
firms to bankrupt rivals and destroy competition—in other words, as a tool to
concentrate control. Laws prohibiting predatory pricing were part of a larger arrangement
of pricing laws that sought to distribute power and opportunity. However, a
controversial Supreme Court decision in the 1960s created an opening for
critics to attack the regime. This intellectual backlash wound its way into
Supreme Court doctrine by the early 1990s in the form of the restrictive “
recoupment test
.”
The earliest predatory pricing case in America was the
government’s antitrust suit against Standard Oil, which reached the Supreme
Court in 1911.
50
As detailed in Ida Tarbell’s exposé,
A History of the Standard Oil Company
, Standard Oil routinely slashed
prices in order to drive rivals from the market.
51
Moreover, it
cross-subsidized: Standard Oil charged monopoly prices
52
in markets where it faced
no competitors; in markets where rivals checked the company’s dominance, it
drastically lowered prices in an effort to push them out. In its antitrust case
against the company, the government argued that a suite of practices by Standard
Oil—including predatory pricing—violated section 2 of the Sherman Act. The
Supreme Court ruled for the government and ordered the break-up of the company.
53
Subsequent courts cited the
decision for establishing that in the quest for monopoly power, “price cutting
became perhaps the most effective weapon of the larger corporation.”
54
Recognizing the threat of predatory pricing executed by
Standard Oil, Congress passed a series of laws prohibiting such conduct. In
1914 Congress enacted the Clayton Act
55
to strengthen the Sherman Act and
included a provision to curb price discrimination and predatory pricing.
56
The House Report
stated that section 2 of the Clayton Act was expressly designed to prohibit
large corporations from slashing prices below the cost of production “with the
intent to destroy and make unprofitable the business of their competitors” and
with the aim of “acquiring a monopoly in the particular locality or section in
which the discriminating price is made.”
57
Congress also acted to protect state “fair trade” laws that
further safeguarded against predatory pricing. Fair trade legislation granted
producers the right to set the final retail price of their goods, limiting the
ability of chain stores to discount.
58
When the Supreme Court
targeted these “resale price maintenance” efforts, Congress stepped up to defend
them. After the Supreme Court in 1911 struck down the form of resale price
maintenance enabled by fair trade laws,
59
Congress in 1937 carved out
an exception for state fair trade laws through the Miller-
Tydings
Act.
60
When the Supreme Court in
1951 ruled that producers could enforce minimum prices only against those
retailers that had signed contracts agreeing to do so,
61
Congress responded with a
law making minimum prices enforceable against
nonsigners
too.
62
Another byproduct of the “fair trade” movement was the
Robinson-
Patman
Act of 1936. This Act prohibited
price discrimination by retailers among producers and by producers among
retailers.
63
Its aim was to prevent
conglomerates and large companies from using their buyer power to extract
crippling discounts from smaller entities, and to keep large manufacturers and
retailers from teaming up against rivals.
64
Like laws banning predatory
pricing, the prohibition against price discrimination effectively curbed the
power of size. Section 3 of the Act addressed predatory pricing directly by
making it a crime to sell goods at “unreasonably low prices for the purpose of
destroying competition or eliminating a competitor.”
65
While predatory price cutting
gave rise to civil liability and remedies under the Clayton Act, the Robinson-
Patman
Act attached criminal penalties as well.
66
This series of antitrust laws demonstrates that Congress saw
predatory pricing as a serious threat to competitive markets. By the
mid-twentieth century, the Supreme Court recognized and gave effect to this
congressional intent. The Court upheld the Robinson-
Patman
Act numerous times, holding that the relevant factors were whether a retailer
intended to destroy competition through its pricing practices and whether its
conduct furthered that purpose.
67
However, not all instances of below-cost pricing were illegitimate. Liquidating
excess or perishable goods, for example, was considered fair game.
68
Only “sales made below cost
without legitimate commercial objective and with specific intent to destroy
competition” would clearly violate section 3.
69
In other cases, the Court
distinguished between competitive advantages drawn from superior skill and
production, and those drawn from the brute power of size and capital.
70
The latter, the Court
ruled, were illegitimate.
71
In
Utah Pie Co. v. Continental Baking Co.
the Court further reinforced
the illegitimacy of predatory pricing.
72
Utah Pie and Continental
Baking were competing manufacturers of frozen dessert pies. A locational
advantage gave Utah Pie cheaper access to the Salt Lake City market, which it
used to price goods below those sold by competitors. Other frozen pie manufacturers,
including Continental, began selling at below-cost prices in the Salt Lake City
market, while keeping prices in other regions at or above cost. Utah Pie
brought a predatory pricing case against Continental. The Supreme Court ruled
for Utah Pie, noting that the pricing strategies of its competitors had diverted
business from Utah Pie and compelled the company to further lower its prices,
leading to a “declining price structure” overall.
73
Additionally, Continental
had admitted to sending an industrial spy to Utah Pie’s plant to gain information
to sabotage Utah’s business relations with retailers, a fact the Court used to
establish “intent to injure.”
74
The decision was controversial. Continental’s conduct had
loosened the grip of a quasi-monopolist. Prior to the alleged predation, Utah
Pie had controlled 66.5% of the Salt Lake City market, but following
Continental’s practices, its share dropped to 45.3%.
75
Penalizing conduct that had
made a market
more
competitive as
predatory seemed perverse. As Justice Stewart noted in the dissent, “I cannot
hold that Utah Pie’s monopolistic position was protected by the federal
antitrust laws from effective price competition . . . .”
76
The case presented an opportunity for critics of predatory
pricing laws to attack the doctrine as misguided. In an article labeling
Utah
Pie
“the most anticompetitive antitrust decision of the decade,” Ward
Bowman, an economist at Yale Law School, argued that the premise of predatory
pricing laws was wrong.
77
He wrote, “The Robinson-
Patman
Act rests upon a presumption that price
discrimination can or might be used as a monopolizing technique. This, as more
recent economic literature confirms, is at best a highly dubious presumption.”
78
Bork, meanwhile, said of
the decision, “There is no economic theory worthy of the name that could find
an injury to competition on the facts of the case. Defendants were convicted
not of injuring competition but, quite simply, of competing.”
79
He described predatory
pricing generally as “a phenomenon that probably does not exist” and the
Robinson-
Patman
Act as “the misshapen progeny of
intolerable draftsmanship coupled to wholly mistaken economic theory.”
80
Other scholars,
particularly those from the rising Chicago School, also weighed in to criticize
Utah Pie
81
As the writings of Bowman and Bork suggest, the Chicago
School critique of predatory pricing doctrine rests on the idea that below-cost
pricing is irrational and hence rarely occurs.
82
For one, the critics argue,
there was no guarantee that reducing prices below cost would either drive a
competitor out or otherwise induce the rival to stop competing. Second, even if
a competitor were to drop out, the predator would need to sustain monopoly
pricing for long enough to recoup the initial losses
and
successfully thwart entry by potential competitors, who would
be lured by the monopoly pricing. The uncertainty of its success, coupled with
its guarantee of costs, made predatory pricing an unappealing—and therefore
highly unlikely—strategy.
83
As the influence and credibility of these scholars grew,
their thinking shaped government enforcement. During the 1970s, for example,
the number of Robinson-
Patman
Act cases that the FTC
brought dropped dramatically, reflecting the belief that these cases were of
little economic concern.
84
Under the Reagan Administration, the
FTC all but entirely abandoned Robinson-
Patman
Act
cases.
85
Bork’s appointment as Solicitor
General, meanwhile, gave him a prime platform to influence the Supreme Court on
antitrust issues and enabled him “to train and influence many of the attorneys
who would argue before the Supreme Court for the next generation.
86
The Chicago School critique came to shape Supreme Court
doctrine on predatory pricing. The depth and degree of this influence became
apparent in
Matsushita Electric Industrial Co. v. Zenith Radio Corp
87
Zenith, an American manufacturer of
consumer electronics, brought a Sherman Act section 1 case accusing Japanese
firms of conspiring to charge predatorily low prices in the U.S. market in
order to drive American companies out of business.
88
The Supreme Court granted
certiorari to review whether the Third Circuit had applied the correct standard
in reversing the district court’s grant of summary judgment to Matsushita—an
inquiry that led the Court to assess the reasonableness of assuming the alleged
predation.
89
Citing to Bork’s
The Antitrust Paradox
the Court concluded that predatory
pricing schemes were implausible and therefore could not justify a reasonable
assumption in favor of Zenith. “As [Bork’s work] shows, the success of such
schemes is inherently uncertain: the short-run loss is definite, but the
long-run gain depends on successfully neutralizing the competition,” the Court
wrote.
90
“For this reason, there is
a consensus among commentators that predatory pricing schemes are rarely tried,
and even more rarely successful.”
91
In addition to adopting Bork’s cost-benefit framing, the
Court echoed his concern that price competition could be mistaken for
predation. In
The Antitrust Paradox
Bork wrote, “The real danger for the law is less that
predation will be missed than that normal competitive behavior will be wrongly
classified as predatory and suppressed.”
92
Justice Powell, writing for
the 5-4 majority in
Matsushita
, echoed Bork: “
[C]
utting
prices in order to increase business often is
the very essence of competition. Thus mistaken inferences in cases such as this
one are especially costly, because they chill the very conduct the antitrust
laws are designed to protect.”
93
Although
Matsushita
focused
on a narrow issue—the summary judgment standard for claims brought under
Section 1 of the Sherman Act, which targets coordinationamong parties
94
—it has been widely influential in
monopolization cases, which fall under Section 2. In other words, reasoning
that originated in one context has wound up in jurisprudence applying to
totally distinct circumstances, even as the underlying violations differ
vastly.
95
Subsequent courts applied
Matsushita
’s predatory pricing analysis
to cases involving monopolization and unilateral anticompetitive conduct, shaping
the jurisprudence of Section 2 of the Sherman Act.
96
The lower courts seized on
Matsushita
’s central point: the idea
that “predatory pricing schemes are rarely tried, and even more rarely successful.”
97
The phrase became a
talisman against the existence of predatory pricing, routinely invoked by
courts in favor of defendants.
In
Brooke Group Ltd. v. Brown & Williamson Tobacco
Corp
.,
98
the Supreme Court
formalized this premise into a doctrinal test.The case involved cigarette
manufacturing, an industry dominated by six firms.
99
Liggett, one of the six,
introduced a line of generic cigarettes, which it sold for about 30% less than
the price of branded cigarettes.
100
Liggett alleged that when
it became clear that its generics were diverting business from branded
cigarettes, Brown & Williamson, a competing manufacturer, began selling its
own generics at a loss.
101
Liggett sued, claiming that Brown & Williamson’s tactic was designed to
pressure Liggett to raise prices on its generics, thus enabling Brown &
Williamson to maintain high profits on branded cigarettes. A jury returned a
verdict in favor of Liggett, but the district court judge decided that Brown
& Williamson was entitled to judgment as a matter of law.
102
Importantly, Liggett’s accusation was that Brown &
Williamson would recoup its losses through raising prices on
branded
cigarettes,
not
the generics
cigarettes it was steeply discounting. Building on the analysis introduced in
Matsushita
the Court held that Liggett had failed to show that Brown & Williamson
would be able to execute the scheme successfully by recouping its losses
through
supracompetitive
pricing. “Evidence of
below-cost pricing is not alone sufficient to permit an inference of probable recoupment
and injury to competition,” Justice Kennedy wrote for the majority.
103
Instead, the plaintiff
“must demonstrate that there is a likelihood that the predatory scheme alleged
would cause a rise in prices above a competitive level that would be sufficient
to compensate for the amounts expended on the predation, including the time
value of the money invested in it”
104
—a requirement now known as
the “recoupment test.”
In placing recoupment at the center of predatory pricing
analysis, the Court presumed that direct profit maximization is the singular
goal of predatory pricing.
105
Furthermore, by establishing that harm occurs
only
when predatory
pricing results in higher prices, the Court collapsed the rich set of concerns
that had animated earlier critics of predation, including an aversion to large
firms that exploit their size and a desire to preserve local control. Instead,
the Court adopted the Chicago School’s narrow conception of what constitutes
this harm (higher prices) and
how
this harm comes about—namely, through the alleged predator raising prices on
the previously discounted good.
106
Today, succeeding on a predatory pricing claim requires a
plaintiff to meet the
Brooke Group
recoupment
test by showing that the defendant would be able to recoup its losses through
sustaining
supracompetitive
prices. Since the Court
introduced this recoupment requirement, the number of cases brought and won by
plaintiffs has dropped dramatically.
107
Despite the Court’s contention—that
“predatory pricing schemes are rarely tried and even more rarely successful”—a
host of research shows that predatory pricing can be “an attractive
anticompetitive strategy” and has been used by dominant firms across sectors to
squash or deter competition.
108
B. Vertical Integration
Analysis of vertical integration has similarly moved away
from structural concerns. Vertical integration arises when “two or more
successive stages of production and/or distribution of a product are combined
under the same control.”
109
For most of the last century, enforcers reviewed vertical integration under the
same standards as horizontal mergers, as set out in the Sherman Act, the
Clayton Act, and the Federal Trade Commission Act. Vertical integration was
banned whenever it threatened to “substantially lessen competition”
110
or constituted a
“restraint of trade”
111
or an “unfair
method[
] of competition.”
112
However, the Chicago
School’s view that vertical mergers are generally pro-competitive has led
enforcement in this area to significantly drop.
Serious concern about vertical integration took hold in the
wake of the Great Depression, when both the law and economic theory became
sharply critical of the phenomenon.
113
Thurman Arnold, the Assistant
Attorney General in the 1930s, targeted vertical ownership achieved through
both mergers and contractual provisions, and by the 1950s courts and antitrust
authorities generally viewed vertical integration as anticompetitive. Partly
because it believed that the Supreme Court had failed to use existing law to
block vertical integration through acquisitions, Congress in 1950 amended section
7 of the Clayton Act to make it applicable to vertical mergers.
114
Critics of vertical integration primarily focused on two
theories of potential harm: leverage and foreclosure. Leverage reflects the
idea that a firm can use its dominance in one line of business to establish dominance
in another. Because “horizontal power in one market or stage of production
creates ‘leverage’ for the extension of the power to bar entry at another
level,” vertical integration combined with horizontal market power “can impair
competition to a greater extent than could the exercise of horizontal power
alone.”
115
Foreclosure, meanwhile,
occurs when a firm uses one line of business to disadvantage rivals in another
line. A flourmill that also owned a bakery could hike prices or degrade quality
when selling to rival bakers—or refuse to do business with them entirely. In
this view, even if an integrated firm did not directly resort to exclusionary
tactics, the arrangement would still increase barriers to entry by requiring
would-be entrants to compete at two levels.
When seeking to block vertical combinations or arrangements,
the government frequently built its case on one of these theories—and, through
the 1960s, courts largely accepted them.
116
In
Brown Shoe v. United States
, for example, the government sought to
block a merger between a leading manufacturer and a leading retailer of shoes
on the grounds that the tie-up would “
foreclos
[e]
competition” and “
enhanc
[e] Brown’s competitive
advantage over other producers, distributors and sellers of shoes.”
117
The Court acknowledged
that the Clayton Act did not “render unlawful
all .
. .
vertical arrangements,” but held that this
merger would undermine competition by “
foreclos
ing
] . . . independent manufacturers
from markets otherwise open to them.”
118
In other words, the
concern was that—once merged—the combined entity would forbid its retailing arm
from stocking shoes made by competing independent manufacturers. Calling this
form of foreclosure “the primary vice of a vertical merger,”
119
the Court noted it was
also largely inevitable: “Every extended vertical arrangement by its very
nature, for at least a time, denies to competitors of the supplier the opportunity
to compete for part or all of the trade of the customer-party to the vertical
arrangement.”
120
In his partial concurrence,
Justice Harlan observed that the deal would enable Brown to “turn an independent
purchaser into a captive market for its shoes,” thereby “diminish[
ing
] the available market for which shoe manufacturers
compete.”
121
The Court enjoined the merger.
122
Another reason courts cited for blocking these arrangements
was that vertical deals eliminated potential rivals—a recognition of how a
merger would reshape industry structure. Upholding the FTC’s challenge of Ford
purchasing an equipment manufacturer, the Court noted that before the
acquisition, Ford had helped check the power of the manufacturers and had a
“soothing influence” over prices.
123
An outside firm “may
someday go in and set the stage for noticeable
deconcentration
,”
the Court wrote.
124
“While it merely stays near the edge, it is a deterrent to current
competitors.”
125
In other
words, the threat of potential entry by Ford—the fact that, pre-merger, it
could
have internally expanded into
equipment manufacturing—had played an important disciplining role.
Relatedly,
the Court observed that when a company in a competitive market integrates with
a firm in an oligopolistic one, the merger can have “the result of transmitting
the rigidity of the oligopolistic structure” of one industry to the other,
“thus reducing the chances of future
deconcentration
of the market.
126
The Court required Ford to divest the manufacturer.
127
In the 1950s—while Congress, enforcement agencies, and the
courts recognized potential threats posed by vertical arrangements—Chicago
School scholars began to cast doubt on the idea that vertical integration has
anticompetitive effects.
128
By replacing market transactions with administrative decisions within the firm,
they argued, vertical arrangements generated efficiencies that antitrust law
should promote. And if integration failed to yield efficiencies, then the
integrated firm would have no cost advantages over unintegrated rivals,
therefore posing no risk of impeding entry. They further argued that vertical
deals would not affect a firm’s pricing and output policies, the primary
metrics in their analysis. Under this framework, only horizontal mergers affect
competition, as “[h]
orizontal
mergers increase market
share, but vertical mergers do not.”
129
Chicago School theory holds that concerns about both leverage
and foreclosure are misguided. Under the “single monopoly profit theorem,” the
amount of profit that a firm can extract from one market is fixed and cannot be
expanded through extending into an adjacent market if the two products are used
in fixed proportions.
130
Under this premise, not only does monopoly leveraging not pose any competitive
concern, but—since it can only be motivated by efficiencies, not profits—it is
actually procompetitive when it does occur.
The traditional worries about foreclosure, Bork claimed, were
unfounded, as “[p]
redation
through vertical merger is
extremely unlikely.”
131
A manufacturer would not favor its retail subsidiary over others unless it was
cheaper to do so—in which case, Bork argued, discriminating would yield
efficiencies that the firm would pass on to consumers. Additionally, any manufacturer
that sought to privilege its own retailer would face “entrants who would arrive
in sky-darkening swarms for the profitable alternatives.”
132
In other words, Bork’s
take was that vertical integration generally would not create forms of market
power that firms could use to hike prices or constrain output. In the rare case
that vertical integration
did
create
this form of market power, he believed that it would be disciplined by actual
or potential entry by competitors.
133
In light of this,
antitrust law’s aversion to vertical arrangements was, Bork argued, irrational.
“The law against vertical mergers is merely a law against the creation of
efficiency.”
134
With the election of President Reagan, this view of vertical
integration became national policy. In 1982 and 1984, the Department of Justice
(DOJ) and the FTC issued new merger guidelines outlining the framework that
officials would use when reviewing horizontal deals.
135
The 1984 version included guidelines
specific to vertical deals.
136
Part of a sweeping effort to overhaul antitrust enforcement, the new guidelines
narrowed the circumstances in which the agencies would challenge vertical
mergers.
137
Although
the guidelines acknowledged that vertical mergers could sometimes give rise to
competitive concerns, in practice the change constituted a de facto approval of
vertical deals.
The DOJ and FTC did not challenge even one vertical merger
during President Reagan’s tenure.
138
Although subsequent administrations have continued reviewing
vertical mergers, the Chicago School’s view that these deals generally do not
pose threats to competition has remained dominant.
139
Rejection of vertical
tie-ups—standard through the 1960s and 1970s—is extremely rare today;
140
in instances where
agencies spot potential harm, they tend to impose conduct remedies or require
divestitures rather than block the deal outright.
141
The Obama Administration
took this approach with two of the largest vertical deals of the last decade:
Comcast/NBC and Ticketmaster/
LiveNation
. In each
case, consumer advocates opposed the de
142
and warned that the tie-up would
concentrate significant power in the hands of a single company,
143
which it could use to
engage in exclusionary practices, hike prices for consumers, and dock payments
to content producers, such as TV screenwriters and musicians. Nonetheless, the
DOJ attached certain behavioral conditions and required a minor divestiture, ultimately
approving both deals.
144
The district court held the consent decrees to be in the public interest.
II. Why competitive process and structure matter
The current framework in antitrust fails to register certain
forms of anticompetitive harm and therefore is unequipped to promote real
competition—a shortcoming that is illuminated and amplified in the context of
online platforms and data-driven markets. This failure stems both from
assumptions embedded in the Chicago School framework and from the way this framework
assesses competition.
Notably, the present approach fails even if one believes that
antitrust should promote only consumer interests. Critically, consumer
interests include not only cost but also product quality, variety, and innovation.
Protecting these long-term interests requires a much thicker conception of
“consumer welfare” than what guides the current approach. But more importantly,
the undue focus on consumer welfare is misguided. It betrays legislative
history, which reveals that Congress passed antitrust laws to promote a host of
political economic ends—including our interests as workers, producers,
entrepreneurs, and citizens. It also mistakenly supplants a concern about process
and structure (i.e., whether power is sufficiently distributed to keep markets
competitive) with a calculation regarding outcome (i.e., whether consumers are
materially better off).
Antitrust law and competition policy should promote not
welfare but competitive markets. By refocusing attention back on process and
structure, this approach would be faithful to the legislative history of major
antitrust laws. It would also promote actual competition—unlike the present
framework, which is overseeing concentrations of power that risk precluding
real competition.
A. Price and Output Do Not Cover the Full Range of Threats to Consumer Welfare
As discussed in Part I, modern doctrine assumes that
advancing consumer welfare is the sole purpose of antitrust. But the consumer
welfare approach to antitrust is unduly narrow and betrays congressional
intent, as evident from legislative history and as documented by a vast body of
scholarship. I argue in this Note that the rise of dominant internet platforms
freshly reveals the shortcomings of the consumer welfare framework and that it
should be abandoned.
Strikingly, the current approach fails
even if
one believes that consumer interests should remain
paramount.Focusing primarily on price and output undermines effective antitrust
enforcement by delaying intervention until market power is being actively
exercised, and largely ignoring whether and how it is being acquired. In other
words, pegging anticompetitive harm to high prices and/or lower output—while disregarding
the market structure and competitive process that give rise to this market
power—restricts intervention to the moment when a company has already acquired
sufficient dominance to distort competition.
This approach is misguided because it is much easier to
promote competition at the point when a market risks becoming less competitive
than it is at the point when a market is no longer competitive. The antitrust
laws reflect this recognition, requiring that enforcers arrest potential
restraints to competition “in their incipiency.”
145
But the Chicago School’s
hostility to false positives—and insistence that market power and high
concentration both reflect and generate efficiency
146
—has undermined this
incipiency standard and enfeebled enforcement as a whole. Indeed, enforcers
have largely abandoned section 2 monopolization claims,
147
which—by virtue of
assessing how a single company amasses and exercises its power—traditionally
involved an inquiry into structure. By instead relying primarily on price and output
effects as metrics of competition, enforcers risk overlooking the structural
weakening of competition until it becomes difficult to address effectively, an
approach that undermines consumer welfare.
Indeed, growing evidence shows that the consumer welfare
frame has led to higher prices and
few efficiencies
failing by its own metrics.
148
It arguably has further contributed to a decline in new business growth,
resulting in reduced opportunities for entrepreneurs and a stagnant economy.
149
The long-term interests of
consumers include product quality, variety, and innovation—factors best promoted
through both a robust competitive process and open markets. By contrast,
allowing a highly concentrated market structure to persist endangers these
long-term interests, since firms in uncompetitive markets need not compete to
improve old products or tinker to create news ones. Even if we accept consumer
welfare as the touchstone of antitrust, ensuring a competitive process—by
looking, in part, to how a market is structured—ought to be
key
Empirical studies revealing that the consumer welfare
frame
has resulted in higher prices—failing even by its own terms—support
the
need for a different approach.
B. Antitrust Laws Promote Competition To Serve a Variety of Interests
Legislative history reveals that the idea that “Congress
designed the Sherman Act as a ‘consumer welfare prescription’”
150
is wrong.
151
Congress enacted antitrust
laws to rein in the power of industrial trusts, the large business organizations
that had emerged in the late nineteenth century. Responding to a fear of
concentrated power, antitrust sought to distribute it. In this sense, antitrust
was “guided by principles.”
152
The law was “
for
diversity and access to markets; it was
against
high concentration and abuses of power.”
153
More relevant than any single goal was this general vision.
When
Congress passed the Sherman Act in 1890,
Senator John Sherman called it “a bill of rights, a charter of liberty,” and
stressed its importance in political terms.
154
On the floor of the Senate he declared,
If we will not endure a king as a political power, we
should not endure a king over the production, transportation, and sale of any
of the necessities of life. If we would not submit to an emperor, we should not
submit to an autocrat of trade, with power to prevent competition and to fix
the price of any commodity.”
155
In other words, what was at stake in
keeping markets open—and keeping them free from industrial monarchs—was
freedom.
Animating this vision was the understanding that
concentration of economic power also consolidates political power, “breed[
ing
] antidemocratic political pressures.”
156
This would occur through enabling a
small minority to amass outsized wealth, which they could then use to influence
government. But it would also occur by permitting “private discretion by a few
in the economic sphere” to “
control[
] the welfare of
all,” undermining individual and business freedom.
157
In the lead up to the
passage of the Sherman Act, Senator George Hoar warned that monopolies were “a
menace to republican institutions themselves.”
158
This vision encompassed a variety of ends. For one,
competition policy would prevent large firms from extracting wealth from
producers and consumers in the form of monopoly profits.
159
Senator Sherman, for
example, described overcharges by monopolists as “extortion which makes the
people poor,”
160
while Senator Richard Coke
referred to them as “robbery.”
161
Representative John Heard announced that trusts had “stolen millions from the
people,”
162
and Congressman Ezra
Taylor noted that the beef trust “robs the farmer on the one hand and the
consumer on the other.”
163
In the words of Senator James George, “[t]hey aggregate to themselves great
enormous wealth by extortion which makes the people poor.”
164
Notably, this focus on wealth transfers was not solely
economic. Leading up to the passage of the Sherman Act, price levels in the
United States were stable or slowly decreasing.
165
If the exclusive concern
had been higher prices, then Congress could have focused on those industries
where prices were, indeed, high or still rising. The fact that Congress chose
to denounce unjust redistribution suggests that something else was at
play—namely, that the public was “angered less by the reduction in their wealth
than by the way in which the wealth was extracted.”
166
In other words, though the
harm was being registered through an economic effect—a wealth transfer—the
underlying source of the grievance was also political.
167
Another distinct goal was to preserve open markets, in order
to ensure that new businesses and entrepreneurs had a fair shot at entry.
Several Congressmen advocated for the Federal Trade Commission Act because it
would help promote small business. Senator James Reed expressly noted that Congress’s
aim in passing the law was to keep markets open to independent firms.
168
When discussing the
Sherman Act, Senator George lamented that if large-scale industry were allowed
to grow unchecked, it would “crush out all small men, all small capitalists,
all
small enterprises.”
169
Through the 1950s, courts and enforcers applied antitrust
laws to promote this variety of aims. While the vigor and tenor of enforcement
varied, there was an overarching understanding that antitrust served to protect
what Justice Louis Brandeis called “industrial liberty.”
170
Key to this vision was the
recognition that excessive concentrations of private power posed a public
threat, empowering the interests of a few to steer collective outcomes. “Power
that controls the economy should be in the hands of elected representatives of
the people, not in the hands of an industrial oligarchy,” Justice William O.
Douglas wrote.
171
Decentralizing this power would ensure that “the fortunes of the people will
not be dependent on the whim or caprice, the political prejudice, the emotional
stability of a few self-appointed men.”
172
As described in Part I, Chicago School scholars upended this
traditional approach, concluding that the only legitimate goal of antitrust is
consumer welfare, best promoted through enhancing economic efficiency. Notably,
some prominent liberals—including John Kenneth Galbraith—ratified this idea,
championing centralization.
173
In the wake of high inflation in the 1970s, Ralph Nader and other consumer advocates
also came to support an antitrust regime centered on lower prices, according
with the Chicago School’s view.
174
By orienting antitrust toward material rather than political ends, both the neoclassical
school and its critics effectively embraced concentration over competition.
175
Focusing antitrust exclusively on consumer welfare is a
mistake.
176
For one, it betrays legislative
intent, which makes clear that Congress passed antitrust laws to safeguard
against excessive concentrations of economic power. This vision promotes a
variety of aims, including the preservation of open markets, the protection of
producers and consumers from monopoly abuse, and the dispersion of political
177
and economic control.
178
Secondly, focusing on
consumer welfare disregards the host of other ways that excessive concentration
can harm us—enabling firms to squeeze suppliers and producers, endangering
system stability (for instance, by allowing companies to become too big to
fail),
179
or undermining media diversity,
180
to name a few. Protecting this range
of interests requires an approach to antitrust that focuses on the neutrality
of the competitive process and the openness of market structures.
C.Promoting Competition Requires Analysis of
Process and Structure
The Chicago School’s embrace of consumer welfare as the sole
goal of antitrust is problematic for at least two reasons. First, as described
in Section II.B, this idea contravenes legislative history, which shows that
Congress passed antitrust laws to safeguard against excessive concentrations of
private power. It recognized, in turn, that this vision would protect a host of
interests, which the sole focus on “consumer welfare” disregards. Second, by
adopting this new goal, the Chicago School shifted the analytical emphasis away
from
process
—the conditions necessary
for competition—and toward an
outcome
—namely,
consumer welfare.
181
In other words, a concern about structure (is power sufficiently distributed to
keep markets competitive?) was replaced by a calculation (did prices rise?).
182
This approach is
inadequate to promote real competition, a failure that is amplified in the case
of dominant online platforms.
Antitrust doctrine has evolved to reflect this redefinition.
The recoupment requirement in predatory pricing, for example, reflects the idea
that competition is harmed only if the predator can ultimately charge consumers
supracompetitive
prices.
183
This logic is agnostic
about process and structure; it measures the health of competition primarily
through effects on price and output. The same is true in the case of vertical
integration. The modern view of integration largely assumes away barriers to entry,
an element of structure, presuming that any advantages enjoyed by the
integrated firm trace back to efficiencies.
184
More generally, modern doctrine assumes that market power is
not inherently harmful and instead may result from and generate efficiencies.
In practice, this presumes that market power is benign
unless
it leads to higher prices or reduced output—again glossing
over questions about the competitive process in favor of narrow calculations.
185
In other words, this approach
equates harm entirely with whether a firm
chooses
to exercise its market power through price-based levers, while disregarding
whether a firm has
developed
this
power, distorting the competitive process in some other way.
186
But allowing firms to
amass market power makes it more difficult to meaningfully check that power
when it is eventually exercised. Companies may exploit their market power in a
host of competition-distorting ways that do not directly lead to short-term price
and output effects.
I propose that a better way to understand competition is by
focusing on competitive process and market structure.
187
By arguing for a focus on
market structure, I am not advocating a strict return to the structure-conduct-performance
paradigm. Instead, I claim that seeking to assess competition without
acknowledging the role of structure is misguided. This is because the best guardian
of competition is a competitive process, and whether a market is competitive is
inextricably linked to—even if not solely determined by—how that market is
structured. In other words, an analysis of the competitive process and market
structure will offer better insight into the state of competition than do
measures of welfare.
Moreover, this approach would better protect the range of
interests that Congress sought to promote through preserving competitive
markets, as described in Section II.B. Foundational to these interests is the
distribution of ownership and control—inescapably a question of structure.
Promoting a competitive process also minimizes the need for regulatory involvement.
A focus on process assigns government the task of creating background
conditions, rather than intervening to manufacture or interfere with outcomes.
188
In practice, adopting this approach would involve assessing a
range of factors that give insight into the neutrality of the competitive
process and the openness of the market. These factors include: (1) entry
barriers, (2) conflicts of interest, (3) the emergence of gatekeepers or
bottlenecks, (4) the use of and control over data, and (5) the dynamics of
bargaining power. An approach that took these factors seriously would involve
an assessment of how a market is structured and whether a single firm had
acquired sufficient power to distort competitive outcomes.
189
Key questions involving
these factors would be: What lines of business is a firm involved in and how do
these lines of business interact? Does the structure of the market create or
reflect dependencies? Has a dominant player emerged as a gatekeeper so as to
risk distorting competition?
Attention to structural concerns and the competitive process
are especially important in the context of online platforms, where price-based
measures of competition are inadequate to capture market dynamics, particularly
given the role and use of data.
190
As internet platforms mediate a
growing share of both communications and commercial activity, ensuring that our
framework fits how competition actually works in these markets is vital. Below
I document facets of Amazon’s power, trace the source of its growth, and
analyze the effects of its dominance. Doing so through the lens of structure
and process enables us to make sense of the company’s strategy and illuminates
anticompetitive aspects of its business.
III. Amazon’s Business Strategy
Amazon has established dominance as an online platform thanks
to two elements of its business strategy: a willingness to sustain losses and
invest aggressively at the expense of profits, and integration across multiple
business lines.
191
These facets of its strategy are
independently significant and closely interlinked—indeed, one way it has been
able to expand into so many areas is through foregoing returns. This
strategy—pursuing market share at the expense of short-term returns—defies the
Chicago School’s assumption of rational, profit-seeking market actors. More
significantly, Amazon’s choice to pursue heavy losses while also integrating
across sectors suggests that in order to fully understand the company and the
structural power it is amassing, we must view it as an integrated entity.
Seeking to gauge the firm’s market role by isolating a particular line of
business and assessing prices in that segment fails to capture both (1) the
true shape of the company’s dominance and (2) the ways in which it is able to
leverage advantages gained in one sector to boost its business in another.
A. Willingness To Forego Profits To Establish Dominance
Recently, Amazon has started reporting consistent profits,
largely due to the success of Amazon Web Services, its cloud computing
business.
192
Its North America retail
business runs on much thinner margins, and its international retail business
still runs at a loss.
193
But for the vast majority of its twenty years in business, losses—not profits—were
the norm. Through 2013, Amazon had generated a positive net income in just over
half of its financial reporting quarters. Even in quarters in which it did
enter the black, its margins were razor-thin, despite astounding growth. The
graph below captures the general trend.
Figure 1.
Amazon’s Profits
194
Just as striking as Amazon’s lack of interest in generating
profit has been investors’ willingness to back the company.
195
With the exception of a
few quarters in 2014, Amazon’s shareholders have poured money in despite the
company’s penchant for losses. On a regular basis, Amazon would report losses,
and its share price would soar.
196
As one analyst told the
New York Times
“Amazon’s stock price doesn’t seem to be correlated to its actual experience in
any way.”
197
Analysts and reporters have spilled substantial ink seeking
to understand the phenomenon. As one commentator joked in a widely circulated
post, “Amazon, as best I can tell, is a charitable organization being run by
elements of the investment community for the benefit of consumers.”
198
In some ways, the puzzlement is for naught: Amazon’s
trajectory reflects the business philosophy that Bezos outlined from the start.
In his first letter to shareholders, Bezos wrote:
We believe that a fundamental measure of our success
will be the shareholder value we create over the
long term
. This value will be a direct result of our ability to
extend and solidify our current market leadership
position .
. . .
We first measure ourselves in terms of the metrics most indicative of our
market leadership: customer and revenue growth, the degree to which our
customers continue to purchase from us on a repeat basis, and the strength of
our brand. We have invested and will continue to invest aggressively to expand
and leverage our customer base, brand, and infrastructure as we move to establish
an enduring franchise.
199
In other words, the premise of Amazon’s business model was to
establish scale. To achieve scale, the company prioritized growth. Under this
approach, aggressive investing would be key, even if that involved slashing
prices or spending billions on expanding capacity, in order to become
consumers’ one-stop-shop. This approach meant that Amazon “may make decisions
and weigh tradeoffs differently than some companies,” Bezos warned.
200
“At this stage, we choose
to prioritize growth because we believe that scale is central to achieving the
potential of our business model.”
201
The insistent emphasis on “market leadership” (Bezos relies
on the term six times in the short letter)
202
signaled that Amazon
intended to dominate. And, by many measures, Amazon has succeeded. Its
year-on-year revenue growth far outpaces that of other online retailers.
203
Despite efforts by big-box competitors
like Walmart, Sears, and Macy’s to boost their online operations, no rival has
succeeded in winning back market share.
204
One of the primary ways Amazon has built a huge edge is
through Amazon Prime, the company’s loyalty program, in which Amazon has
invested aggressively. Initiated in 2005, Amazon Prime began by offering
consumers unlimited two-day shipping for $79.
205
In the years since, Amazon
has bundled in other deals and perks, like renting e-books and streaming music
and video, as well as one-hour or same-day delivery. The program has arguably
been the retailer’s single biggest driver of growth.
206
Amazon does not disclose the exact
number of Prime subscribers, but analysts believe the number of users has
reached 63 million—19 million more than in 2015.
207
Membership doubled between 2011 and
2013; analysts expect it to “easily double again by 2017.”
208
By 2020, it is estimated
that half of U.S. households may be enrolled.
209
As with its other ventures, Amazon lost money on Prime to
gain buy-in. In 2011 it was estimated that each Prime subscriber cost Amazon at
least $90 a year—$55 in shipping, $35 in digital video—and that the company
therefore took an $11 loss annually for each customer.
210
One Amazon expert tallies that
Amazon has been losing $1 billion to $2 billion a year on Prime memberships.
211
The full cost of Amazon
Prime is steeper yet, given that the company has been investing heavily in
warehouses, delivery facilities, and trucks, as part of its plan to speed up
delivery for Prime customers—expenditures that regularly push it into the red.
212
Despite these losses—or perhaps because of them—Prime is
considered crucial to Amazon’s growth as an online retailer. According to
analysts, customers increase their purchases from Amazon by about 150% after
they become Prime members.
213
Prime members comprise 47% of Amazon’s U.S. shoppers.
214
Amazon Prime members also
spend more on the company’s website—an average of $1,500 annually, compared to
$625 spent annually by non-Prime members.
215
Business experts note that
by making shipping free, Prime “successfully strips out paying
for .
. . the leading consumer burden of
online shopping.”
216
Moreover, the annual fee drives customers to increase their Amazon purchases in
order to maximize the return on their investment.
217
As a result, Amazon Prime users are both more likely to buy
on its platform and less likely to shop elsewhere. “[Sixty-three percent] of
Amazon Prime members carry out a paid transaction on the site in the same
visit,” compared to 13% of non-Prime members.
218
For Walmart and Target,
those figures are 5% and 2% respectively.
219
One study found that less
than 1% of Amazon Prime members are likely to consider competitor retail sites
in the same shopping session. Non-Prime members, meanwhile, are eight times
more likely than Prime members to shop between both Amazon and Target in the
same session.
220
In the words of one former
Amazon employee who worked on the Prime team, “It was never about the $79. It
was really about changing people’s mentality so they wouldn’t shop anywhere
else.”
221
In that regard, Amazon
Prime seems to have proven successful.
222
In 2014, Amazon hiked its Prime membership fee to $99.
223
The move prompted some consumer ire,
but 95% of Prime members surveyed said they would either definitely or probably
renew their membership regardless,
224
suggesting that Amazon has
created significant buy-in and that no competitor is currently offering a comparably
valuable service at a lower price. It may, however, also reveal the general
stickiness of online shopping patterns. Although competition for online
services may seem to be “just one click away,” research drawing on behavioral
tendencies shows that the “switching cost” of changing web services can, in
fact, be quite high.
225
No doubt, Amazon’s dominance stems in part from its
first-mover advantage as a pioneer of large-scale online commerce. But in
several key ways, Amazon has achieved its position through deeply cutting prices
and investing heavily in growing its operations—both at the expense of profits.
The fact that Amazon has been willing to forego profits for growth undercuts a
central premise of contemporary predatory pricing doctrine, which assumes that
predation is irrational precisely because firms prioritize profits over growth.
226
In this way, Amazon’s
strategy has enabled it to use predatory pricing tactics without triggering the
scrutiny of predatory pricing laws.
B. Expansion into Multiple Business Lines
Another key element of Amazon’s strategy—and one partly
enabled by its capacity to thrive despite posting losses—has been to expand
aggressively into multiple business lines.
227
In addition to being a retailer,
Amazon is 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 provider of cloud server space and computing power.
228
For the most part, Amazon
has expanded into these areas by acquiring existing firms.
229
Involvement in multiple,
related business
lines means
that, in many instances, Amazon’s rivals are also its
customers. The retailers that compete with it to sell goods may also use its
delivery services, for example, and the media companies that compete with it to
produce or market content may also use its platform or cloud infrastructure. At
a basic level this arrangement creates conflicts of interest, given that Amazon
is positioned to favor its own products over those of its competitors.
Critically, not only has Amazon integrated across select
lines of business, but it has also emerged as central infrastructure for the
internet economy. Reports suggest this was part of Bezos’s vision from the
start. According to early Amazon employees, when the CEO founded the business,
“his underlying goals were not to build an online bookstore or an online
retailer, but rather a ‘utility’ that would become essential to commerce.”
230
In other words, Bezos’s
target customer was not only end-consumers but also other businesses.
Amazon controls key critical infrastructure for the Internet
economy—in ways that are difficult for new entrants to replicate or compete
against. This gives the company a key advantage over its rivals: Amazon’s
competitors have come to depend on it. Like its willingness to sustain losses,
this feature of Amazon’s power largely confounds contemporary antitrust
analysis, which assumes that rational firms seek to drive their rivals out of
business. Amazon’s game is more sophisticated. By making itself indispensable
to e-commerce, Amazon enjoys receiving business from its rivals, even as it
competes with them. Moreover, Amazon gleans information from these competitors
as a service provider that it may use to gain a further advantage over them as
rivals—enabling it to further entrench its dominant position.
IV. Establishing Structural Dominance
Amazon now controls 46% of all e-commerce in the United
States.
231
Not only is it the
fastest-growing major retailer, but it is also growing faster than e-commerce
as a whole.
232
In 2010, it employed 33,700 workers;
by June 2016, it had 268,900.
233
It is enjoying rapid success even in sectors that it only recently entered. For
example, the company “is expected to triple its share of the U.S. apparel
market over the next five years.”
234
Its clothing sales
recently rose by $1.1 billion—even as online sales at the six largest U.S.
department stores fell by over $500 million.
235
These figures alone are daunting, but they do not capture the
full extent of Amazon’s role and power. Amazon’s willingness to sustain losses
and invest aggressively at the expense of profits, coupled with its integration
across sectors, has enabled it to establish a dominant structural role in the
market.
In the Sections that follow, I describe several examples of
Amazon’s conduct that illustrate how the firm has established structural
dominance.
236
These examples—its handling
of e-books and its battle with an independent online retailer—focus on predatory
pricing practices. These cases suggest ways in which Amazon may benefit from
predatory pricing even if the company does not raise the price of the goods on
which it lost money. The other examples, Fulfillment-by-Amazon and Amazon
Marketplace, demonstrate how Amazon has become an infrastructure company, both
for physical delivery and e-commerce, and how this vertical integration
implicates market competition. These cases highlight how Amazon can use its
role as an infrastructure provider to benefit its other lines of business.
These examples also demonstrate how high barriers to entry may make it
difficult for potential competitors to enter these spheres, locking in Amazon’s
dominance for the foreseeable future. All four of these accounts raise concerns
about contemporary
antitrust’s
ability to register
and address the anticompetitive threat posed by Amazon and other dominant
online platforms.
A. Below-Cost Pricing of Bestseller E-Books and the Limits of Modern Recoupment Analysis
Amazon entered the e-book market by pricing bestsellers below
cost. Although this strategic pricing helped Amazon to establish dominance in
the e-book market, the government perceived Amazon’s cost cutting as benign, focusing
on the profitability of e-books in the aggregate and characterizing the
company’s pricing of bestsellers as “loss leading” rather than predatory
pricing.
This failure to recognize Amazon’s conduct as
anticompetitive stems from a misunderstanding of online markets generally and
of Amazon’s strategy specifically.
Additionally, analyzing the issues
raised in this case suggests that Amazon could recoup its losses through means
not captured by current antitrust analysis.
In late 2007, Amazon rolled out the Kindle, its e-reading
device, and launched a new e-book library.
237
Before introducing the
device, CEO Jeff Bezos had decided to price bestseller e-books at $9.99,
238
significantly below the
$12 to $30 that a new hardback typically costs.
239
Critically, the wholesale price at
which Amazon was buying books from publishers had not dropped; it was instead
choosing to price e-books below cost.
240
Analysts estimate that Amazon sold
the Kindle device below manufacturing cost too.
241
Bezos’s plan was to
dominate the e-book selling business in the way that Apple had become the go-to
platform for digital music.
242
The strategy worked: through 2009, Amazon dominated the e-book retail market,
selling around 90% of all e-books.
243
Publishers, fearing
that Amazon’s $9.99 price point for e-books would permanently drive down the price
that consumers were willing to pay for all books, sought to wrest back some
control. When the opportunity came to partner with Apple to sell e-books
through the
iBookstore
store, five of the “Big Six”
publishers introduced agency pricing, whereby publishers would set the final
retail price and Apple would get a 30% cut.
244
After securing this deal, MacMillan, one of the “Big Six,” demanded
that Amazon, too, adopt this pricing model.
245
Though it initially refused and delisted MacMillan’s books,
246
Amazon ultimately relented, explaining to readers that “we will have
to capitulate and accept Macmillan’s terms because Macmillan has a monopoly
over their own titles.”
247
Other publishers followed suit, halting
Amazon’s ability to price e-books at $9.99.
248
In 2012, the DOJ sued
the publishers and Apple for colluding to raise e-book prices.
249
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.
250
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.”
251
Judge Cote, who
presided over the district court trial, refrained from affirming the
government’s conclusion.
252
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.
253
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.
On the first point,
the government argued that Amazon was not engaging in predation because in the
aggregate
,Amazon’s e-books business was profitable. This perspective
overlooks how heavy losses on particular lines of e-books (bestsellers, for example,
or new releases) may have thwarted competition, even if the e-books business as
a whole was profitable. That the DOJ chose to define the relevant market as
e-books—rather than as specific lines, like bestseller e-books—reflects a
deeper mistake: the failure to recognize how the economics of platform-based
products differ in crucial ways from non-platform goods.
254
As a result, the DOJ analyzed the e-book market as it would the market
for physical books.
One indication of
this failure to appreciate the difference between physical books and e-books is
that the government and Judge Cote treated Amazon’s below-cost pricing as loss
leading,
255
rather than as predatory pricing.
256
The difference between loss leading and predatory pricing is not
spelled out in law, but the distinction turns on the nature of the below-cost
pricing, specifically its intensity and the intent motivating it. Judge Cote’s
use of “loss leading” revealed a view that “Amazon’s below-cost pricing was (a)
selective rather than pervasive, and (b) not intended to generate monopoly
power.”
257
On this view, Amazon’s aim was to trigger
additional sales of other products sold by Amazon, rather than to drive out
competing e-book sellers and acquire the power to increase e-book prices.
258
In other words, because Amazon’s alleged short-term aim was to sell
more e-readers and e-books—rather than to harm its rivals and raise prices—its
conduct is considered loss leading rather than predatory pricing. What both the
DOJ and the district court missed, however, is the way in which below-cost
pricing in this instance entrenched and reinforced Amazon’s dominance in ways
that loss leading by physical retailers does not.
Unlike with online
shopping, each trip to a brick-and-mortar store is discrete. If, on Monday,
Walmart heavily discounts the price of socks and you are looking to buy socks,
you might visit, buy socks, and—because you are already there—also buy milk. On
Thursday, the fact that Walmart had discounted socks on Monday does not
necessarily exert any tug; you may return to Walmart because you now know that
Walmart often has good bargains, but the fact that you purchased socks from
Walmart on Monday is not, in itself, a reason to return.
Internet retail is
different. Say on Monday, Amazon steeply discounts the e-book version of Harper
Lee’s
Go Set
a Watchman
, and you purchase both a Kindle and the e-book. On
Thursday, you would be inclined to revisit Amazon—and not simply because you
know it has good bargains. Several factors extend the tug. For one, Amazon,
like other e-book sellers, has used a scheme known as “digital rights management”
(DRM), which limits the types of devices that can read certain e-book formats.
259
Compelling readers to purchase a Kindle through cheap e-books locks
them into future e-book purchases from Amazon.
260
Moreover, buying—or even browsing—e-books on Amazon’s platform hands
the company information about your reading habits and preferences, data the
company uses to tailor recommendations and future deals.
261
Replicated across a few more purchases, Amazon’s lock-in becomes
strong. It becomes unlikely that a reader will then purchase a Nook and switch
to buying e-books through Barnes & Noble, even if that company is slashing
prices.
Put differently, loss
leading pays higher returns with platform-based e-commerce—and specifically
with digital products like e-books—than it does with brick-and-mortar stores.
The marginal value of the first sale and early sales in general is much higher
for e-books than for print books because there are lock-in effects at play, due
both to technical design and the possibilities for and value of personalization.
By treating
e-commerce and digital goods the same as physical stores and goods, both the
government and Judge Cote missed the anticompetitive implications of Amazon’s
below-cost pricing. Though the immediate effect of Amazon’s pricing of bestseller
e-books may have been to sell more e-books generally, that tactic has also
positioned Amazon to dominate the market in a way that sets it up to raise
future prices. In this context, the traditional distinction between loss
leading and predatory pricing is strained.
Instead of
recognizing that the economics of platforms meant that below-cost pricing on a
platform-hosted good would tend to facilitate long-term dominance, the government
took comfort that the industry was “dynamic and evolving” and concluded that
the “presence and continued investment by technology giants, multinational book
publishers, and national retailers in e-books businesses” rendered an Amazon-dominated
market unlikely.
262
Yet Amazon’s early lead has, in fact,
translated to long-term dominance. It controls around 65% of the e-book market
today,
263
while its share of the e-reader market hovers around 74%.
264
Players that appeared up-and-coming even a few years ago are now
retreating from the market. Sony closed its U.S. Reader store and is no longer
introducing new e-readers to the U.S. market.
265
Barnes & Noble, meanwhile, has slashed funding for the Nook by 74%.
266
The only real e-books competitor left standing is Apple.
267
Because the
government deflected predatory pricing claims by looking at aggregate
profitability, neither the government nor the court reached the question of
recoupment. Given that—under current doctrine—whether below-cost pricing is
predatory or not turns on whether a firm recoups its losses, we should examine
how Amazon could use its dominance to recoup its losses in ways that are more
sophisticated than what courts generally consider or are able to assess.
Most obviously,
Amazon could earn back the losses it generated on bestseller e-books by raising
prices of either particular lines of e-books or e-books as a whole. This
intra-product market form of recoupment is what courts look for. However, it remains
unclear whether Amazon has hiked e-book prices because, as the
New York Times
noted, “[
]t is difficult to comprehensively track the movement of
prices on Amazon,” which means that any evidence of price trends is “anecdotal
and fragmentary.”
268
As Amazon customers can attest, Amazon’s prices
fluctuate rapidly and with no explanation.
269
This underscores a
basic challenge of conducting recoupment analysis with Amazon: it may not be
apparent when and by how much Amazon raises prices. Online commerce enables
Amazon to obscure price hikes in at least two ways: rapid, constant price
fluctuations and personalized pricing.
270
Constant price fluctuations diminish our ability to discern pricing trends. By
one account, Amazon changes prices more than 2.5 million times each day.
271
Amazon is also able to tailor prices to individual consumers, known as
first-degree price discrimination. There is no public evidence that Amazon is
currently engaging in personalized pricing,
272
but online retailers generally are devoting significant resources to
analyzing how to implement it.
273
A major topic of discussion at the 2014 National Retail Federation
annual convention, for example, was how to introduce discriminatory pricing
without triggering consumer backlash.
274
One mechanism discussed was highly personalized coupons sent at the
point of sale, which would avoid the need to show consumers different prices
but would still achieve discriminatory pricing.
275
If
retailers—including Amazon—implement discriminatory pricing on a wide scale,
each individual would be subject to his or her own personal price trajectory,
eliminating the notion of a single pricing trend. It is not clear how we would
measure price hikes for the purpose of recoupment analysis in that scenario.
There would be no obvious conclusions if some consumers faced higher prices
while others enjoyed lower ones. But given the magnitude and accuracy of data
that Amazon has collected on millions of users, tailored pricing is not simply
a hypothetical power.
276
Discerning whether and by how much Amazon raises book prices will be more
difficult than the
Matsushita
or
Brooke Group
Courts could have imagined.
277
It is true that
brick-and-mortar stores also collect data on customer purchasing habits and
send personalized coupons. But the types of consumer behavior that internet
firms can access—how long you hover your mouse on a particular item, how many
days an item sits in your shopping basket before you purchase it, or the
fashion blogs you visit before looking for those same items through a search
engine—is uncharted ground. The degree to which a firm can tailor and
personalize an online shopping experience is different in kind from the methods
available to a brick-and-mortar store—precisely because the type of behavior
that online firms can track is far more detailed and nuanced. And unlike
brick-and-mortar stores—where everyone at least
sees
a common price (even if they go on to receive
discounts)—internet retail enables firms to entirely personalize consumer experiences,
which eliminates any collective baseline from which to gauge price increases or
decreases.
The decision of whichproduct market in which Amazon may
choose to raise prices is also an open question—and one that current predatory
pricing doctrine ignores. Courts generally assume that a firm will recoup by
increasing prices on the same goods on which it previously lost money. But
recoupment across markets is also available as a strategy, especially for firms
as diversified across products and services as Amazon. Reporting suggests the
company did just this in 2013, by hiking prices on scholarly and small-press
books and creating the risk of a “two-tier system where some books are priced
beyond an audience’s reach.”
278
Although Amazon may be recouping its initial losses in e-books through
markups on physical books, this cross-market recoupment is not a scenario that
enforcers or judges generally consider.
279
One possible reason for this neglect is that Chicago School
scholarship, which assumes recoupment in single-product markets is unlikely,
also holds recoupment in multi-product scenarios to be implausible.
280
Although current
predatory pricing doctrine focuses only on recoupment through raising prices
for consumers, Amazon could also recoup its losses by imposing higher fees on
publishers. Large book retailer chains like Barnes & Noble have long used
their market dominance to charge publishers for favorable product placement,
such as displays in a storefront window or on a prominent table.
281
Amazon’s dominance in the e-book market has enabled it to demand
similar fees for even the most basic of services. For example, when renewing
its contract with Hachette last year, Amazon demanded payments for services
including the pre-order button, personalized recommendations, and an Amazon
employee assigned to the publisher.
282
In the words of one person close to the negotiations, Amazon “is very
inventive about what we’d call standard service. . . . They’re
teasing out all these layers and saying, ‘If you want that service, you’ll have
to pay for it.’”
283
By introducing fees on services that it
previously offered for free, Amazon has created another source of revenue.
Amazon’s power to demand these fees—and recoup some of the losses it sustained
in below-cost pricing—stems from dominance partly built through that same
below-cost pricing. The fact that Amazon has itself vertically integrated into
book publishing—and hence can promote its own content—may give it additional
leverage to hike fees. Any publisher that refuses could see Amazon favor its
own books over the publisher’s, reflecting a conflict of interest I discuss
further in Section IV.D. It is not uncommon for half of the titles on Amazon’s
Kindle bestseller list to be its own.
284
While not captured by
current antitrust doctrine, the pressure Amazon puts on publishers merits concern.
285
For one, consolidation among book sellers—partly spurred by Amazon’s
pricing tactics and demands for better terms from publishers—has also spurred
consolidation among publishers. Consolidation among publishers last reached its
heyday in the 1990s—as publishing houses sought to bulk up in response to the
growing clout of Borders and Barnes & Noble—and by the early 2000s, the
industry had settled into the “Big Six.”
286
This trend has cost authors and readers alike, leaving writers with
fewer paths to market and readers with a less diverse marketplace. Since
Amazon’s rise, the major publishers have merged further—thinning down to five,
with rumors of more consolidation to come.
287
Second, the
increasing cost of doing business with Amazon is upending the publishers’
business model in ways that further risk sapping diversity. Traditionally,
publishing houses used a cross-subsidization model whereby they would use their
best sellers to subsidize weightier and riskier books requiring greater upfront
investment.
288
In the face of higher fees imposed by
Amazon, publishers say they are less able to invest in a range of books. In a
recent letter to DOJ, a group of authors wrote that Amazon’s actions have
“extract[
ed
] vital resources from the [book] industry
in ways that lessen the diversity and quality of books.”
289
The authors noted that publishers have responded to Amazon’s fees by
both publishing fewer titles and focusing largely on books by celebrities and
bestselling authors.
290
The authors also noted, “Readers are presented
with fewer books that espouse unusual, quirky, offbeat, or politically risky
ideas, as well as books from new and unproven authors. This impoverishes
America’s marketplace of ideas.”
291
Amazon’s conduct
would be readily cognizable as
a threat under the pre-Chicago
School view
that predatory pricing laws specifically and antitrust generally
promoted a broad set of values. Under the predatory pricing jurisprudence of
the early and mid-twentieth century, harm to the diversity and vibrancy of
ideas in the book market may have been a primary basis for government
intervention. The political risks associated with Amazon’s market dominance
also implicate some of the major concerns that animate antitrust laws. For instance,
the risk that Amazon may retaliate against books that it disfavors—either to impose
greater pressure on publishers or for other political reasons—raises concerns
about media freedom. Given that antitrust authorities previously considered
diversity of speech and ideas a factor in their analysis, Amazon’s degree of
control, too, should warrant concern.
Even within the
narrower “consumer welfare” framework, Amazon’s attempts to recoup losses
through fees on publishers should be understood as harmful. A market with less
choice and diversity for readers amounts to a form of consumer injury. That DOJ
ignored this concern in its suit against Apple and the publishers suggests that
its conception of predatory pricing fails to
captureoverlooks
the full suite of harms that Amazon’s actions may cause.
292
Amazon’s below-cost
pricing in the e-book market—which enabled it to capture 65% of that market,
293
a sizable share by any measure—strains predatory pricing doctrine in
several ways. First, Amazon is positioned to recoup its losses by raising
prices on less popular or obscure e-books, or by raising prices on print books.
In either case, Amazon would be recouping outside the original market where it
sustained losses (bestseller e-books), so courts are unlikely to look for or
consider these scenarios. Additionally, constant fluctuations in prices and the
ability to price discriminate enable Amazon to raise prices with little chance
of detection. Lastly, Amazon could recoup its losses by extracting more from
publishers, who are dependent on its platform to market both e-books and print
books. This may diminish the quality and breadth of the works that are
published, but since this is most directly
a supplier
-side
rather than buyer-side harm, it is less likely that a modern court would
consider it closely. The current predatory pricing framework fails to capture
the harm posed to the book market by Amazon’s tactics.
B. Acquisition of Quidsi and Flawed Assumptions About Entry and Exit Barriers
In addition to using below-cost pricing to establish a
dominant position in e-books, Amazon has also used this practice to put
pressure on and ultimately acquire a chief rival. This history challenges contemporary
antitrust law’s assumption that predatory pricing cannot be used to establish
dominance. While theory may predict that entry barriers for online retail are
low, this account shows that in practice significant investment is needed to
establish a successful platform that will attract traffic. Finally, Amazon’s conduct
suggests that psychological intimidation can discourage new entry that would
challenge a dominant player’s market power.
In 2008,
Quidsi
was one of the
world’s fastest growing e-commerce companies.
294
It oversaw several subsidiaries: Diapers.com
(focused on baby care), Soap.com (focused on household essentials), and BeautyBar.com
(focused on beauty products). Amazon expressed interest in acquiring
Quidsi
in 2009, but the company’s founders declined Amazon’s
offer.
295
Shortly after
Quidsi
rejected
Amazon’s overture, Amazon cut its prices for diapers and other baby products by
up to 30%.
296
By reconfiguring their
prices,
Quidsi
executives saw that Amazon’s pricing
bots—software “that carefully monitors other companies’ prices and adjusts
Amazon’s to match”—were tracking Diapers.com and would immediately slash
Amazon’s prices in response to
Quidsi’s
changes.
297
In September 2010, Amazon rolled out
Amazon Mom, a new service that offered a year’s worth of free two-day Prime
shipping (which usually cost $79 a year).
298
Customers could also secure an
additional 30% discount on diapers by signing up for monthly deliveries as part
of a service known as “Subscribe and Save.”
299
Quidsi
executives “calculated that Amazon was on track to lose $100 million over three
months in the diaper category alone.”
300
Eventually, Amazon’s below-cost pricing started eating into
Diapers.com’s
growth, and it “slowed under Amazon’s pricing
pressure.”
301
Investors, meanwhile,
“grew wary of pouring more money” into
Quidsi
, given
the challenge from Amazon.
302
Struggling to keep up with Amazon’s pricing
war,
Quidsi’s
owners began talks with Walmart about potentially
selling the business. Amazon intervened and made an aggressive counteroffer.
303
Although Walmart offered a
higher final bid, “the
Quidsi
executives stuck with
Amazon, largely out of fear.”
304
The FTC reviewed the Amazon-
Quidsi
deal and decided
that it did not trigger anticompetitive concerns.
305
Through its purchase of
Quidsi
, Amazon eliminated a leading competitor in the
online sale of baby products. Amazon achieved this by slashing prices and
bleeding money,
306
losses that its investors have given it a free pass to incur—and that a smaller
and newer venture like
Quidsi
, by contrast, could not
maintain.
After completing its buy-up of a key rival—and seemingly losing
hundreds of millions of dollars in the process—Amazon went on to raise prices.
In November 2011, a year after buying out
Quidsi
Amazon shut down new memberships in its Amazon Mom program.
307
Though the company has
since reopened the program, it has continued to scale back the discounts and generous
shopping terms of the original offer. As of February 2012, discounts that had previously
been 30% were reduced to 20%, and the one year of free Prime membership was cut
to three months.
308
In November 2014, the company hiked prices further: members purchasing more
than four items in a month would no longer receive the general 20% discount,
and the 20% discount on baby wipes—one of the program’s top-selling
products—was cut to 5%.
309
Summarizing the series of changes, one journalist observed, “The Amazon Mom
program has become much less generous than it was when it was introduced in
2010.”
310
In online forums where
consumers expressed frustrations with the changes, several users said they
would be taking their business from Amazon and returning to Diapers.com—which,
other users pointed out, was no longer possible.
311
Through its strategy,
Amazon now holds a strong position in the baby-product market.
312
Amazon’s conduct runs counter to contemporary predatory
pricing thinking, which contends that predation is no path to buying up a
competitor. In
The Antitrust Paradox
,Bork wrote, “[T]he modern law of
horizontal mergers makes it all but impossible for the predator to bring the
war to an end by purchasing his victim. To accomplish the predator’s purpose,
the merger must create a monopoly” and law “would preclude the attainment of
the monopoly necessary to make predation profitable.”
313
For sectors with low entry
costs, Bork writes, this strategy is precluded by the constant possibility of
reentry by other players. “A shoe retailer can be driven out rapidly, but
reentry will be equally rapid.”
314
In fields in which entry costs are high, Bork argued that exit by competitors
is unlikely because management would need to believe that the predation had
rendered the value of their facilities negligible. For instance, “[r]
ailroading
, which involves specialized facilities, is
difficult to enter, but the potential victim of predation would be difficult to
drive out precisely because railroad facilities are not useful in other industries.”
315
Does online retailing of baby products resemble shoe
retailing or railroading? Given the absence of formal barriers, entry should be
easy: unlike railroading, selling baby products online requires no heavy investment
or fixed costs. However, the economics of online retailing are not quite like
traditional shoe retailing. Given that attracting traffic and generating sales
as an independent online retailer involves steep search costs, the vast
majority of online commerce is conducted on platforms, central marketplaces
that connect buyers and sellers. Thus, in practice, successful entry by a
potential diaper retailer carries with it the cost of attempting to build a new
online platform, or of creating a brand strong enough to draw traffic from an
existing company’s platform. As several commentators have observed, the
practical barriers to successful and sustained entry as an online platform are
very high, given the huge first-mover advantages stemming from data collection
and network effects.
316
Moreover, the high exit barriers
that Bork assumes for railroads—namely, that they would have to be convinced
their facilities were worth more as scrap than as a railroad—do not apply to
online platforms. Investment in online platforms lies not in physical infrastructure
that might be repurposed, but in intangibles like brand recognition. These
intangibles can be absorbed by a rival platform or retailer with greater ease
than a railroad could take over a competing line.
317
In other words, online
retailers like
Quidsi
face the high entry barriers of
a railroad coupled with the relatively low exit costs typical of
brick-and-mortar retailers—a combination that Bork, and the courts, failed to
consider.
Courts also tend to discount that predators can use
psychological intimidation to keep out the competition.
318
Amazon’s history with
Quidsi
has sent a clear message to potential
competitors—namely that, unless upstarts have deep pockets that allow them to
bleed money in a head-to-head fight with Amazon, it may not be worth entering
the market. Even as Amazon has raised the price of the Amazon Mom program, no
newcomers have recently sought to challenge it in this sector, supporting the
idea that intimidation may also serve as a practical barrier.
319
As the world’s largest online retailer, Amazon serves as a
default starting point for many online shoppers: one study estimates that 44%
of U.S. consumers “
go[
] directly to Amazon first to
search for products.”
320
Moreover, the swaths of data that Amazon has collected on consumers’ browsing
and searching histories can create the same problem that Google’s would-be
competitors encounter: “an insurmountable barrier to entry for new
competition.”
321
Though at least one
venture opened shop with an eye to challenging Amazon,
322
its founders recently sold
the firm to Walmart
323
—a move that suggests that the only
players positioned to challenge Amazon are the existing giants. However, even
this strategy has skeptics.
324
While established brick-and-mortar retailers like Target have tried to lure
online consumers through discounts and low delivery costs,
325
Amazon remains the major
online seller of baby products.
326
Although Amazon established its dominance in this market through aggressive
price cutting and selling steeply at a loss, its actions have not triggered
predatory pricing claims. In part, this is because prevailing theory
assumes—per Bork’s analysis—that market entry is easy enough for new rivals to
emerge any time a dominant firm starts charging monopoly prices.
In this case, Amazon raised prices by cutting back discounts
and (at least temporarily) refusing to expand the program. Even if a firm
viewed the unmet demand as an invitation to enter, several factors would prove
discouraging in ways that the existing doctrine does not consider. In theory,
online retailing itself has low entry costs since anyone can set up shop
online, without significant fixed costs. But in practice, successful entry in
online markets is a challenge, requiring significant upfront investment. It
requires either building up strong brand recognition to draw users to an
independent site, or using an existing platform, such as Amazon or eBay, which
can present other anticompetitive challenges.
327
Indeed, most independent
retailers choose to sell through Amazon
328
—even when the business
relationship risks undermining their business. The fact that no real rival has
emerged, even after Amazon raised prices, undercuts the assumption embedded in
current antitrust doctrine.
C. Amazon Delivery and Leveraging Dominance Across Sectors
As its history with
Quidsi
shows,
Amazon’s willingness to sustain losses has allowed it to engage in below-cost
pricing in order to establish dominance as an online retailer. Amazon has
translated its dominance as an online retailer into significant bargaining
power in the delivery sector, using it to secure favorable conditions from
third-party delivery companies. This in turn has enabled Amazon to extend its
dominance over other retailers by creating the Fulfillment-by-Amazon service
and establishing its own physical delivery capacity. This illustrates how a
company can leverage its dominant platform to successfully integrate into other
sectors, creating anticompetitive dynamics. Retail competitors are left with
two undesirable choices: either try to compete with Amazon at a disadvantage or
become reliant on a competitor to handle delivery and logistics.
As Amazon expanded its share of e-commerce—and enlarged the
e-commerce sector as a whole—it started comprising a greater share of delivery
companies’ business. For example, in 2015, UPS derived $1 billion worth of
business from Amazon alone.
329
The fact that it accounted for a growing share of these firms’ businesses gave
Amazon bargaining power to negotiate for lower rates.
330
By some estimates, Amazon
enjoyed a 70% discount over regular delivery prices.
331
Delivery companies sought
to make up for the discounts they gave to Amazon by raising the prices they
charged to independent sellers,
332
a phenomenon recently termed the “waterbed effect.”
333
As scholars have described,
[T]he presence of a waterbed effect can further
distort competition by giving a powerful buyer now a two-fold advantage,
namely, through more advantageous terms for itself and through higher purchasing
costs for its rivals. What then becomes a virtuous circle for the strong buyer
ends up as a vicious circle for its weaker competitors.
334
To this two-fold advantage Amazon added a third perk:
harnessing the weakness of its rivals into a business opportunity. In 2006,
Amazon introduced Fulfillment-by-Amazon (FBA), a logistics and delivery service
for independent sellers.
335
Merchants who sign up for FBA store their products in Amazon’s warehouses, and
Amazon packs, ships, and provides customer service on any orders. Products sold
through FBA are eligible for service through Amazon Prime—namely, free two-day
shipping and/or free regular shipping, depending on the order.
336
Since many merchants
selling on Amazon are competing with Amazon’s own retail operation and its
Amazon Prime service, using FBA offers sellers the opportunity to compete at
less of a disadvantage.
Notably, it is partly because independent sellers faced
higher rates from UPS and FedEx—a result of Amazon’s dominance—that Amazon
succeeded in directing sellers to its new business venture.
337
In many instances, orders
routed through FBA were still being shipped and delivered by UPS and FedEx,
since Amazon relied on these firms.
338
But because Amazon had
secured discounts unavailable to other sellers, it was cheaper for those
sellers to go through Amazon than to use UPS and FedEx directly. Amazon had
used its dominance in the retail sector to create and boost a new venture in
the delivery sector, inserting itself into the business of its competitors.
Amazon has followed up on this initial foray into fulfillment
services by creating a logistics empire. Building out physical capacity lets
Amazon further reduce its delivery times, raising the bar for entry yet higher.
Moreover it is the firm’s capacity for aggressive investing that has enabled it
to rapidly establish an extensive network of physical infrastructure. Since
2010, Amazon has spent $13.9 billion building warehouses,
339
and it spent $11.5 billion
on shipping in 2015 alone.
340
Amazon has opened more than 180 warehouses,
341
28 sorting centers, 59 delivery
stations that feed packages to local couriers, and more than 65 Prime Now hubs.
342
Analysts estimate that the
locations of Amazon’s fulfillment centers bring it within twenty miles of 31%
of the population and within twenty miles of 60% of its core same-day base.
343
This sprawling network of
fulfillment centers—each placed in or near a major metropolitan area—equips
Amazon to offer one-hour delivery in some locations and same-day in others (a
service it offers free to members of Amazon Prime).
344
While several rivals
initially entered the delivery market to compete with Prime shipping, some are
now retreating.
345
As one analyst noted, “Prime has proven exceedingly difficult for rivals to
copy.”
346
Most recently, Amazon has also expanded into trucking. Last
December, it announced it plans to roll out thousands of branded semi-trucks, a
move that will give it yet more control over delivery, as it seeks to speed up
how quickly it can transport goods to customers.
347
Amazon now owns four thousand truck
trailers and has also signed contracts for container ships, planes,
348
and drones.
349
As of October 2016, Amazon
had leased at least forty jets.
350
Former employees say Amazon’s long-term goal is to circumvent UPS and FedEx altogether,
though the company itself has said it is looking only to supplement its
reliance on these firms,not supplant them.
351
The way that Amazon has leveraged its dominance as an online
retailer to vertically integrate into delivery is instructive on several
fronts. First, it is a textbook example of how the company can use its dominance
in one sphere to advantage a separate line of business. To be sure, this
dynamic is not intrinsically anticompetitive. What should prompt concern in
Amazon’s case, however, is that Amazon achieved these cross-sector advantages
in part due to its bargaining power. Because Amazon was able to demand heavy
discounts from FedEx and UPS, other sellers faced price hikes from these
companies—which positioned Amazon to capture them as clients for its new
business. By overlooking structural factors like bargaining power, modern antitrust
doctrine fails to address this type of threat to competitive markets.
Second, Amazon is positioned to use its dominance across
online retail and delivery in ways that involve tying, are exclusionary, and
create entry barriers.
352
That is, Amazon’s distortion of the delivery sector in turn creates anticompetitive
challenges in the retail sector. For example, sellers who use FBA have a better
chance of being listed higher in Amazon search results than those who do not,
which means Amazon is tying the outcomes it generates for sellers using its
retail platform to whether they also use its delivery business.
353
Amazon is also positioned
to use its logistics infrastructure to deliver its own retail goods faster than
those of independent sellers that use its platform and fulfillment service—a
form of discrimination that exemplifies traditional concerns about vertical
integration. And Amazon’s capacity for losses and expansive logistics
capacities mean that it could privilege its own goods while still offering independent
sellers the ability to ship goods more cheaply and quickly than they could by
using UPS and FedEx directly.
Relatedly, Amazon’s expansion into the delivery sector also
raises questions about the Chicago School’s limited conception of entry barriers.
The company’s capacity for losses—the permission it has won from investors to
show negative profits—has been key in enabling Amazon to achieve outsized
growth in delivery and logistics. Matching Amazon’s network would require a
rival to invest heavily and—in order to viably compete—offer free or otherwise
below-cost shipping. In interviews with reporters, venture capitalists say
there is no appetite to fund firms looking to compete with Amazon on physical
delivery.
354
In this way, Amazon’s
ability to sustain losses creates an entry barrier for any firm that does not
enjoy the same privilege.
Third, Amazon’s use of Prime and FBA exemplifies how the
company has structurally placed itself at the center of e-commerce. Already 44%
of American online shoppers begin their online shopping on Amazon’s platform.
355
Given the traffic, it is
becoming increasingly clear that in order to succeed in e-commerce, an
independent merchant will need to use Amazon’s infrastructure. The fact that
Amazon competes with many of the businesses that are coming to depend on it
creates a host of conflicts of interest that the company can exploit to
privilege its own products.
The dominant framework in antitrust today fails to recognize
the risk that Amazon’s dominance poses for discrimination and barriers to new
entry. In part, this is because—as with the
framework’s
view of predatory pricing—the primary harm that registers within the “consumer
welfare” frame is higher consumer prices. On the Chicago School’s account,
Amazon’s vertical integration would only be harmful if and when it chooses to
use its dominance in delivery and retail to hike fees to consumers. Amazon has
already raised Prime prices.
356
But antitrust enforcers should be equally concerned about the fact that Amazon
increasingly controls the infrastructure of online commerce—and the ways in
which it is harnessing this dominance to expand and advantage its new business
ventures. The conflicts of interest that arise from Amazon both competing with
merchants and delivering their wares pose a hazard to competition, particularly
in light of Amazon’s entrenched position as an online platform. Amazon’s conflicts
of interest tarnish the neutrality of the competitive process. The thousands of
retailers and independent businesses that must ride Amazon’s rails to reach
market are increasingly dependent on their biggest competitor.
D. Amazon Marketplace and Exploiting Data
As described above, vertical integration in retail and
physical delivery may enable Amazon to leverage cross-sector advantages in ways
that are potentially anticompetitive but not understood as such under current
antitrust doctrine. Analogous dynamics are at play with Amazon’s dominance in
the provision of
online
infrastructure,
in particular its Marketplace for third-party sellers. Because information
about Amazon’s practices in this area is limited, this Section necessarily will
be brief. But to capture fully the anticompetitive features of Amazon’s
business strategy, it is vital to analyze how vertical integration across internet
businesses introduces more sophisticated—and potentially more troubling—opportunities
to abuse cross-market advantages and foreclose rivals.
The clearest example of how the company leverages its power
across online businesses is Amazon Marketplace, where third-party retailers
sell their wares. Since Amazon commands a large share of e-commerce traffic,
many smaller merchants find it necessary to use its site to draw buyers.
357
These sellers list their goods on
Amazon’s platform and the company collects fees ranging from 6% to 50% of their
sales from them.
358
More than two million third-party sellers used Amazon’s platform as of 2015, an
increase from the roughly one million that used the platform in 2006.
359
The revenue that Amazon
generates through Marketplace has been a major source of its growth:
third-party sellers’ share of total items sold on Amazon rose from 36% in 2011
360
to over 50% in 2015.
361
Third-party sellers using Marketplace recognize that using
the platform puts them in a bind. As one merchant observed, “You can’t really
be a high-volume seller online without being on Amazon, but sellers are very
aware of the fact that Amazon is also their primary competitor.”
362
Evidence suggests that
their unease is well founded. Amazon seems to use its Marketplace “as a vast
laboratory to spot new products to sell, test sales of potential new goods, and
exert more control over pricing.”
363
Specifically, reporting
suggests that “Amazon uses sales data from outside merchants to make purchasing
decisions in order to undercut them on price” and give its own items “featured
placement under a given search.”
364
Take the example of Pillow
Pets, “stuffed-animal pillows modeled after NFL mascots” that a third-party
merchant sold through Amazon’s site.
365
For several months, the
merchant sold up to one hundred pillows per day.
366
According to oneaccount, “just ahead of the holiday
season, [the merchant] noticed Amazon had itself beg[u]n offering the same
Pillow Pets for the same price while giving [its own] products featured
placement on the site.”
367
The merchant’s own sales dropped to twenty per day.
368
Amazon has gone
head-to-head with independent merchants on price, vigorously matching and even
undercutting them on products that they had originally introduced. By going
directly to the manufacturer, Amazon seeks to cut out the independent sellers.
In other instances, Amazon has responded to popular
third-party products by producing them itself. Last year, a manufacturer that
had been selling an aluminum laptop stand on Marketplace for more than a decade
saw a similar stand appear at half the price. The manufacturer learned that the
brand was
AmazonBasics
, the private line that Amazon
has been developing since 2009.
369
As one news site describes it, initially,
AmazonBasics
focused on generic goods like batteries and blank DVDs. “Then, for several
years, the house brand ‘slept quietly as it retained data about other sellers’
successes.’”
370
As it now rolls out more
AmazonBasics
products, it is clear that the company has
used “insights gleaned from its vast Web store to build a private-label
juggernaut that now includes more than 3,000 products.”
371
One study found that in
the case of women’s clothing, Amazon “began selling 25 percent of the top items
first sold through marketplace vendors.”
372
It is true that brick-and-mortar retailers sometimes also
introduce private labels and may use other brands’ sales records to decide what
to produce. The difference with Amazon is the scale and sophistication of the
data it collects. Whereas brick-and-mortar stores are generally only able to
collect information on actual sales, Amazon tracks what shoppers are searching
for but cannot find, as well as which products they repeatedly return to, what
they keep in their shopping basket, and what their mouse hovers over on the
screen.
373
In using its Marketplace this way, Amazon increases sales
while shedding risk. It is third-party sellers who bear the initial costs and
uncertainties when introducing new products; by merely spotting them, Amazon
gets to sell products only once their success has been tested. The
anticompetitive implications here seem clear: Amazon is exploiting the fact
that some of its customers are also its rivals. The source of this power is: (1)
its dominance as a platform, which effectively necessitates that independent
merchants use its site; (2) its vertical integration—namely, the fact that it
both sells goods as a retailer and hosts sales by others as a marketplace; and
(3) its ability to amass swaths of data, by virtue of being an internet
company. Notably, it is this last factor—its control over data—that heightens
the anticompetitive potential of the first two.
Evidence suggests that Amazon is keenly aware of and
interested in exploiting these opportunities. For example, the company has reportedly
used insights gleaned from its cloud computing service to inform its investment
decisions.
374
By observing
which start-ups are expanding their usage of Amazon Web Services, Amazon can make
early assessments of the potential success of upcoming firms. Amazon has used
this “unique window into the technology startup world” to invest in several
start-ups that were also customers of its cloud business.
375
How Amazon has
cross-leveraged its advantages across distinct lines of business suggests that
the law fails to appreciate when vertical integration may prove anticompetitive.
This shortcoming is underscored with online platforms, which both serve as
infrastructure for other companies and collect swaths of data that they can
then use to build up other lines of business. In this way, the current
antitrust regime has yet to reckon with the fact that firms with concentrated
control over data can systematically tilt a market in their favor, dramatically
reshaping the sector.
376
V. How Platform Economics and Capital Markets May Facilitate Anticompetitive Conduct and Structures
As Part IV mapped out, aspects of Amazon’s conduct and
structure may threaten competition yet fail to trigger scrutiny under the
analytical framework presently used in antitrust. In part this reflects the “consumer
welfare” orientation of current antitrust laws, as critiqued in Part II. But it
also reflects a failure to update antitrust for the internet age. This Part
examines how online platforms defy and complicate assumptions embedded in
current doctrine. Specifically, it considers how the economics and business
dynamics of online platforms create incentives for companies to pursue growth
at the expense of profits, and how online markets and control over data may enable
new forms of anticompetitive activity.
Economists have analyzed extensively how platform markets may
pose unique challenges for antitrust analysis.
377
Specifically, they stress
that analysis applicable to firms in single-sided markets may break down when
applied to two-sided markets, given the distinct pricing structures and network
externalities.
378
These studies often focus on the challenge that two-sided platforms face in
attracting both sides—the classic coordination problem of having to attract
buyers without an established line of sellers, and vice versa.
379
Economists tend to conclude
that—given the particular challenges of two-sided markets
380
—antitrust should be
forgiving of conduct that might otherwise be characterized as anticompetitive.
381
Legalanalysis of
online platforms is comparatively
undertheorized
. The
Justice Department’s case against Microsoft under Section 2 of the Sherman Act,
initiated in the 1990s, remains the government’s most significant case involving
two-sided markets—even as platforms have emerged as central arteries in our
modern economy. Starting in 2011, the FTC pursued an investigation into Google,
partly in response to allegations that the company uses its dominance as a
search engine to cement its advantage and exclude rivals in other lines of
business. While the FTC closed the investigation without bringing any charges,
leaks later revealed that FTC staff had concluded that Google abused its power
on three separate counts.
382
The European Union has brought charges against Google for violating antitrust
laws.
383
For the purpose of competition policy, one of the most
relevant factors of online platform markets is that they are winner-take-all.
This is due largely to network effects and control over data, both of which mean
that early advantages become self-reinforcing. The result is that technology
platform markets will yield to dominance by a small number of firms. Walmart’s
recent purchase of the one start-up that had sought to challenge Amazon in
online retail—Jet.com—illustrates this reality.
384
Network effects arise when a user’s utility from a product
increases as others use the product. Since popularity compounds and is
reinforcing, markets with network effects often tip towards oligopoly or monopoly.
385
Amazon’s user reviews, for example,
serve as a form of network effect: the more users that have purchased and
reviewed items on the platform, the more useful information other users can
glean from the site.
386
As the Fourth Circuit has noted, “[O]
nce
dominance is
achieved, threats come largely from outside the dominated market, because the
degree of dominance of such a market tends to become so extreme.”
387
In this way, network
effects act as a form of entry barrier.
A platform’s control over data, meanwhile, can also entrench
its position.
388
Access to consumer data
enables platforms to better tailor services and gauge demand. Involvement
across
markets, meanwhile, may permit a
company to use data gleaned from one market to benefit another business line.
389
Amazon’s use of
Marketplace data to advantage its retail sales, as described in Section IV.D,
is an example of this dynamic. Control over data may also make it easier for dominant
platforms to enter new markets with greater ease. For example, reports now
suggest that Amazon may dramatically expand its footprint in the ad business,
“leveraging its rich supply of shopping data culled from years of operating a
massive e-commerce business.”
390
In other words, control over data, too, acts as an entry barrier.
Given that online platforms operate in markets where network
effects and control over data solidify early dominance, a company looking to
compete in these markets must seek to capture them. The most effective way is
to chase market share and drive out one’s rivals—even if doing so comes at the
expense of short-term profits, since the best guarantee of long-term profits is
immediate growth. Due to this dynamic, striving to maximize market share at the
expense of one’s rivals makes predation highly rational; indeed, it would be
irrational for a business
not
to
frontload losses in order to capture the market. Recognizing that enduring
early losses while aggressively expanding can lock up a
monopoly,
investors seem willing to back this strategy.
As the Introduction and Part III describe, Amazon has charted
immense growth while investing aggressively—both by expanding provision of
physical and online infrastructure and by pricing goods below cost. Amazon’s
stock price has soared despite a history of razor-thin—or even
negative—margins. In essence, investors have given Amazon a free pass to grow
without any pressure to show profits. The firm has used this edge to expand
wildly and dominate online commerce.
The idea that investors are willing to fund predatory growth
in winner-take-all markets also holds in the case of
Uber
Although the dynamics of the online retail market are distinct from those of
ride-sharing,
Uber’s
growth trajectory is worth analyzing
for general insight into how investors enable platform dominance. In 2015, news
reports revealed that
Uber
had an operating loss of
$470 million on $415 million in revenue, confirming suspicions that the company
has been bleeding money for the sake of achieving steep growth and acquiring
market share.
391
In China, the company has lost more
than $1 billion a year.
392
The strategy of aggressive price competition and brazen leadership coupled with
soaring growth prompted immediate comparisons to Amazon.
393
Like Amazon,
Uber
has drawn immense interest from investors. As of July
2015, its valuation hit nearly $51 billion, equaling the record set by Facebook
in 2012.
394
It recently secured an
additional $3.5 billion in investment, bringing its total funds to $13.5
billion—a figure “far greater than most companies raise even during an initial
public offering,” which
Uber
has avoided.
395
One might dismiss this phenomenon as irrational investor
exuberance. But another way to read it is at face value: the reason investors
value Amazon and
Uber
so highly is because they
believe these platforms will, eventually, generate huge returns. As one venture
capitalist recently remarked, if he had to “put his entire capital in a single
company and hold it for the next 10 years,” he would choose Amazon. “I don’t
see any cleaner monopoly available to buy in the public markets right now.”
396
In other words, that these
platform companies are undertaking consistent, steep losses and still
generating strong investor backing suggests that the markets expect Amazon and
Uber
to recoup these losses.
While investors have unambiguously endorsed and funded online
platforms’ quest to bleed money in their race to draw users, antitrust doctrine
fails to acknowledge this strategy. In the past, the Supreme Court’s analysis
has embraced the Efficient Market Hypothesis (EMH), the idea that market prices
reflect all available information.
397
The Justice Department
also acknowledges that market information—for example, the financial terms of
an acquisition—may “be informative regarding competitive effects.”
398
Applying EMH in this instance
overwhelmingly suggests that these platforms are positioned to recoup their
losses. Yet bringing a predatory pricing suit against an online platform would
be almost impossible to win in light of the recoupment requirement. Strikingly,
the market is reflecting a reality that our current laws are unable to detect.
399
In addition to overlooking why online platform dynamics make
predation especially rational, current doctrine also fails to appreciate how a
platform might recoup losses. For one, investor support allows Amazon to
strategize and operate on a time horizon far longer than what the
Brooke Group
or
Matsushita
Courts confronted. Raising prices in a third year after
enduring losses for two is different from engaging in a decade-long quest to
become the dominant online retailer and provider of internet infrastructure. That
longer timeline, meanwhile, makes available more recoupment mechanisms. Not
only has Amazon inaugurated an entire generation into online shopping through
its platform, but it has expanded into a suite of additional businesses and
amassed significant troves of data on users. This data enables it both to
extend its tug over customers through highly tailored personal shopping
experiences, and, potentially, to institute forms of price discrimination, as
described in Section IV.A. Both the latitude granted by investors and control
over data equip an incumbent platform to recoup losses in ways less obviously
connected to the initial form of below-cost pricing.
These recoupment mechanisms may also be more sophisticated
than what a judge or even rivals would be able to spot. This last point becomes
even more apparent in the context of
Uber
, whose dynamic
pricing has conditioned users not to expect a stable or regular price. While
Uber
claims that its algorithms set prices to reflect
real-time supply and demand, initial research has found that the company manipulates
the availability of both.
400
Moreover, it routinely gives away discount coupons to select users, effectively
charging users different prices, even for the same service at the same time.
401
Although platforms form the backbone of the internet economy,
the way that platform economics implicates existing laws is relatively
undertheorized
402
Amazon’s conduct suggests
that predatory pricing and integration across related business lines are
emerging as key paths to establishing dominance—aided by the control over data
that dominant platforms enjoy. But because current predatory pricing doctrine
defines recoupment in overly narrow terms, competitors generally have not been
able to make an effective legal case. Similarly, because current doctrine
largely discounts entry barriers, the anticompetitive effects of vertical
integration are difficult to cognize under the existing framework. Roadblocks
to these claims persist even as Amazon’s valuation and share price point to a
strong market expectation of recoupment and profits.
There are signs that enforcers are becoming more attuned to
the special factors that may render current antitrust analysis inadequate to
promote competition in internet platform markets. For example, in 2014 the
United States successfully challenged a merger between two leading providers of
online ratings and reviews platforms. In its complaint, DOJ acknowledged that
data-driven industries can be characterized by network effects, which increase
switching costs and entry barriers.
403
Recent comments by FTC
Commissioner Terrell
McSweeny
—noting that data can
act as a barrier to entry and that “competition enforcers can and should assess
the competitive implications of data”—also suggest that top officials are
assessing how to revise their tools and framework for gauging competition in
platform markets.
404
While this burgeoning recognition is heartening, the unique
features of platform markets require a more thorough evaluation of how
antitrust is applied. Because scale is both vital to platforms’ business model
and helps entrench their dominant position, antitrust should reckon with the
fact that pursuing growth at the expense of returns is—contra to current
doctrine—highly rational. An approach more attuned to the realities of online
platform markets would also recognize the variety of mechanisms that businesses
may use to recoup losses, the longer time horizon on which recoupment might
occur, and the ways that vertical integration and concentrated control over
data may enable new forms of anticompetitive conduct. Revising antitrust to
reflect the dynamics of online platforms is vital, especially as these companies
come to mediate a growing share of communications and commerce.
VI. Two Models for Addressing Platform Power
If it is true that the economics of platform markets may
encourage anticompetitive market structures, there are at least two approaches
we can take. Key is deciding whether we want to govern online platform markets
through competition, or want to accept that they are inherently monopolistic or
oligopolistic and regulate them instead. If we take the former approach, we
should reform antitrust law to prevent this dominance from emerging or to limit
its scope. If we take the latter approach, we should adopt regulations to take
advantage of these economies of scale while neutering the firm’s ability to
exploit its dominance.
A. Governing Online Platform Markets Through Competition
Reforming antitrust to address the anticompetitive nature of
platform markets could involve making the law against predatory pricing more
robust and strictly policing forms of vertical integration that firms can use
for anticompetitive ends. Importantly, each of these doctrinal areas should be
reformulated so that it is sensitive to preserving the competitive process and
limiting conflicts of interest that may incentivize anticompetitive conduct.
1. Predatory Pricing
While predatory pricing technically remains illegal, it is
extremely difficult to win predatory pricing claims because courts now require
proof that the alleged predator would be able to raise prices and recoup its
losses.
405
Revising predatory pricing
doctrine to reflect the economics of platform markets, where firms can sink
money for years given unlimited investor backing, would require abandoning the
recoupment requirement in cases of below-cost pricing by dominant platforms.
And given that platforms are uniquely positioned to fund predation, a
competition-based approach might also consider introducing a presumption of
predation for dominant platforms found to be pricing products below cost.
Several reasons militate in favor of a presumption of
predation in such cases. First, firms may raise prices years after the original
predation, or raise prices on unrelated goods, in ways difficult to prove at
trial. Second, firms may raise prices through personalized pricing or price
discrimination, in ways not easily detectable. Third, predation can lead to a
host of market harms
even if
the firm
does not raise consumer prices. Within a consumer welfare framework, these
harms include degradation of product quality and sapping diversity of choice.
406
Such harms may arise if
Amazon uses its bargaining power to extract better terms from producers and
suppliers, who, in turn, slash investments to meet its demands. Within a
broader framework—which seeks to protect the full range of interests that
antitrust laws were enacted to safeguard—the potential harms include lower
income and wages for employees, lower rates of new business creation, lower
rates of local ownership, and outsized political and economic control in the
hands of a few.
407
Introducing a presumption of predation would involve
identifying when a price is below cost, a subject of much debate. The Supreme
Court has not addressed the issue, but most appellate courts have said that
average variable cost is the right metric.
408
This Note does not
advocate the adoption of one particular measure over others. Admittedly, “below
cost” is an imperfect filter, especially since what constitutes the relevant
cost may vary depending on the industry or cost structure. And the specific
definition of “costs” that courts and enforcers adopt may ultimately be less
significant if the test for predatory pricing also permits a business
justification defense, which would help screen against false positives.
409
A business justification defense
could cover compensating a buyer for taking the risk of buying a new product, expanding
demand to a level which will allow the entrant to achieve scale economies,
keeping prices at competitive levels while expecting costs to decline, and
matching competition.
410
Whether a platform is dominant enough to trigger the
presumption could be assessed through its market share: those holding greater
than, say, 40% of the market in any given line of service (e.g., cloud
computing, ride sharing) might be designated “dominant.” Rather than measuring
this market share nationally, enforcers would look to levels of local control;
a ride-sharing platform that held only 35% of the national market but 75% of
the Nashville market would still be considered dominant for the purpose of
price-cutting in Nashville.
2. Vertical Integration
The current approach to antitrust does not sufficiently
account for how vertical integration may give rise to anticompetitive conflicts
of interest, nor does it adequately address the way a dominant firm may use its
dominance in one sector to advance another line of business. This concern is
heightened in the context of vertically integrated platforms, which can use
insights generated through data acquired in one sector to undermine rivals in
another. Potential ways to address this deficiency include scrutinizing mergers
that would enable a firm to acquire valuable data and cross-leverage it, or introducing
a prophylactic ban on mergers that would give rise to conflicts of interest.
One way to address the concern about a firm’s capacity to
cross-leverage data is to expressly include it in merger review.
411
Under the current
approach, only mergers over a particular monetary threshold require agency
review
412
—yet the monetary value of
a deal may not be a good proxy for the scope and scale of data at stake. Thus,
it could make sense for the agencies to automatically review any deal that
involves exchange of certain forms (or a certain quantity) of data. Data that
gave a player deep and direct insight into a competitor’s business operations,
for example, might trigger review. Under this regime, Facebook’s purchases of
WhatsApp and Instagram,
413
for instance, would have received greater scrutiny from the antitrust agencies,
in recognition of how acquiring data can deeply implicate competition. International
transactions granting foreign corporations access to data on U.S. users would
also require close review.
Uber’s
decision to sell
its China operations to
Didi
Chuxing
China’s dominant ride-sharing service—a deal through which
Uber
will also gain partial ownership over its main U.S. rival,
Lyft
414
—is one deal that would prompt
scrutiny under this regime.
415
A stricter approach would place prophylactic limits on
vertical integration by platforms that have reached a certain level of
dominance. This would recognize that a platform’s involvement across multiple related
lines of business can give rise to conflicts of interest by creating
circumstances in which a platform has an incentive to privilege its own
business and disadvantage other companies.
416
Seeking to prevent the industry
structures that
create
these
conflicts of interest may prove more effective than policing these conflicts.
Adopting this prophylactic approach would mean banning a dominant firm from
entering any market that it already serves as a platform—in other words, from
competing directly with the businesses that depend on it.
417
In the case of Amazon, for
example, this prophylactic approach would prohibit the company from running
both
a dominant retail platform and a
dominant platform for third-party sellers. These two businesses would have to
be separated into different entities, in part to prevent Amazon from using
insights from its role as a third-party host to benefit its retail business, as
it reportedly does now.
418
This form of prophylactic ban has a long history in banking
law.
419
A core principle of banking law is
the separation of banking and commerce.
420
“U.S. commercial banks generally are
not permitted to conduct any activities that do not fall
within .
. . the
statutory concept of ‘the business of banking.’”
421
More specifically, the
Bank Holding Company Act of 1956 forbids firms that own or control a U.S. bank
from engaging in business activities other than banking or managing banks.
422
The main exception is that
a bank that qualifies as a “financial holding company” “may conduct broader
activities that are ‘financial in nature,’ including securities dealing and
insurance underwriting.”
423
The policy goals of this regime are worth reviewing because
they have analogues in antitrust and competition policy. The main
justifications for preserving the separation between banking and commerce have
“included the needs to preserve the safety and soundness of insured depository
institutions, to ensure a fair and efficient flow of credit to productive
[businesses], and to prevent excessive concentration of financial and economic
power in the financial sector.”
424
All three concerns are linked to the fact that banks serve as critical intermediaries
in our economy. The “safety and soundness” concern traces to the idea that our
banking system is too vital to be subject to the risks of other business
activities.
425
The concern about fairness
and efficiency centers on the idea that allowing banks to be affiliated with
commercial companies may encourage banks to issue credit on the basis of how
those lending decisions will affect their commercial affiliates, thereby
distorting competition. The practices this may trigger—“price discrimination, unfair
restriction of access to credit, and other anticompetitive banking
practices”—would both “hurt the individual commercial companies not affiliated
with banks” and undermine national “productivity and growth.”
426
Lastly, seeking “the
prevention of excessive concentration of economic . . . power” among
“large financial-industrial conglomerates” recognizes that this market power
tends to concentrate political power
427
while also creating
systemic dangers of “too-big-to-fail” conglomerates.
428
Like bank holding companies, Amazon—along with a few other
dominant platforms—now play a crucial role in intermediating swaths of economic
activity. Amazon itself effectively controls the infrastructure of the internet
economy. This level of concentrated control creates hazards analogous to those
recognized in banking law. In light of this control, the conflicts of interest
created through Amazon’s expansion into distinct lines of business are
especially troubling. As in banking, enabling an essential intermediating
entity to compete with the companies that depend on it creates bad incentives.
Allowing a vertically integrated dominant platform to pick and choose to whom
it makes its services available, and on what terms, has the potential to
distort fair competition and the economy as a whole.
The other two concerns—safety and soundness, and excessive
economic and political power—are also worth considering. It is true that Amazon
(and other dominant platforms like
Uber
and Google)
have extended directly into financial services.
429
But its level of
involvement in these businesses, at least at the current scale, is unlikely to
concentrate financial risk in ways that warrant concern. Rather, the systemic
risks created by concentration among platforms are of a different kind. One involves
concentration of data. That a huge share of consumer retail data may be
concentrated within a single company makes hacks of or technical failures by
that company all the more disruptive. The 2013 hack into Target’s system—as a
result of which up to 110 million consumers had personal information stolen
430
—could have been orders of
magnitude more disruptive had the hacked entity been Amazon. A few instances
where Amazon Web Services crashed led to disruptions for scores of other
businesses, including Netflix.
431
Lastly, there is sound
reason to ask whether permitting Amazon to leverage its platform to integrate
across business lines hands it undue economic and political power.
432
While this subject invites
much deeper consideration than what this Note will provide, studies
interviewing the host of businesses that now depend on Amazon—retailers,
manufacturers, publishers, to name a few—reveal that the power it wields is
acute.
433
History suggests that
allowing a single actor to set the terms of the marketplace, largely unchecked,
can pose serious hazards. Limiting Amazon’s
reach
through prophylactic bans on vertical integration—and thereby forcing it to
split up its retail and Marketplace operation, for example—would help mitigate
this concern.
B. Governing Dominant Platforms as Monopolies Through Regulation
As described above, one option is to govern dominant
platforms through promoting competition, thereby limiting the power that any
one actor accrues. The other is to accept dominant online platforms as natural
monopolies or oligopolies, seeking to regulate their power instead. In this Section,
I sketch out two models for this second approach, traditionally undertaken in
the form of public utility regulations and common carrier duties. Industries
that historically have been regulated as utilities include commodities (water,
electric power, gas), transportation (railroads, ferries), and communications
(telegraphy, telephones).
434
Critically, a public utility regime
aims at eliminating competition: it accepts the benefits of monopoly and
chooses instead to limit how a monopoly may use its power.
435
Although largely out of fashion today, public utility
regulations were widely adopted in the early 1900s, as a way of regulating the
technologies of the industrial age. Animating public utility regulations was
the idea that essential network industries—such as railroads and electric
power—should be made available to the public in the form of universal service
provided at just and reasonable rates. The Progressive movement of the early
twentieth century embraced public utility as a way to use government to steer
private enterprise toward public ends. It was precisely because essential
network industries often required scale that unregulated private control over
these sectors often led to abuse of monopoly power. Famously, the Interstate Commerce
Commission—which instituted a form of common carriage for railroads—was created
partly in response to the abusive conduct of railroads, whose control over an
essential facility enabled them to pick winners and losers among farmers.
436
In the United States, the first case applying public utility
regulations to a private business was
Munn
v. Illinois
, in which the Supreme Court upheld state legislation establishing
maximum rates that companies could charge for the storage and transportation of
grain.
437
When one “devotes his
property to a use in which the public has an interest, he, in effect, grants to
the public an interest in that use, and must submit to be controlled by the
public for the common good,” Chief Justice Waite wrote.
438
“[W]hen private property
is devoted to a public
use,
it is subject to public
regulation.”
439
While the decision ushered
into doctrine the principle of common carriers, the question of when a business
was truly “affected with the public interest” was highly contested.
440
Most importantly,
“public utility was seen as a common, collective enterprise aimed at managing a
series of vital network industries that were too important to be left exclusively
to market forces.”
441
At the level of policy, public
utility regulations also enabled “utilities to secure capital at lower cost and
to channel it into very large technological systems,” and thus was a way to
“socialize the costs of building and operating” a centralized system while
“protecting consumers from the potential abuses associated with natural
monopoly.”
442
Given that Amazon increasingly serves as essential
infrastructure across the internet economy, applying elements of public utility
regulations to its business is worth considering.
443
The most common public
utility policies are (1) requiring nondiscrimination in price and service, (2)
setting limits on
rate-setting, and (3) imposing
capitalization and investment requirements. Of these three traditional
policies, nondiscrimination would make the most sense, while rate-setting and
investment requirements would be trickier to implement and, perhaps, would less
obviously address an outstanding deficiency.
A nondiscrimination policy that prohibited Amazon from
privileging its own goods and from discriminating among producers and consumers
would be significant. Given that many of the most notable anticompetitive
concerns around Amazon’s business structure arise from its vertical integration
and the resulting conflicts of interest, applying a nondiscrimination scheme
would curb the anticompetitive risk. This approach would permit the company to
maintain its involvement across multiple lines of business and permit it to
enjoy the benefits of scale while mitigating the concern that Amazon could
unfairly advantage its own business or unfairly discriminate among platform
users to gain leverage or market power.
444
Coupling nondiscrimination
with common carrier obligations—requiring platforms to ensure open and fair
access to other businesses—would further limit Amazon’s power to use its
dominance in anticompetitive ways.
Rate setting would be trickier. This would involve setting a
ceiling on the prices that Amazon can charge to both producers and consumers.
Traditionally, governments used rate setting by identifying a “fair return”
that a company deserved for its investment, and then calculated consumer or producer
prices accordingly.
445
But calculating “fair return” may prove more challenging in the online platform
context than it did with traditional public utilities. One potential source of
difficulty is that Amazon has invested so widely across such a range of
projects that it is not clear which the government should peg to “rate of
return.” Another complicating factor is that part of Amazon’s investment in
these platforms, so far, hasinvolved
losing money through below-cost pricing.
Lastly, it is not clear that imposing capitalization and
investment requirements would be necessary. A traditional reason for these
policies has been that that the economics of creating and running a utility can
be unfavorable, occasionally leading private companies to scrimp on investing
and upkeep. In Amazon’s case, the company is choosing to expand at a speed and
scale that is pushing it into the red—but it is not clear that the activity is
intrinsically loss generating. That said, a public utility regime could also be
justified on the basis that succeeding as an online platform requires incurring
heavy losses—a model that Amazon and
Uber
have pursued.
This approach would treat market-share chasing losses as a capital investment,
446
suggesting the public
utility domain may be appropriate.
Practically, ushering
in a public utility regime may prove challenging. Public utility regulations
suffered an intellectual and policy attack around mid-century. For one, critics
challenged the theory of natural monopoly as an ongoing rationale for
regulation, arguing that rapid economic and technological change would render
monopolies temporary problems. Second, critics portrayed public utility as a
form of corruption, a system in which private industry executives colluded with
public officials to enable rent seeking. Ultimately these lines of criticism substantially
thinned the very concept of public utility.
447
The trend was part of a
broader effort to idealize competitive markets and assume that nonintervention
was almost always superior to interference. Although the concept of public
utility regulation remains somewhat maligned today, there are signs that a
robust movement to apply utility-like regulations to services that widely
register as public—such as the internet—can catch wind. The core of the net
neutrality debates, for example, involved foundational discussions about how to
regulate the communication infrastructure of the twenty-first century.
448
The net neutrality regime
ultimately adopted falls squarely in the common carrier tradition.
Given Amazon’s growing share of e-commerce as a whole, and
the vast number of independent sellers and producers that now depend on it,
applying some form of public utility regulation could make sense. Nondiscrimination
principles seem especially apt, given that conflicts of interest are a primary
hazard of Amazon’s vertical power. One approach would apply public utility regulations
to
all
of Amazon’s businesses that
serve other businesses. Another would require breaking up parts of Amazon and
applying nondiscrimination principles separately; so, for example, to Amazon
Marketplace and Amazon Web Services as distinct entities. That said, given the
political challenges of ushering in such a regime, strengthening and
reinforcing traditional antitrust principles may—in the short run—prove most
feasible.
A lighter version of the regulatory approach would be to
apply the essential facilities doctrine. This doctrine imposes sharing
requirements on a natural monopoly asset that serves as a necessary input in another
market. As Sandeep
Vaheesan
explains:
This doctrine rests on two basic premises: first, a
natural monopolist in one market should not be permitted to deny access to the
critical facility to foreclose rivals in adjacent markets; second, the more
radical remedy of dividing the facility among multiple owners, while mitigating
the threat of monopoly leveraging, could sacrifice important efficiencies.
449
Unlike the prophylactic ban on integration, the essential
facilities route accepts consolidated ownership. But recognizing that a
vertically integrated monopolist may deny access to a rival in an adjacent market,
the doctrine requires the monopolist controlling the essential facility to
grant competitors easy access. This duty has traditionally been enforced
through regulatory oversight.
While the essential facilities doctrine has not been
precisely defined, the four-factor test enumerated by the Seventh Circuit in
MCI Communications Corp. v. American Telephone
& Telegraph Co.
forms the basis of an essential facility claim today.
450
Under that test, a
facility is essential and must be shared if four conditions are met: (1) a
monopolist controls the essential facility; (2) a competitor is unable
practically or reasonably to duplicate the essential facility; (3) the
monopolist is denying use of the facility to a competitor; and (4) providing
the facility is feasible.
451
The
MCI
court also held that, in
order to be deemed essential, the facility must be a “necessary input in a
distinct, vertically related market.
452
While the Supreme Court has never recognized nor articulated
a standard for “essential facility,” three Supreme Court rulings “are seen as
having established the functional foundation” for the doctrine.
453
In 2004, however, the
Court disavowed the essential facilities doctrine in dicta,
454
leading several
commentators to wonder whether it is a dead letter.This
decision by the Court to effectively reject its prior case law on essential
facilities followed challenges on other fronts: notably from Congress,
enforcement agencies, and academic scholars, all of whom have critiqued the
idea of requiring dominant firms to share their property.
455
Treating aspects of Amazon’s business as “essential
facilities” seems appropriate, given that factors two, three, and four of the
MCI
test are likely to hold for at least
one line of business. The first factor—whether Amazon is a “monopolist”—is
subject to the risk that doctrine takes an excessively narrow view of what
constitutes a “monopolist,” a definition that may be especially out of touch
with dominance in the internet age.
Essential facilities doctrine has traditionally been applied
to infrastructure such as bridges, highways, ports, electrical power grids, and
telephone networks.
456
Given that Amazon controls key infrastructure for e-commerce, imposing a duty
to allow access to its infrastructure on a nondiscriminatory basis make sense. And
in light of the company’s current trajectory, we can imagine at least three
aspects of its business could eventually raise “essential facilities”-like
concerns: (1) its fulfillment services in physical delivery; (2) its
Marketplace platform; and (3) Amazon Web Services. While the essential
facilities doctrine has not yet been applied to the internet economy, some
proposals have started exploring what this might look like.
457
Pursuing this regime for
online platforms could maintain the benefits of scale while preventing dominant
players from abusing their power.
conclusion
Internet platforms mediate a large and growing share of our
commerce and communications. Yet evidence shows that competition in platform
markets is flagging, with sectors coalescing around one or two giants.
458
The titan in e-commerce is
Amazon—a company
that has built its
dominance through aggressively pursuing growth at the expense of profits and
that has integrated across many related lines of business.
As a result, the company has positioned itself at the
center of Internet commerce and serves as essential infrastructure for a host of
other businesses that now depend on it.
This Note argues that Amazon’s business
strategies and current market dominance pose anticompetitive concerns that the consumer
welfare framework
in antitrust fails to recognize.
In particular, current law underappreciates the risk of
predatory pricing and how integration across distinct business lines may prove
anticompetitive. These concerns are heightened in the context of online
platforms for two reasons. First, the economics of platform markets incentivize
the pursuit of 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. Second, because online platforms
serve as critical intermediaries, integrating across business lines positions
these platforms to control the essential infrastructure on which their rivals
depend. This dual role also enables a platform to exploit information collected
on companies using its services to undermine them as competitors.
In order to capture these anticompetitive concerns, we should
replace the consumer welfare framework with an approach oriented around
preserving a competitive process and market structure. Applying this idea
involves, for example, assessing whether a company’s structure creates
anticompetitive conflicts of interest; whether it can cross-leverage market
advantages across distinct lines of business; and whether the economics of
online platform markets incentivizes predatory conduct and capital markets
permit it. More specifically, restoring traditional antitrust principles to
create a presumption of predation and to ban vertical integration by dominant
platforms could help maintain competition in these markets. If, instead, we
accept dominant online platforms as natural monopolies or oligopolies, then
applying elements of a public utility regime or essential facilities
obligations would maintain the benefits of scale while limiting the ability of
dominant platforms to abuse the power that comes with it.
My argument is part of a larger recent debate about whether
the current paradigm in antitrust has failed. Though relegated to technocrats
for decades, antitrust and competition policy have once again become topics of
public concern.
459
Last year, the
Wall Street Journal
reported that “[a] growing number of industries
in the U.S. are dominated by a shrinking number of companies.”
460
In March 2016, the
Economist
declared, “Profits are too
high. America needs a dose of competition.”
461
Policy elites, too, have
weighed in, issuing policy papers and hosting conferences documenting the
decline of competition across the U.S. economy and assessing the resulting harms,
including a drop in start-up growth and widening economic inequality.
462
Antitrust even made it
into the 2016 presidential campaign: Democrats included competition policy in
their party platform for the first time since 1988, and in October of the same
year, presidential candidate Hillary Clinton released a detailed antitrust platform,
highlighting not only a need for more vigorous enforcement but for an
enforcement philosophy that takes into account market structure.
463
Animating these critiques is not a concern about harms to
consumer welfare,
464
but the broader set of ills and hazards that a lack of competition breeds. As
Amazon continues both to deepen its existing control over key infrastructure and
to reach into new lines of business, its dominance demands the same scrutiny. To
revise antitrust law and competition policy for platform markets, we should be
guided by two questions. First, does our legal framework capture the realities
of how dominant firms acquire and exercise power in the internet economy? And
second, what forms and degrees of power should the law identify as a threat to competition?
Without considering these questions, we risk permitting the growth of powers that
we oppose but fail to recognize.
David
Streitfeld
As Competition Wanes, Amazon Cuts Back Discounts
N.Y. Times
(July 4, 2013), http…
David
Streitfeld
As Competition Wanes, Amazon Cuts Back Discounts
N.Y. Times
(July 4, 2013),
-cuts-back-its-discounts.html [http://perma.cc/J48L-8CPZ].
Ida Tarbell,
John D. Rockefeller: A Character Study
, 25
McClure’s Mag. 227, 245 (1905).
Ida Tarbell,
John D. Rockefeller: A Character Study
, 25
McClure’s Mag. 227, 245 (1905).
Amazon: Ponzi Scheme or Wal-Mart of the Web
Slate: Moneybox
(Feb. 8, 2000, 5:52 PM), http://www.…
Amazon: Ponzi Scheme or Wal-Mart of the Web
Slate: Moneybox
(Feb. 8, 2000, 5:52 PM),
/2000/02
/amazon_ponzi_scheme
_or
_wal
mart_of_the_web.html [http://perma.cc/XQ22-YR9K].
Allison Enright,
Amazon Sales Climb 22% in Q4 and 20% in 2015
Internet Retailer
(Jan. 28, 2016, 4…
Allison Enright,
Amazon Sales Climb 22% in Q4 and 20% in 2015
Internet Retailer
(Jan. 28, 2016, 4:06 PM),
-q4
-and-20-2015 [http://perma.cc/N6S3-XTSB].
Shelly Banjo & Paul
Ziobro
After Decades of Toil, Web Services Remain Small for Many Retailers
W…
Shelly Banjo & Paul
Ziobro
After Decades of Toil, Web Services Remain Small for Many Retailers
Wall St. J.
(Aug. 27, 2013, 8:31 PM),
/SB10001424127887324906304579039101568397122 [http://perma.cc/C8QJ-JYRN].
Olivia
LaVecchia
& Stacy Mitchell,
Amazon’s Stranglehold: How the Company’s Tightening Grip Is…
Olivia
LaVecchia
& Stacy Mitchell,
Amazon’s Stranglehold: How the Company’s Tightening Grip Is Stifling Competition, Eroding Jobs, and Threatening Communities
Inst. for Loc. Self-Reliance
10 (Nov. 2016),
/ILSR
_Amazon
Report
_final.pdf [http://perma.cc/A4ND-2NDJ].
Amazon Posts a Profit
, CNN
Money
(Jan. 22, 2002, 3:39 PM), http://money
.cnn
.com
/2002
/01
/22/te…
Amazon Posts a Profit
, CNN
Money
(Jan. 22, 2002, 3:39 PM),
.cnn
.com
/2002
/01
/22/technology/amazon [http://perma.cc/SMF3-2UCK].
Partly due to the success of Amazon Web Services, Amazon has recently begun reporting consistent p…
Partly due to the success of Amazon Web Services, Amazon has recently begun reporting consistent profits.
See
Nick
Wingfield
Amazon’s Cloud Business Lifts Its Profit to a Record
N.Y. Times
(Apr. 28, 2016),
-q1-earnings.html [http://perma.cc/ZHL6-JEZU]. Though this trend departs from the history on which I focus, my analysis stands given that I am interested in (1) the losses Amazon formerly undertook to establish dominant positions in certain sectors, (2) the investor backing and enthusiasm that Amazon consistently maintained
despite
these losses, and (3) whether these facts challenge the assumption—embedded in current doctrine—that losing money is only desirable (and hence rational)
if
followed by recoupment.
See id.
(“Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.”);
see also
infra
Part III.
Amazon.com, Inc., Annual Report (Form 10-K) 17 (Jan. 29, 2016), http://www
.sec .gov
/Archives
/ed…
Amazon.com, Inc., Annual Report (Form 10-K) 17 (Jan. 29, 2016),
.sec .gov
/Archives
/edgar/data/1018724/000101872416000172/amzn-20151231x10k.htm [http://
perma.cc
‌‌
/GB6A-YWZT].
10
Matt
Krantz
Amazon Breaks Barrier: Now Most Costly Stock
, USA T
oday
(Nov. 11, 2015, 5:16 PM), htt…
Matt
Krantz
Amazon Breaks Barrier: Now Most Costly Stock
, USA T
oday
(Nov. 11, 2015, 5:16 PM),
-valuation
-price/75519460 [http://perma.cc/P5BA-5REB].
11
Meagan Clark & Angelo Young,
Amazon: Nearly 20 Years in Business and It Still Doesn’t Make Money…
Meagan Clark & Angelo Young,
Amazon: Nearly 20 Years in Business and It Still Doesn’t Make Money, but Investors Don’t Seem To Care
Int’l Bus. Times
(Dec. 18, 2013, 10:37 AM),
-dont-
seem-
care-1513368 [http://perma.cc/6NMH-HNC4].
12
Krantz
supra
note 10 (“Amazon’s [price/earnings ratio] isn’t just high relative to the mark…
Krantz
supra
note 10 (“Amazon’s [price/earnings ratio] isn’t just high relative to the market—but the stock is richly valued even if the company achieves the high expectations investors have. Amazon’s [price/earnings ratio] is now 14 times higher than the astounding 67% annual growth analysts expect long term from the company. That’s an off-the-charts valuation using traditional rules of thumb. Investors start to think a stock is pricey when its [price/earnings ratio] is just 2 times its expected growth rate.”).
13
See, e.g.
Farhad
Manjoo
How Amazon’s Long Game Yielded a Retail Juggernaut
N.Y. Times
(Nov. 18,…
See, e.g.
Farhad
Manjoo
How Amazon’s Long Game Yielded a Retail Juggernaut
N.Y. Times
(Nov. 18, 2015),
-long-game-yielded-a-retail-juggernaut.html [http://perma.cc/62WG-KQ67] (“For years, observers have wondered if Amazon’s shopping business—you know, its main business—could ever really work. Investors gave Mr. Bezos enormous leeway to spend billions building out a distribution-center infrastructure, but it remained a semi-open question if the scale and pace of investments would ever pay off. Could this company ever make a whole lot of money selling so much for so little?”).
14
Sam Moore,
Amazon Commands Nearly Half of Consumers’ First Product Search
Bloom- Reach
(Oct. 6, 2…
Sam Moore,
Amazon Commands Nearly Half of Consumers’ First Product Search
Bloom- Reach
(Oct. 6, 2015),
-consumers-first-product-search [http://perma.cc/LVD9-F6W9].
15
Karsten
Strauss,
America’s Most Reputable Companies, 2016: Amazon Tops the List
Forbes
(Mar. 29, …
Karsten
Strauss,
America’s Most Reputable Companies, 2016: Amazon Tops the List
Forbes
(Mar. 29, 2016, 12:00 PM),
/29
/americas-most-reputable-companies-2016-amazon-tops-the-list [http://perma.cc
/MN74
-K3NB];
see also
Melissa Hoffmann,
Amazon Has the Best Consumer Perception of Any Brand
AdWeek
(July 16, 2014),
/ama
zon -has-best-consumer-perception-any-brand-158945 [http://perma.cc/FG7W-YD7N] (observing that Amazon continues to be the best-perceived brand despite negative news reports).
16
David
Streitfeld
A New Book Portrays Amazon as Bully
N.Y. Times: Bits Blog
(Oct. 22, 2013, 6:00 …
David
Streitfeld
A New Book Portrays Amazon as Bully
N.Y. Times: Bits Blog
(Oct. 22, 2013, 6:00 AM),
-as-bully [http://perma.cc/E893-5EEN].
17
An article on Amazon’s treatment of workers in its warehouses,
see
Spencer
Soper
Inside Amazon’…
An article on Amazon’s treatment of workers in its warehouses,
see
Spencer
Soper
Inside Amazon’s Warehouse
Morning Call
(Aug. 17, 2015, 12:13 PM),
/news
/local
/amazon/mc-allentown-amazon-complaints-20110917-story.html [http://
perma.cc
/6BXK-RPCX], was a finalist for the prestigious Loeb Award,
see Morning Call’s Watchdog Journalism Recognized
Morning Call (
June 2, 2012),
-02/news/mc-morning-call-keystones-20120602_1_amazon-warehouse-gas-explosion-key
stone
-press-awards [http://
perma.cc
/9F3E-EBZS]. A
New York Times
piece on Amazon’s white-collar workplace generated more than five million page views, ranking among the
Times
’s
most-read pieces of 2015.
See
Nick
Wingfield
& Ravi
Somaiya
Amazon Spars with the Times over Investigative Article
N.Y. Times
(Oct. 19, 2015),
/20
/business/amazon-spars-with-the-times-over-investigative-article.html [http://
perma.cc
/VDG6-WZZQ].
18
David
Streitfeld
supra
note
16
David
Streitfeld
supra
note
16
19
See
Paul Krugman,
Amazon’s Monopsony Is Not O.K
, N.Y. Times
(Oct. 19, 2014), http://
www
.nytimes
See
Paul Krugman,
Amazon’s Monopsony Is Not O.K
, N.Y. Times
(Oct. 19, 2014),
www
.nytimes
.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html [http://
perma.cc/KJ2E-8ZPX] (“Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”).
20
See
Farhad
Manjoo
Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future
N.Y. Ti…
See
Farhad
Manjoo
Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future
N.Y. Times
(Jan. 20, 2016),
-5-will-dominate-digital-life-for-foreseeable-future.html [http://perma.cc/YH6N-KG6J] (“By just about every measure worth collecting, these five American consumer technology companies [Amazon, Apple, Facebook, Google, and Microsoft] are getting larger, more entrenched in their own sectors, more powerful in new sectors and better insulated against surprising competition from upstarts. Though competition between the five remains fierce—and each year, a few of them seem up and a few down—it’s becoming harder to picture how any one of them, let alone two or three, may cede their growing clout in every aspect of American business and society.”); Brooke Masters,
Hooked on a Feeling that Amazon Is Too Addictive by Far
Fin.
Times
(Mar. 11, 2016),
/d2d2e376-e768-11e5-bc31-138df2ae9ee6.html [http://perma.cc/X25D-6NTS].
21
At a recent hearing held by the Senate Judiciary Committee’s Subcommittee on Antitrust, Competit…
At a recent hearing held by the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, both Republican and Democratic senators interrogated Assistant Attorney General for Antitrust Bill Baer and Federal Trade Commission (FTC) Chair Edith Ramirez about their treatment of online platforms, and urged the Department of Justice (DOJ) and FTC to study closely the anticompetitive hazards these dominant firms may pose.
See
Oversight of the Enforcement of the Antitrust Laws: Hearing
Before the
Subcomm
on
Antitrust, Competition Policy & Consumer Rights of the S. Comm. on the Judiciary
, 114th Cong. (2016);
see also
Oversight of the Antitrust Enforcement Agencies: Hearing Before the
Subcomm
on
Regulatory Reform, Commercial & Antitrust Law of the H. Comm. on the Judiciary
, 114th Cong. (2015).
22
Vauhini
Vara
Is Amazon Creating a Cultural Monopoly
New Yorker
(Aug. 23, 2015), http://
‌‌
http:/…
Vauhini
Vara
Is Amazon Creating a Cultural Monopoly
New Yorker
(Aug. 23, 2015),
‌‌
poly [http://
perma.cc/VZ84-8UX8].
23
See
United States v. Apple Inc.
, 952 F. Supp. 2d 638, 650 (S.D.N.Y. 2013).
See
United States v. Apple Inc.
, 952 F. Supp. 2d 638, 650 (S.D.N.Y. 2013).
24
See, e.g.
, Nat’l Collegiate Athletic
Ass’n
v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107-0…
See, e.g.
, Nat’l Collegiate Athletic
Ass’n
v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107-08 (1984) (“‘Congress designed the Sherman Act as a ‘consumer welfare
prescription.’ .
. . Restrictions on price and output are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit.” (quoting Reiter v.
Sonotone
Corp., 442 U.S. 330, 343 (1979)));
see also
infra
Part I.
25
See, e.g.
Joe S. Bain, Industrial Organization
(2d ed. 1968);
Donald F. Turner & Carl
Kaysen
, Ant…
See, e.g.
Joe S. Bain, Industrial Organization
(2d ed. 1968);
Donald F. Turner & Carl
Kaysen
, Antitrust Policy: An Economic and Legal Analysis
(1959); Joe S. Bain,
Workable Competition in Oligopoly: Theoretical Considerations and Some Empirical Evidence
, 40
Am.
Econ.
Rev
. 35, 36-38 (1950).
The
institutionalists
—scholars who emphasized the importance of social rules and organizations in producing economic outcomes—were also influential in this vein.
See, e.g
.,
John R. Commons, Legal Foundations of Capitalism
(1924).
26
See, e.g.
, United States v.
Phila
Nat’l Bank, 374 U.S. 321, 364-65 (1963).
See, e.g.
, United States v.
Phila
Nat’l Bank, 374 U.S. 321, 364-65 (1963).
27
See, e.g
., Brown Shoe Co. v. United States, 370 U.S. 294, 328-34 (1962).
See, e.g
., Brown Shoe Co. v. United States, 370 U.S. 294, 328-34 (1962).
28
See id.
See id.
29
I use “The Chicago School” to refer to the group of legal scholars and economists, primarily b…
I use “The Chicago School” to refer to the group of legal scholars and economists, primarily based at the University of Chicago, who developed neoclassical law and economics in the mid-twentieth century. But it is worth noting that a new group of scholars at the University of Chicago—such as Luigi
Zingales
and Guy
Rolnik
—have departed from the neoclassical approach and are studying market competition with an eye to power.
See, e.g.
Raghuram
Rajan
& Luigi
Zingales
, Saving Capitalism from the Capitalists
(2003).
See generally
ProMarket
[http://perma.cc/G3CD-45K2] (“This is the goal of the ‘
ProMarket
blog’: to educate the public about the many ways special interests subvert competition in order to make the market system work better.”).
30
Richard A. Posner,
The
Chicago School of Antitrust Analysis
, 127
U. Pa. L. Rev
. 925, 932 (1979). T…
Richard A. Posner,
The
Chicago School of Antitrust Analysis
, 127
U. Pa. L. Rev
. 925, 932 (1979). The key assumptions of price theory are “that demand curves slope downward, that an increase in the price of a product will reduce the demand for its complement, [and] that resources gravitate to areas where they will earn the highest return.”
Id.
at 928.
31
Marc Allen Eisner, Antitrust and the Triumph of Economics: Institutions, Expertise, and Policy Cha…
Marc Allen Eisner, Antitrust and the Triumph of Economics: Institutions, Expertise, and Policy Change
107 (1991).
32
See
Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (1978)
See
Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (1978)
33
Eisner
supra
note 31, at 104.
Eisner
supra
note 31, at 104.
34
George J. Stigler, The Organization of Industry
67 (1968).
George J. Stigler, The Organization of Industry
67 (1968).
35
Eisner
supra
note 31, at 105.
Eisner
supra
note 31, at 105.
36
Id.
Id.
37
Bork,
supra
note 32, at 7 (“[T]he only legitimate goal of antitrust is the maximization of consu…
Bork,
supra
note 32, at 7 (“[T]he only legitimate goal of antitrust is the maximization of consumer welfare.”);
id.
at
405 (“The only goal that should guide interpretation of the antitrust laws is the welfare of consumers . . . . In judging consumer welfare, productive efficiency, the single most important factor contributing to that welfare, must be given due weight along with allocative efficiency.”);
see also
Daniel A. Crane,
The Tempting of Antitrust: Robert Bork and the Goals of Antitrust Policy
, 79
Antitrust L.J.
835, 847 (2014) (“Bork’s big move [was] his rejection of alternatives to efficiency or consumer welfare-oriented theories of antitrust
enforcement .
. . .”).
38
As has been widely noted, Bork defines consumer welfare not as consumer surplus but as total welfa…
As has been widely noted, Bork defines consumer welfare not as consumer surplus but as total welfare. As a result, for Bork, outcomes that might otherwise be understood to harm consumers are not thought to reduce consumer welfare. For example, Bork concludes that wealth transfers from consumers to monopolist producers would not harm consumer welfare.
See
Bork
supra
note 32, at 110 (“Those who continue to buy after a monopoly is formed pay more for the same output, and that shifts income from them to the monopoly and its owners, who are also consumers. This is not dead-weight loss due to restriction of output but merely a shift in income between two classes of consumers. The consumer welfare model, which views consumers as a collectivity, does not take this income effect into account.”). For critiques of Bork’s conflation of consumer welfare and allocative efficiency, see John J. Flynn,
The Reagan Administration’s Antitrust Policy, “Original Intent” and the Legislative History of the Sherman Act
, 33
Antitrust Bull
. 259 (1988); Eleanor M. Fox,
The Modernization of Antitrust: A New Equilibrium
, 66
Cornell L. Rev
. 1140 (1981); Herbert
Hovenkamp
Antitrust’s
Protected Classes
, 88
Mich. L. Rev.
1 (1989); Robert H.
Lande
A Traditional and
Textualist
Analysis of the Goals of Antitrust: Efficiency, Preventing Theft from Consumers, and Consumer Choice
, 81
Fordham L. Rev.
2349 (2013) [hereinafter
Lande
A Traditional and
Textualist
Analysis
]; Robert H.
Lande
Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged
, 34
Hastings L.J.
65 (1982) [hereinafter
Lande
Wealth Transfers
]; and Maurice E.
Stucke
Reconsidering
Antitrust’s
Goals
, 53
B.C. L. Rev
. 551 (2012).
39
Reiter v.
Sonotone
Corp., 442 U.S. 330, 343 (1979) (quoting Bork,
supra
note 32, at 66).
Reiter v.
Sonotone
Corp., 442 U.S. 330, 343 (1979) (quoting Bork,
supra
note 32, at 66).
40
See
Barak
Orbach
Foreword:
Antitrust’s
Pursuit of Purpose
, 81
Fordham L. Rev
. 2151, 2152 (2013).
See
Barak
Orbach
Foreword:
Antitrust’s
Pursuit of Purpose
, 81
Fordham L. Rev
. 2151, 2152 (2013).
41
1968 Merger Guidelines
U.S. Dep’t Just.
(1968), http://www.justice.gov/sites/default/files
/atr…
1968 Merger Guidelines
U.S. Dep’t Just.
(1968),
/atr/legacy/2007/07/11/11247.pdf [http://perma.cc/884H-BGUH]. The guidelines continue, “Market structure is the focus of the Department’s merger policy chiefly because the conduct of the individual firms in a market tends to be controlled by the structure of that market.”
Id.
42
1982 Merger Guidelines
U.S. Dep’t Just.
(1982), http://www.justice.gov/sites/default/files
/atr
1982 Merger Guidelines
U.S. Dep’t Just.
(1982),
/atr
/legacy/2007/07/11/11248.pdf [http://perma.cc/7J32-ZQLY].
43
See, e.g.
Ginzburg
v.
Mem’l
Healthcare Sys., Inc., 993 F. Supp. 998, 1015 (S.D. Tex. 1997) (“[B]
e…
See, e.g.
Ginzburg
v.
Mem’l
Healthcare Sys., Inc., 993 F. Supp. 998, 1015 (S.D. Tex. 1997) (“[B]
ecause
‘the purpose of antitrust law is the promotion of consumer welfare,’ the court must analyze the antitrust injury question from the perspective of the
consumer .
. . . Thus, in order to show that he suffered an antitrust injury, ‘an antitrust plaintiff must prove that the challenged conduct affected the prices, quantity or quality of goods or services and not just his own welfare.’” (quoting
Reazin
v. Blue Cross & Blue Shield of Kan., 899 F.2d 951, 960 (10th Cir. 1990); Angelico v. Lehigh Valley Hosp., Inc., 984 F. Supp. 308, 312 (E.D. Pa. 1997))).
44
Horizontal Merger Guidelines
U.S. Dep’t Just.
& FTC
(Aug. 19, 2010), http://
www
.ftc
.gov
/sites…
Horizontal Merger Guidelines
U.S. Dep’t Just.
& FTC
(Aug. 19, 2010),
www
.ftc
.gov
/sites/default
/files/attachments/merger-review/100819hmg.pdf [http://
perma.cc
/SQ8H-AB7P].
45
See
Emily Steel,
Under Regulators’ Scrutiny, Comcast and Time Warner Cable End Deal
N.Y. Times
(A…
See
Emily Steel,
Under Regulators’ Scrutiny, Comcast and Time Warner Cable End Deal
N.Y. Times
(Apr. 24, 2015),
-time-warner-cable-deal.html [http://perma.cc/H4XS-9LMY].
46
Edith Ramirez, Chairwoman, FTC, Keynote Remarks at 10th Annual Global Antitrust Enforcement Sympos…
Edith Ramirez, Chairwoman, FTC, Keynote Remarks at 10th Annual Global Antitrust Enforcement Symposium (Sept. 20, 2016) (citing Richard J. Gilbert & Hillary Greene,
Merging Innovation into Antitrust Agency Enforcement of the Clayton Act
, 83
Geo. Wash.
L.
Rev
. 1919, 1933 (2015)),
ftc-chair
woman
‌‌
edith-ramirez
[http://perma.cc/FNS8-6FL9].
47
And even merger review has “migrated towards assessing what
is measurable—namely short-term pric…
And even merger review has “migrated towards assessing what
is measurable—namely short-term pricing effects
, primarily understood under their unilateral effects theory, and short-term productive efficiencies.”
Maurice E.
Stucke
& Allen P.
Grunes
, Big Data and Competition Policy 107
(2016).
“Price has become the common denominator in merger review.”
Id.
at 109.
48
Id.
at 108.
Id.
at 108.
49
Crane,
supra
note 37, at 852.
Crane,
supra
note 37, at 852.
50
See
Christopher R. Leslie,
Revisiting the Revisionist History of
Standard Oil
, 85
S. Cal. L. Rev
. …
See
Christopher R. Leslie,
Revisiting the Revisionist History of
Standard Oil
, 85
S. Cal. L. Rev
. 573, 575 (2012).
51
See
Ida Tarbell
A History of the Standard Oil Company 6-7 (1904)
See
Ida Tarbell
A History of the Standard Oil Company 6-7 (1904)
52
Monopoly price refers to the price profitably above cost that a firm with monopoly power can charg…
Monopoly price refers to the price profitably above cost that a firm with monopoly power can charge.
53
Standard Oil Co. v. United States, 22 U.S. 1 (1911).
Standard Oil Co. v. United States, 22 U.S. 1 (1911).
54
Leslie,
supra
note 50, at 576 (quoting United States v. A. Schrader’s Son, 264 F. 175, 181 (D. O…
Leslie,
supra
note 50, at 576 (quoting United States v. A. Schrader’s Son, 264 F. 175, 181 (D. Ohio 1919),
rev’d
, 252 U.S. 85 (1920)).
55
Ch. 323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 …
Ch. 323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (2012)).
56
This legislative history makes plain that section 2 of the Clayton Act “was born of a desire by …
This legislative history makes plain that section 2 of the Clayton Act “was born of a desire by Congress to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers.”
FTC v. Anheuser–Busch, Inc
.,
363 U.S. 536, 543 (1959).
57
H.R. Rep. No
63-627, at 8 (1914).
Section 2 of the Clayton Act made it “unlawful for a firm to …
H.R. Rep. No
63-627, at 8 (1914).
Section 2 of the Clayton Act made it “unlawful for a firm to charge a low price in a targeted community while selling similar goods at a higher price elsewhere.” Herbert J.
Hovenkamp
United States Competition Policy in Crisis: 1890-1955
, 94
Minn. L. Rev.
311, 363 (2009).
58
Lawrence Shepard,
The Economic Effects of Repealing Fair Trade Laws
, 12
J. Consumer
Aff
220, 221 …
Lawrence Shepard,
The Economic Effects of Repealing Fair Trade Laws
, 12
J. Consumer
Aff
220, 221 (1978) (“Fair trade marketing or ‘resale price maintenance’ enabled manufacturers to require retailers to charge producer-specified prices on certain goods.”).
59
See
Dr
Miles
Med. Co.
John D. Park & Sons Co., 220 U.S. 373 (1911).
See
Dr
Miles
Med. Co.
John D. Park & Sons Co., 220 U.S. 373 (1911).
60
Pub.
L. No. 75-314, 50 Stat. 693 (1937).
Pub.
L. No. 75-314, 50 Stat. 693 (1937).
61
Schwegmann
Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951).
Schwegmann
Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951).
62
McGuire Act, Pub.
L. No. 82-542, 66 Stat. 632 (1952).
McGuire Act, Pub.
L. No. 82-542, 66 Stat. 632 (1952).
63
Pub.
L. No. 74-692, 49 Stat. 1526 (codified as amended at 15 U.S.C. §§ 13, 21 (2012)).
Pub.
L. No. 74-692, 49 Stat. 1526 (codified as amended at 15 U.S.C. §§ 13, 21 (2012)).
64
See
FTC v. Henry
Broch
& Co., 363 U.S. 166, 168 (1960) (“The Robinson-
Patman
Act was enacted in 19…
See
FTC v. Henry
Broch
& Co., 363 U.S. 166, 168 (1960) (“The Robinson-
Patman
Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power.”).
65
15 U.S.C. § 13(a) (2012).
15 U.S.C. § 13(a) (2012).
66
§ 3, 49 Stat. at 1528.
§ 3, 49 Stat. at 1528.
67
See
United States v. Nat’l Dairy Prods. Corp., 372 U.S. 29, 35 (1963)
(“[I]n prohibiting sales a…
See
United States v. Nat’l Dairy Prods. Corp., 372 U.S. 29, 35 (1963)
(“[I]n prohibiting sales at unreasonably low prices for the purpose of destroying competition, [the Act] listed as elements of the illegal conduct not only the intent to achieve a result—destruction of competition—but also the act—selling at unreasonably low prices—done in furtherance of that design or purpose.”
).
68
See id.
at
37.
See id.
at
37.
69
Id
Id
70
See, e.g
., Moore v. Mead’s Fine Bread Co., 348 U.S. 115, 119 (1954).
See, e.g
., Moore v. Mead’s Fine Bread Co., 348 U.S. 115, 119 (1954).
71
Id.
This basis for distinguishing legitimate from illegitimate price-cutting echoed other decision…
Id.
This basis for distinguishing legitimate from illegitimate price-cutting echoed other decisions.
See
FTC v. Morton Salt Co
, 334 U.S. 37, 43 (1948) (“The legislative history of the Robinson-
Patman
Act makes it abundantly clear that Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer’s quantity purchasing ability. The Robinson-
Patman
Act was passed to deprive a large buyer of such
advantages .
. . .”);
United States v. N.Y.
Great Atl. & Pac. Tea Co., 173 F.2d 79
(7th Cir. 1949).
72
386 U.S. 685 (1967).
386 U.S. 685 (1967).
73
Id.
at 703.
Id.
at 703.
74
Id.
at 696-97.
Id.
at 696-97.
75
Id.
at 689.
Id.
at 689.
76
Id.
at 706 (Stewart, J., dissenting).
Id.
at 706 (Stewart, J., dissenting).
77
Ward S. Bowman,
Restraint of Trade by the Supreme Court: The
Utah Pie
Case
77
Yale L.J
. 70,
86 (1…
Ward S. Bowman,
Restraint of Trade by the Supreme Court: The
Utah Pie
Case
77
Yale L.J
. 70,
86 (1967).
78
Id.
at 70.
Id.
at 70.
79
Bork
supra
note 32, at 387.
Bork
supra
note 32, at 387.
80
Id.
at 154, 382.
Id.
at 154, 382.
81
See
Phillip
Areeda
& Donald F. Turner
Antitrust Law: An Analysis of Antitrust Principles and Th…
See
Phillip
Areeda
& Donald F. Turner
Antitrust Law: An Analysis of Antitrust Principles and Their Application
189-90 (1978);
Herbert
Hovenkamp
, Economics and Federal Antitrust Law
188-89 (1985);
Richard A. Posner
Antitrust Law: An Economic Perspective
193-94 (1976).
82
See
Jonathan B. Baker,
Predatory Pricing After
Brooke Group
An Economic Perspective
, 62
Antitrust…
See
Jonathan B. Baker,
Predatory Pricing After
Brooke Group
An Economic Perspective
, 62
Antitrust L.J
. 585, 586 (1994) (“The Chicago School view of predatory pricing was perhaps best captured by a 1987 dispute between two FTC Commissioners over the aptness of a metaphor: the animal that best represents price predation. For one Commissioner, predatory pricing was a ‘white tiger,’ an extremely rare creature. For the other Commissioner, price predation more closely resembled a ‘unicorn,’ a complete myth. The narrow spectrum of views between a white tiger and a unicorn fairly reflects the Chicago School view that predatory pricing is almost always irrational, and so is unlikely actually to occur.” (citations omitted)).
83
See
Bork
supra
note 32, at 149-55.
See
Bork
supra
note 32, at 149-55.
84
See
D. Daniel
Sokol
The
Transformation of Vertical Restraints: Per Se Illegality, the Rule of Rea…
See
D. Daniel
Sokol
The
Transformation of Vertical Restraints: Per Se Illegality, the Rule of Reason, and Per Se Legality
, 79
Antitrust L.J
. 1003, 1014-15 (2014).
85
Id.
Id.
86
Id.
at 1008.
Id.
at 1008.
87
475 U.S. 574 (1986).
The government argued in the case as
amicus curiae
in support of Matsushita. …
475 U.S. 574 (1986).
The government argued in the case as
amicus curiae
in support of Matsushita. Brief for the United States as Amicus Curiae Supporting Petitioners, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (No. 83-2004), 1985 WL 669667.
88
Matsushita
, 475 U.S. at 577-78.
Matsushita
, 475 U.S. at 577-78.
89
Id.
at 580, 588-92.
Id.
at 580, 588-92.
90
Id.
at 589.
Id.
at 589.
91
Id.
Id.
92
Bork
supra
note 32, at 157.
Bork
supra
note 32, at 157.
93
Matsushita
, 475 U.S. at 594;
see also
Cargill, Inc. v.
Monfort
of Colo., Inc., 479 U.S. 104, 116 (…
Matsushita
, 475 U.S. at 594;
see also
Cargill, Inc. v.
Monfort
of Colo., Inc., 479 U.S. 104, 116 (1986) (finding that a meat-packing company’s price-cutting practices constituted vigorous competition rather than an antitrust violation).
94
Christopher R. Leslie,
Predatory Pricing and Recoupment
, 113
Colum. L. Rev
. 1695, 1702 (2013).
Christopher R. Leslie,
Predatory Pricing and Recoupment
, 113
Colum. L. Rev
. 1695, 1702 (2013).
95
Id.
Id.
96
See, e.g
., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989).
See, e.g
., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989).
97
Matsushita
, 475 U.S. at 589.
Matsushita
, 475 U.S. at 589.
98
509 U.S. 209 (1993).
509 U.S. 209 (1993).
99
Id.
at 213.
Id.
at 213.
100
Id.
at 214.
Id.
at 214.
101
Id.
at 216.
Id.
at 216.
102
Id.
at 218.
Id.
at 218.
103
Id.
at 226.
Id.
at 226.
104
Id.
Id.
105
See id.
at
224 (“Recoupment is the ultimate object of an unlawful predatory pricing scheme; it i…
See id.
at
224 (“Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the
market,
and consumer welfare is enhanced.”).
106
As some commentators have noted, the Court’s reliance on scholarship advocating a retrenchment o…
As some commentators have noted, the Court’s reliance on scholarship advocating a retrenchment of enforcement against predatory pricing schemes did not reflect a dearth of opposing views.
See, e.g.
, F.M. Scherer,
Conservative Economics and Antitrust: A Variety of Influences
in
How the Chicago School Overshot the Mark
30, 33 (Robert
Pitofsky
ed., 2008) (“Already by the time of the
Matsushita
decision, there was a substantial scholarly literature documenting what should have passed for predation by any reasonable definition and showing the rationality of sharp price-cutting by a dominant firm to discourage new entrants. Since there was a diversity of scholarly views at the time key Supreme Court pronouncements were rendered on predation, the fault for ignoring one side of the scholarship must be attributed to the Court’s myopia or (without the obiter dictum) compelling facts, and not to economists’ contributions.” (
citation
omitted));
id.
at
34 (“If there was favoritism, it was not in the economic literature evaluated, but in the weighing of alternative perspectives.”).
107
Sokol
supra
note 84, at 1013 (“The recoupment prong eviscerated the
Utah Pie
standard and made it…
Sokol
supra
note 84, at 1013 (“The recoupment prong eviscerated the
Utah Pie
standard and made it nearly impossible in practice for plaintiffs to win a primary line Robinson-
Patman
claim going forward.”). The only recent case in which plaintiffs survived a motion for summary judgment is
Spirit Airlines, Inc. v. Northwest Airlines, Inc
., 431 F.3d 917 (6th Cir. 2005), where the court denied summary judgment on the grounds that a reasonable trier of fact could find sufficient evidence of predatory pricing.
108
Sandeep
Vaheesan
Reconsidering
Brooke Group
Predatory Pricing in Light of the Empirical Learning
Sandeep
Vaheesan
Reconsidering
Brooke Group
Predatory Pricing in Light of the Empirical Learning
, 12
Berkeley
Bus.
L.J.
81, 82 (2015);
see also
Richard O.
Zerbe
, Jr. & Michael T. Mumford,
Does Predatory Pricing Exist? Economic Theory and the Courts
After
Brooke Group, 41
Antitrust Bull
. 949, 957-64 (1996) (discussing the empirical research that companies engage in predatory pricing).
109
Robert H. Cole,
General Discussion of Vertical Integration
in
Vertical Integration in Marketing
9…
Robert H. Cole,
General Discussion of Vertical Integration
in
Vertical Integration in Marketing
9, 9 (Nugent Wedding ed., 1952).
110
Clayton Act,
ch.
323, § 7, 38 Stat. 730, 731 (1914) (codified as amended at 15 U.S.C. § 18 (20…
Clayton Act,
ch.
323, § 7, 38 Stat. 730, 731 (1914) (codified as amended at 15 U.S.C. § 18 (2012)).
111
Sherman Act,
ch.
647, §§ 1, 3, 26 Stat. 209, 209 (1890) (codified as amended at 15 U.S.C. § 1…
Sherman Act,
ch.
647, §§ 1, 3, 26 Stat. 209, 209 (1890) (codified as amended at 15 U.S.C. § 1 (2012)).
112
Federal Trade Commission Act,
ch.
311, § 5, 38 Stat. 717, 719 (1914) (codified as amended at 15 …
Federal Trade Commission Act,
ch.
311, § 5, 38 Stat. 717, 719 (1914) (codified as amended at 15 U.S.C. § 45(a
)(
1) (2012)).
113
See
Herbert
Hovenkamp
Robert Bork and Vertical Integration: Leverage, Foreclosure, and Efficiency
See
Herbert
Hovenkamp
Robert Bork and Vertical Integration: Leverage, Foreclosure, and Efficiency
79
Antitrust L.J. 983,
988-92
(2014).
114
Clayton Act,
ch.
1184, § 7, 64 Stat. 1125, 1125-26 (1950) (codified as amended at 15 U.S.C. § …
Clayton Act,
ch.
1184, § 7, 64 Stat. 1125, 1125-26 (1950) (codified as amended at 15 U.S.C. § 18 (2012));
see
Hovenkamp
supra
note 113, at 985.
115
Friedrich Kessler & Richard H. Stern,
Competition, Contract, and Vertical Integration
, 69
Yale L.J…
Friedrich Kessler & Richard H. Stern,
Competition, Contract, and Vertical Integration
, 69
Yale L.J.
1, 16 (1959).
116
See, e.g
., FTC v. Consol. Foods Corp., 380 U.S. 592, 594-95 (1965); United States v. Yellow Cab Co…
See, e.g
., FTC v. Consol. Foods Corp., 380 U.S. 592, 594-95 (1965); United States v. Yellow Cab Co., 332 U.S. 218, 226-27 (1947); Miss. River Corp. v. FTC, 454 F.2d 1083, 1091 (8th Cir. 1972);
see also
Anchor Serum Co. v. FTC, 217 F.2d 867, 873 (7th Cir. 1954) (“It would require a naive mind to conclude, as petitioner would have us do, that the arrangements under consideration could result in other than an adverse effect upon competition.”).
But see
United States v. Columbia Steel Co., 334 U.S. 495, 507-08 (1948) (finding that a vertical combination did not violate antitrust law).
117
370 U.S. 294, 297 (1962).
370 U.S. 294, 297 (1962).
118
Id.
at 324, 332.
Id.
at 324, 332.
119
Id.
at 323.
Id.
at 323.
120
Id.
at 324.
Id.
at 324.
121
Id.
at 372 (Harlan, J., concurring in part and dissenting in part).
Id.
at 372 (Harlan, J., concurring in part and dissenting in part).
122
Id.
at 294 (majority opinion).
Id.
at 294 (majority opinion).
123
Ford Motor Co. v. United States, 405 U.S. 562, 567 (1972) (quoting United States v. Ford Motor Co.…
Ford Motor Co. v. United States, 405 U.S. 562, 567 (1972) (quoting United States v. Ford Motor Co., 286 F. Supp. 407, 441 (E.D. Mich. 1968)).
124
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
125
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
126
Id.
at 568.
Id.
at 568.
127
Id.
at 575.
Id.
at 575.
128
In an influential 1954 essay that presaged his later arguments in
The Antitrust Paradox
, Bork defe…
In an influential 1954 essay that presaged his later arguments in
The Antitrust Paradox
, Bork defended vertical integration as nearly always procompetitive. Robert Bork,
Vertical Integration and the Sherman Act: The Legal History of an Economic Misconception
, 22
U. Chi. L. Rev
. 157, 194-201 (1954);
see also
Ward S. Bowman, Jr.,
Tying Arrangements and the Leverage Problem
, 67
Yale L.J.
19 (1957) (arguing that tying arrangements—a form of vertical control—cannot be used to leverage monopoly power from one market to another).
129
Bork
supra
note 32, at 231.
Bork
supra
note 32, at 231.
130
See, e.g.
id.
at
372-75, 380-81; Posner,
supra
note 30, at 925, 927 (“[I]t makes no sense for a…
See, e.g.
id.
at
372-75, 380-81; Posner,
supra
note 30, at 925, 927 (“[I]t makes no sense for a monopoly producer to take over distribution in order to earn monopoly profits at the distribution as well as the manufacturing level. The product and its distribution are complements, and an increase in the price of distribution will reduce the demand for the product. Assuming that the product and its distribution are sold in fixed
proportions .
. . the conclusion is reached that vertical integration must be motivated by a desire for efficiency rather than for monopoly.”);
id.
at 929 (“If the [service] is already being priced at the optimal monopoly level, an increase in the price of [one component] above the competitive level will raise the total price of the service to the consumer above the optimal monopoly level and will thereby reduce the monopolist’s profits.”).
131
Bork
supra
note 32, at 232.
Bork
supra
note 32, at 232.
132
Id.
at 234.
Id.
at 234.
133
Bork later modified his position on entry barriers when he consulted for Netscape in the Antitrust…
Bork later modified his position on entry barriers when he consulted for Netscape in the Antitrust Division’s challenge to Microsoft’s exclusionary practices, which the company had employed primarily against Netscape. Although Bork had been a fierce critic of “leverage theory,” he described Microsoft’s attempt to tie its operating system to its software as a way “to leverage the [Windows] asset to make people use [Internet Explorer] instead of [Netscape] Navigator.”
Hovenkamp
supra
note 113, at 996-97 (citing Robert Bork,
High-Stakes Antitrust: The Last Hurrah
in
High-Stakes Antitrust: The Last Hurrah?
45, 50 (Robert W. Hahn ed., 2003)). But in an article later commissioned by Google, Bork returned to a critique of leverage theory, deriding the idea that Google could leverage its position in the general search market to gain additional profits in downstream markets.
See
Robert H. Bork & J. Gregory
Sidak
What
Does the Chicago School Teach
About Internet Search and the Antitrust Treatment of Google
, 8
J. Competition L. & Econ.
663, 675–77 (2012).
134
Bork
supra
note 32, at 234.
Bork
supra
note 32, at 234.
135
1982 Merger Guidelines
supra
note 42;
1984 Merger Guidelines
U.S. Dep’t Just.
(1984), http://
ht…
1982 Merger Guidelines
supra
note 42;
1984 Merger Guidelines
U.S. Dep’t Just.
(1984),
/files
/atr/legacy/2007/07/11/11249.pdf [http://
perma.cc/Y5JL-5PQS].
136
1984 Merger Guidelines
supra
note 135, at 24-32.
1984 Merger Guidelines
supra
note 135, at 24-32.
137
Id
Id
138
William E.
Kovacic
Built To Last? The Antitrust Legacy of the Reagan Administration
, 35
Fed. B. N…
William E.
Kovacic
Built To Last? The Antitrust Legacy of the Reagan Administration
, 35
Fed. B. News & J.
244, 245 (1988) (“Since 1981, the government antitrust agencies have issued no complaints or consent agreements in Robinson-
Patman
matters that originated after the arrival of Reagan appointees to head the FTC and the Justice Department. Reagan FTC leadership has said the Commission has not abandoned Robinson-
Patman
enforcement, but the government’s failure to initiate new enforcement actions during the Reagan Administration suggests that firms are virtually immune from federal prosecution for conduct the statute proscribes.”); Joseph Guinto,
Antitrust Targets Vertical Deals
Inv.’s Bus.
Daily
, June 17, 1999, at A01.
139
For example, Democrat-appointed antitrust leaders have also adopted the Chicago School view that m…
For example, Democrat-appointed antitrust leaders have also adopted the Chicago School view that most vertical mergers are benign. As then-FTC Commissioner Christine Varney (who would later go on to be assistant attorney general for antitrust in the Obama Administration) observed in a speech, “[M]
ost
vertical arrangements raise few competitive concerns.” Christine A. Varney,
Comm’r
, FTC, Vertical Merger Enforcement Challenges at the FTC (July 17, 1995),
/vertical-merger -enforcement-challenges-
ftc
[http://perma.cc/JDQ8-H5KB].
140
James B. Stewart,
Why a Media Merger that Should Go Through Might Not
N.Y. Times
(Oct. 25, 2016),…
James B. Stewart,
Why a Media Merger that Should Go Through Might Not
N.Y. Times
(Oct. 25, 2016),
-merger-that-should-go-through-might-not.html [http://perma.cc/NTN7-LB9N] (“‘Over the last 40 to 50 years, antitrust law has evolved to be almost completely indifferent to vertical mergers,’ said Tim Wu, an antitrust and internet expert at Columbia Law School . . . .”).
141
By imposing conduct remedies, the antitrust agencies set out behavioral conditions that the mergin…
By imposing conduct remedies, the antitrust agencies set out behavioral conditions that the merging parties must comply with, subject to agency oversight. By requiring divestitures, the antitrust agencies ask the merging parties to sell off a part of their business to another entity.
142
Martin H. Bosworth,
Consumer Groups Oppose Comcast-NBC Merger
Consumer
Aff
, (Dec. 3, 2009), http…
Martin H. Bosworth,
Consumer Groups Oppose Comcast-NBC Merger
Consumer
Aff
, (Dec. 3, 2009),
[http://
perma.cc
/N347-MTKQ]; David Segal,
Calling Almost Everyone’s Tune
N.Y. Times
(Apr. 24, 2010),
[http://
perma.cc
/3TT3-FHYA] (“To say this new conglomerate has inspired fear in the live-concert business doesn’t capture the extent of the quaking.”); Ethan Smith & Thomas
Catan
Concert Deal Wins Antitrust Approval
Wall St. J
. (Jan. 26, 2010, 12:01 AM),
.com
/articles/SB10001424052748704762904575025332380117008 [http://perma.cc/FWR9 -WUSR].
143
As Bork pointed out, the vertical deals would not increase the market share of either company.
See…
As Bork pointed out, the vertical deals would not increase the market share of either company.
See
Bork
supra
note 32, at 231. In Ticketmaster/
LiveNation’s
case, the deal instead “creates one company that will have a hand in just about every corner of the music business,” Smith &
Catan
supra
note 142, while in Comcast/NBC’s case, the merger created “a $30 billion media behemoth that controls not just how television shows and movies are made but how they are delivered to people’s homes,”
Yinka
Adegoke
& Dan Levine,
Comcast Completes NBC Universal Merger
Reuters
(Jan. 29, 2011, 11:50 AM),
www
.reuters
.com/article
/us-comcast-nbc-idUSTRE70S2WZ20110129 [http://perma.cc/EXC3-4PAU].
144
Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Allows Comcast-…
Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Allows Comcast-NBCU Joint Venture
To
Proceed with Conditions (Jan. 18, 2011),
www
.just ice
.gov
/opa/pr/justice-department-allows-comcast-nbcu-joint-venture-pro
ceed
‌‌
-conditions [http://
perma.cc/8FHZ-AL4W]; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Requires Ticketmaster Entertainment Inc. To Make Significant Changes to Its Merger with Live Nation Inc. (Jan. 25, 2010),
-department-requires-ticketmaster-entertainment-inc-make-significant-changes-its [http://
perma.cc
/PZ2E-X2FL];
see also
Jeremy
Pelofsky
Yinka
Adegoke
LiveNation
, Ticketmaster Merge; Agree to U.S. Terms
Reuters
(Jan. 25. 2010, 8:13 PM),
.com
/article/us-ticketmaster-livenation-idUSTRE60O4E520100126 [http://perma.cc
/QT7K -LPHA] (“‘The conditions seem to be relatively benign,’ said Tuna
Amobi
, equity analyst at Standard & Poor’s. ‘There are no major divestitures required. I don’t know that is going to create the kind of even, competitive field that was intended.’”); Smith &
Catan
supra
note 142.
145
Clayton Act,
ch.
323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. …
Clayton Act,
ch.
323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (2012)). Former Assistant Attorney General for Antitrust Bill Baer described the incipiency standard as seeking to “prevent competitive conditions from deteriorating even when competition was not clearly problematic at the time of the lawsuit.” He continued, “Second, in order to arrest potential restraints ‘in their incipiency,’ the Act banned these practices where their effect ‘may be to substantially lessen competition.’ The intent was to consider likely future effect—not just palpable impact—in determining whether these practices were illegal.” Bill Baer, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice, Remarks at the American Bar Association Clayton Act 100th Anniversary Symposium (Dec. 4, 2014).
146
See
Hovenkamp
supra
note 57, at 359.
See
Hovenkamp
supra
note 57, at 359.
147
Daniel A. Crane,
Has the Obama Justice Department Reinvigorated Antitrust Enforcement
Stan. L. R…
Daniel A. Crane,
Has the Obama Justice Department Reinvigorated Antitrust Enforcement
Stan. L. Rev. Online
(July 18, 2012),
/has-the-obama-justice-department-reinvigorated-antitrust-enforcement [http://
perma.cc
/56J4-NNSP] (“The final category is monopolization cases. Over the eight years of the Bush Administration, the Justice Department filed no monopolization cases. To date, the Obama Administration has filed only one case, hardly evidencing a major shift in tactics.”).
148
A growing body of work shows that the consumer welfare frame has failed even on its own terms—na…
A growing body of work shows that the consumer welfare frame has failed even on its own terms—namely, by leading to higher prices without any clear efficiency gains.
See
John
Kwoka
, Mergers, Merger Control, and Remedies: A Retrospective Analysis of U.S. Policy
(2015);
Benefits of Competition and Indicators of Market Power
Council Econ. Advisers
(Apr. 2016),
_cea_competition_issue_brief.pdf [http://perma.cc/9NMS-4U9L]; Divs. of Research & Statistics & Monetary Affairs,
Evidence for the Effects of Mergers on Market Power and Efficiency
Fed. Res.
(2016),
.federalreserve.gov
/econresdata
/feds/2016
/files
/2016082pap.pdf [http://perma.cc/CY4Y-DGB2].
149
See
Barry C. Lynn & Lina Khan,
The Slow Motion Collapse of American Entrepreneur- ship
Wash. Mont…
See
Barry C. Lynn & Lina Khan,
The Slow Motion Collapse of American Entrepreneur- ship
Wash. Monthly
July/Aug. 2012),
/julyaugust-2012/the-slow-motion-collapse-of-american-entrepreneurship [http://
perma.cc
/P9VM-9FM5];
see also
Ian Hathaway & Robert E.
Litan
What’s
Driving
the Decline in the Firm Formation Rate?
A Partial Explanation
Brookings Inst.
(Nov. 2014) (document -
ing
business consolidation as a contributing factor in the declining formation of new firms),
_firm
_for
ation
_rate_hathaway_litan.pdf [http://perma.cc/QA9M-ZGAT].
150
Reiter v.
Sonotone
Corp
, 442 U.S. 330, 343 (1979).
Reiter v.
Sonotone
Corp
, 442 U.S. 330, 343 (1979).
151
Heaps of
scholarship delve
into this legislative history.
See, e.g
., sources cited
supra
note 38.
Heaps of
scholarship delve
into this legislative history.
See, e.g
., sources cited
supra
note 38.
152
Eleanor Fox,
Against Goals
, 81
Fordham L. Rev
. 2158, 2158 (2013).
Eleanor Fox,
Against Goals
, 81
Fordham L. Rev
. 2158, 2158 (2013).
153
Id.
Id.
154
21
Cong. Rec.
2461 (1890) (statement of Sen. Sherman).
21
Cong. Rec.
2461 (1890) (statement of Sen. Sherman).
155
Id.
at 2457 (statement of Sen. Sherman).
Id.
at 2457 (statement of Sen. Sherman).
156
Robert
Pitofsky
The
Political Content of Antitrust
, 127
U. Pa. L. Rev.
1051, 1051 (1979).
Robert
Pitofsky
The
Political Content of Antitrust
, 127
U. Pa. L. Rev.
1051, 1051 (1979).
157
Id.
Id.
158
21
Cong. Rec
. 3146 (1890) (statement of Sen. Hoar).
21
Cong. Rec
. 3146 (1890) (statement of Sen. Hoar).
159
Lande
Wealth Transfers
supra
note 38, at 96-97.
Lande
Wealth Transfers
supra
note 38, at 96-97.
160
21
Cong. Rec
. 2461 (1890) (statement of Sen. Sherman, quoting Sen. George).
21
Cong. Rec
. 2461 (1890) (statement of Sen. Sherman, quoting Sen. George).
161
Id.
at 2614 (statement of Sen. Coke).
Id.
at 2614 (statement of Sen. Coke).
162
Id.
at 4101 (statement of Rep. Heard).
Id.
at 4101 (statement of Rep. Heard).
163
Id.
at 4098 (statement of Rep. Taylor).
Id.
at 4098 (statement of Rep. Taylor).
164
Id.
at 2461 (statement of Sen. Sherman, quoting Sen. George).
Id.
at 2461 (statement of Sen. Sherman, quoting Sen. George).
165
Lande
Wealth Transfers
supra
note 38, at 96-97.
Lande
Wealth Transfers
supra
note 38, at 96-97.
166
Id.
at 98.
Id.
at 98.
167
For a seminal discussion of why antitrust laws must take political values into account, see
Pitofs…
For a seminal discussion of why antitrust laws must take political values into account, see
Pitofsky
supra
note 156, at 1051 (“It is bad history, bad policy, and bad law to exclude certain political values in interpreting the antitrust laws. By ‘political values,’ I mean, first, a fear that excessive concentration of economic power will breed antidemocratic political pressures, and second, a desire to enhance individual and business freedom by reducing the range within which private discretion by a few in the economic sphere controls the welfare of all. A third and overriding political concern is that if the free-market sector of the economy is allowed to develop under antitrust rules that are blind to all but economic concerns, the likely result will be an economy so dominated by a few corporate giants that it will be impossible for the state not to play a more intrusive role in economic affairs.”).
168
51
Cong. Rec
. 13,231 (1914) (statement of Sen. Reed).
51
Cong. Rec
. 13,231 (1914) (statement of Sen. Reed).
169
21
Cong. Rec
. 2598 (1890) (statement of Sen. George).
21
Cong. Rec
. 2598 (1890) (statement of Sen. George).
170
Louis D. Brandeis, The Curse of Bigness
38 (Osmond K.
Fraenkel
ed., 1934).
Louis D. Brandeis, The Curse of Bigness
38 (Osmond K.
Fraenkel
ed., 1934).
171
United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting).
United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting).
172
Id
Id
173
In
Economics and the Public Purpose
, Galbraith concluded that centralized planning, rather than op…
In
Economics and the Public Purpose
, Galbraith concluded that centralized planning, rather than open markets, was the best way to stabilize industries and boost prosperity.
John Kenneth Galbraith, Economics and the Public Purpose
55 (1973).
174
See
Michael
Sandel
, Democracy’s Discontent 246
(1996) (“Although Nader and his followers did not…
See
Michael
Sandel
, Democracy’s Discontent 246
(1996) (“Although Nader and his followers did not disparage, as did Bork, the civic tradition of antitrust, they too rested their arguments on considerations of consumer
welfare .
. . . According to Nader, the ‘modern relevance’ of traditional antitrust wisdom lay in its consequences for ‘the prices people pay for their bread, gasoline, auto parts, prescription drugs, and houses.’”).
175
See
Lina Khan,
New Tools
To
Promote Competition,
Democracy
(Fall 2016), http://
democracy
journal
See
Lina Khan,
New Tools
To
Promote Competition,
Democracy
(Fall 2016),
democracy
journal
.org/magazine/42/new-tools-to-promote-competition [http://
perma.cc
/VZ4N-CZBN].
176
I am by no means alone in arguing this.
See, e.g.
Barry C. Lynn, Cornered: The New Monopoly Capit…
I am by no means alone in arguing this.
See, e.g.
Barry C. Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction
(2010); Fox,
supra
note 38, at 1153-54; Maurice E.
Stucke
Better Competition Advocacy
, 82
St. John’s L. Rev
. 951, 993 (2008);
Stucke
supra
note 38, at 564.
177
For a more recent argument in favor of rebalancing antitrust away from technocracy and toward demo…
For a more recent argument in favor of rebalancing antitrust away from technocracy and toward democracy, see Harry First & Spencer Weber Waller,
Antitrust’s
Democracy Deficit
, 81
Fordham L. Rev
. 2543, 2544 (2013) (“[A]
ntitrust
is also public law designed to serve public ends. Today’s unbalanced system puts too much control in the hands of technical experts, moving antitrust enforcement too far away from its democratic roots.”).
178
See
Fox,
supra
note 38, at 1153-54 (“Rather than standing for efficiency, the American antitrust…
See
Fox,
supra
note 38, at 1153-54 (“Rather than standing for efficiency, the American antitrust laws stand against private power. Distrust of power is the one central and common ground that over time has unified support for antitrust statutes. Interests of consumers have been a recurrent concern because consumers have been perceived as victims of the abuse of too much power. Interests of entrepreneurs and small business have been a recurrent concern because independent entrepreneurs have been seen as the heart and lifeblood of American free enterprise, and freedom of economic activity and opportunity has been thought central to the preservation of the American free enterprise system. One overarching idea has unified these three concerns (distrust of power, concern for consumers, and commitment to opportunity of entrepreneurs): competition as process. The competition process is the preferred governor of markets. If the impersonal forces of competition, rather than public or private power, determine market behavior and outcomes, power is by definition dispersed, opportunities and incentives for firms without market power are increased, and the results are acceptable and fair.” (citations omitted)).
179
For more on this connection, see
Simon Johnson & James
Kwak
, 13 Bankers: The Wall Street Takeover …
For more on this connection, see
Simon Johnson & James
Kwak
, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
(2011); and
Lynn
supra
note 176.
180
The Justice Department recently cited the importance of media diversity when suing to block a merg…
The Justice Department recently cited the importance of media diversity when suing to block a merger between two newspapers.
See
Michaela Ross,
Even for Ailing Newspapers, U.S. Says a Monopoly Is a Monopoly
Bloomberg
(Mar. 22, 2016),
www
.bloomberg.com
/news/articles/2016-03-21/tribune-loses-out-on-local-newspaper-deal -
ov
er-antitrust-issues
[http://perma.cc/U2E5-ZHM9]. For why competition policy is important for promoting media diversity, see Maurice E.
Stucke
& Allen P.
Grunes
Toward a Better Competition Policy for the Media: The Challenge of Developing Antitrust Policies that Support the Media Sector’s Unique Role in Our Democracy
, 42
Conn. L. Rev.
101 (2009).
181
See
Fox,
supra
note 152.
See
Fox,
supra
note 152.
182
For one perspective on how the Chicago School’s philosophy has shaped antitrust, see generally
How…
For one perspective on how the Chicago School’s philosophy has shaped antitrust, see generally
How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust
supra
note 106. In his essay within this collection, Richard
Schmalensee
states, “
Competition .
. . generally means now, consumer or total welfare.” Richard
Schmalensee
Thoughts on the Chicago Legacy in U.S. Antitrust
in
How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust
supra
note
106, at 17.
183
See supra
Section I.A.
See supra
Section I.A.
184
See
Bork
supra
note 32, at 278 (“Absent the power to restrict output, the decision to eliminate…
See
Bork
supra
note 32, at 278 (“Absent the power to restrict output, the decision to eliminate rivalry can only be made in order to achieve efficiency.”);
see supra
Section I.B.
185
See
Hovenkamp
supra
note 57, at 359 (“
[T]he guiding principle of the Chicago School critique of t…
See
Hovenkamp
supra
note 57, at 359 (“
[T]he guiding principle of the Chicago School critique of the S-C-P paradigm was that market power is not inherently a bad thing. Indeed, often market power as well as high concentration result from efficiency.”).
186
One line of argument holds that the concentration of private control—and the power it hands to a…
One line of argument holds that the concentration of private control—and the power it hands to a few over our economy—is itself problematic, and
if
and
how
those wielding this power choose to exercise it is beside the point.
See,
e.g
., United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting) (“In final analysis, size in steel is the measure of the power of a handful of men over our economy. That power can be utilized with lightning speed. It can be benign or it can be dangerous. The philosophy of the Sherman Act is that it should not exist.”).
187
I am not the first to argue that preserving a competitive process is vital to promoting competitio…
I am not the first to argue that preserving a competitive process is vital to promoting competition.
See, e.g.
, Fox,
supra
note 38, at 1152-54. Instead, my contribution here is in (1) identifying how a consumer welfare-based approach is failing to detect and deter anticompetitive harms in the context of internet platforms, thereby (2) highlighting the need for a process-based approach as applied to internet platforms, and (3) detailing that this process-based approach would pay particular attention to entry barriers, conflicts of interest, the emergence of gatekeepers and bottlenecks, the use of and control over data, and dynamics of bargaining power.
188
This is one line of argument President Franklin Roosevelt offered in favor of robust antitrust. In…
This is one line of argument President Franklin Roosevelt offered in favor of robust antitrust. In a 1938 speech to Congress he said, “The enforcement of free competition is the least regulation business can expect.” Franklin D. Roosevelt,
Message to Congress on Curbing Monopolies
Am
Presidency Project
[http://
perma.cc/WP9P-83RF].
189
By “distorting,” I mean that a single player has enough control to dictate outcomes. This is t…
By “distorting,” I mean that a single player has enough control to dictate outcomes. This is the definition offered by Milton Friedman, a figure popular with the neoclassical school.
See
Milton Friedman, Capitalism and Freedom
119-20 (2002) (“Monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.”). The Chicago School accepts this definition with regard to price and output, but ignores other metrics of control.
190
See
Stucke
& Grunes,
supra
note 47, at
107-09
See
Stucke
& Grunes,
supra
note 47, at
107-09
191
I am using “dominance” to connote that the company controls a significant share of market acti…
I am using “dominance” to connote that the company controls a significant share of market activity in a sector. I do not mean to attach the legal significance that sometimes attends “dominance.”
192
See
Greg
Bensinger
Cloud Unit Pushes Amazon
To
Record Profit
Wall St. J.
(Apr. 28, 2016, 7:31 PM…
See
Greg
Bensinger
Cloud Unit Pushes Amazon
To
Record Profit
Wall St. J.
(Apr. 28, 2016, 7:31 PM),
[http://
perma.cc
/L4QS-RJ26] (“The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, [Amazon Web Services] generated 67% of the company’s operating income in the quarter.”).
193
Id
Id
194
Amazon’s Profits
Ben-Evans
(Aug. 2013), http://ben-evans.com
/benedictevans
/2013/8/8
/amazons-pr…
Amazon’s Profits
Ben-Evans
(Aug. 2013),
/benedictevans
/2013/8/8
/amazons-profits [http://perma.cc/G5JC-7XBL];
Amazon.com Inc.
MarketWatch
[http://perma.cc/JW97 -A624].
195
See
Streitfeld
supra
note 1 (“In its 16 years as a public company, Amazon has received unique p…
See
Streitfeld
supra
note 1 (“In its 16 years as a public company, Amazon has received unique permission from Wall Street to concentrate on expanding its infrastructure, increasing revenue at the expense of profit. Stockholders have pushed Amazon shares up to a record level, even though the company makes only pocket change. Profits were always promised tomorrow.”).
196
See, e.g.
, Justin Dini,
Amazon Losses Widen but Shares Rise After-Hours
TheStreet
(Feb, 2, 2000, …
See, e.g.
, Justin Dini,
Amazon Losses Widen but Shares Rise After-Hours
TheStreet
(Feb, 2, 2000, 7:01 PM),
-shares-rise-after-hours.html [http://perma.cc/P6HJ-3VDG]; Quick Pen,
What’s Driving the Amazon Stock Up Despite 188% Full Year Income Drop?
GuruFocus
(Feb. 8, 2015),
-despite-188-full-year-income-drop [http://perma.cc/K6FJ-JWNA].
197
David
Streitfeld
Amazon Reports Unexpected Profit, and Stock Soars
N.Y. Times
(July 23, 2015), h…
David
Streitfeld
Amazon Reports Unexpected Profit, and Stock Soars
N.Y. Times
(July 23, 2015),
[http://
perma.cc
/WJX9-CYG7];
see also
Philip Elmer-DeWitt,
This Is What Drives Apple Investors Nuts
About
Amazon
Fortune
(July 24, 2015, 2:58 PM),
/07/24
/apple-amazon-profits [http://perma.cc/56U5-Z2E3] (noting the same).
198
Matthew
Yglesias
Amazon Profits Fall 45 Percent, Still the Most Amazing Company in the World
Sla…
Matthew
Yglesias
Amazon Profits Fall 45 Percent, Still the Most Amazing Company in the World
Slate:
MoneyBox
(Jan. 29, 2013, 4:23 PM),
/blogs
/moneybox
/2013
/01/29/amazon_q4_profits_fall_45 _percent.html [http://perma.cc/J8AZ-R9S6].
199
Jeffrey P. Bezos,
Letter to Shareholders
Amazon.com, Inc.
(Mar. 30, 1998), http://
media.corporat…
Jeffrey P. Bezos,
Letter to Shareholders
Amazon.com, Inc.
(Mar. 30, 1998),
media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf [http://
perma.cc/793G-YML7].
200
Id.
at 2.
Id.
at 2.
201
Id.
Id.
202
Id.
at 1-2.
Id.
at 1-2.
203
Tonya Garcia,
Amazon Accounted for 60% of U.S. Online Sales Growth in 2015
MarketWatch
, (May 3, 2…
Tonya Garcia,
Amazon Accounted for 60% of U.S. Online Sales Growth in 2015
MarketWatch
, (May 3, 2016, 3:17 PM),
zon-accounted-for-60-of-online-sales-growth-in-2015-2016-05-03 [http://perma.cc/8C5W -8NYW] (“Amazon makes up a larger percentage of e-commerce in the U.S. than any other player, and its retail growth has outpaced overall online retail.”);
see also The Everything Shipper: Amazon and the New Age of Delivery
BI Intelligence
(June 5, 2016),
-age-of-delivery-2016-6 [http://perma.cc/2SGJ-5ADY].
204
See
Phil
Wahba
This Chart Shows Just How Dominant Amazon Is
Fortune
(Nov. 6, 2015, 11:48 AM), htt…
See
Phil
Wahba
This Chart Shows Just How Dominant Amazon Is
Fortune
(Nov. 6, 2015, 11:48 AM),
[http://perma.cc
/9YPV-SKM5]. The fact that Amazon was exempt from sales taxes for the first fifteen years of its existence gave it an 8-10% price advantage over brick-and-mortar stores. Its pricing lead over both traditional and online retailers, however, has been and still continues to be far greater than 8-10%. A review of a new price comparison tool stated: “And, as expected, it reported that Amazon indeed had the best prices for nearly everything we searched.” Zach Epstein,
Amazon Isn’t Always the Cheapest Option—Here’s How
To
Find the Best Prices
BGR
(July 17, 2014, 12:55 PM),
bgr.com/2014/07/17/amazon-price-comparison-tool -lowest-price [http://perma.cc/J7P3-BBY5].
205
Dawn Kawamoto,
Amazon Unveils Flat-Fee Shipping
, CNET (Feb. 2, 2005), http://
www
.cnet
.com
/news…
Dawn Kawamoto,
Amazon Unveils Flat-Fee Shipping
, CNET (Feb. 2, 2005),
www
.cnet
.com
/news/amazon-unveils-flat-fee-shipping [http://perma.cc/Q8FS-7SQ7].
206
It has also been a key force driving up Amazon’s stock price. “Analysts describe Prime as one …
It has also been a key force driving up Amazon’s stock price. “Analysts describe Prime as one of the main factors driving Amazon’s stock price—up 296 percent in the last two years—and the main reason Amazon’s sales grew 30 percent during the recession while other retailers flailed.” Brad Stone,
What’s in Amazon’s Box? Instant Gratification
Bloomberg
Businessweek
(Nov. 24, 2010, 5:00 PM),
-24/
whats
-in-amazons-box-instant-gratification [http://perma.cc/Q7VL-95DQ];
see also
Tom
DiChristopher
Prime Will Grow Amazon Revenue Longer than You Think: Analyst
, CNBC (Sept. 11, 2015, 11:01 AM),
-ama
zon-revenue-longer-than-you-think-analyst.html [http://perma.cc/QG8H-Z4A6] (“During Amazon’s second quarter conference call, management said growing Prime adoption was one factor behind acceleration in domestic and international revenue growth.”).
207
Devin Leonard,
Will Amazon Kill FedEx
Bloomberg (
Aug. 31, 2016), http://
www
.bloomberg.com/feat…
Devin Leonard,
Will Amazon Kill FedEx
Bloomberg (
Aug. 31, 2016),
www
.bloomberg.com/features/2016-amazon-delivery [http://perma.cc/GE8F-D3BE].
208
Brad Tuttle,
Amazon Prime: Bigger, More Powerful, More Profitable than Anyone Imagined
Time
(Mar.…
Brad Tuttle,
Amazon Prime: Bigger, More Powerful, More Profitable than Anyone Imagined
Time
(Mar. 18, 2013),
-powerful-more-profitable-than-anyone-imagined [http://perma.cc/WNL5-MC29].
209
Dan
Frommer
Half of US Households Could Have Amazon Prime by 2020
Quartz
(Feb. 26, 2015), http:/…
Dan
Frommer
Half of US Households Could Have Amazon Prime by 2020
Quartz
(Feb. 26, 2015),
[http://
perma.cc/ZW4Z-47UY].
210
Stu Woo,
Amazon ‘Primes’ Pump for Loyalty
Wall St. J
. (Nov. 14, 2011), http://
www
.wsj
.com
/art…
Stu Woo,
Amazon ‘Primes’ Pump for Loyalty
Wall St. J
. (Nov. 14, 2011),
www
.wsj
.com
/articles/SB10001424052970203503204577036102353359784 [http://
perma.cc/87WW -TVNW].
211
Deepa
Seetharaman
& Nathan Layne,
Free Delivery Creates Holiday Boon for U.S. Consumers at High Co…
Deepa
Seetharaman
& Nathan Layne,
Free Delivery Creates Holiday Boon for U.S. Consumers at High Cost
Reuters
(Jan. 2, 2015, 12:22 PM),
-shipping-holidays-analysis-idUSKBN0KB0P720150102 [http://perma.cc/CPH8-932W].
212
See
Elizabeth Weise,
Amazon Prime Is Big, but How Big
USA Today
(Feb. 3. 2015, 1:31 PM), http://…
See
Elizabeth Weise,
Amazon Prime Is Big, but How Big
USA Today
(Feb. 3. 2015, 1:31 PM),
anni
ver
sary
/22755509 [http://perma.cc/5K2A-M3HA]. Amazon’s filings with the SEC show that its shipping costs have grown as a percentage of sales each year since 2009.
See
Amazon.com, Inc.,
supra
note 9, at 26; Amazon.com, Inc., Annual Report (Form 10-K) 25 (Jan. 30, 2013),
/Archives/edgar
/data/1018724
/000119312513028520
/d445434
10k
‌‌
.htm [http://perma.cc/RX85-5RJ3]; Amazon.com, Inc., Annual Report (Form 10-K) 27 (Jan. 29, 2010),
/000119312510016098
/d10k.htm [http://perma.cc/L27R-CHUY].
213
Stone,
supra
note 206.
Stone,
supra
note 206.
214
Brad Tuttle,
How Amazon Prime Is Crushing the Competition
Time
(Jan. 25, 2016), http://
time
.com…
Brad Tuttle,
How Amazon Prime Is Crushing the Competition
Time
(Jan. 25, 2016),
time
.com/money/4192528/amazon-prime-subscribers-spending [http://
perma.cc
‌‌
/Y9VT -VHD5].
215
Chad Rubin,
The Evolution of Amazon Prime and Their Followed Success
Skubana
(Mar. 31, 2016), htt…
Chad Rubin,
The Evolution of Amazon Prime and Their Followed Success
Skubana
(Mar. 31, 2016),
[http://
perma.cc
/T9ET-C6V8].
216
Ben Fox Rubin,
As Amazon Marks 20 Years, Prime Grows to 44 Million Members in US
CNET
(July 15, 2…
Ben Fox Rubin,
As Amazon Marks 20 Years, Prime Grows to 44 Million Members in US
CNET
(July 15, 2015, 4:26 AM),
-44-million-members-in-us [http://perma.cc/CEQ8-G996].
217
See
Brad Tuttle,
How Amazon Gets You
To
Stop Shopping Anywhere Else
Time
(Dec. 1, 2010), http://
See
Brad Tuttle,
How Amazon Gets You
To
Stop Shopping Anywhere Else
Time
(Dec. 1, 2010),
‌‌
business.time.com/2010/12/01/how-amazon-gets-you-to-stop-shopping-any
where-else [http://perma.cc/GLQ2-65AT].
218
Clare O’Connor,
Walmart and Target Being Crowded
Out
Online by Amazon Prime
Forbes
(Apr. 6, 2015,…
Clare O’Connor,
Walmart and Target Being Crowded
Out
Online by Amazon Prime
Forbes
(Apr. 6, 2015, 12:59 PM),
walmart
-and-target-being-crowded-out-online-by-amazon-prime [http://perma.cc/CM2E -GPER].
219
Id.
Id.
220
Id
Id
221
Stone,
supra
note 206.
Stone,
supra
note 206.
222
See
Tuttle,
supra
note 217 (“What this program has done is something that’s normally very diff…
See
Tuttle,
supra
note 217 (“What this program has done is something that’s normally very difficult to accomplish: It’s changed consumer habits, and, perhaps even more remarkably, it’s changed them in ways that solely favor Amazon. The service is better than any freebie promotion, which even if it’s good at driving traffic to the website, is short-lived. Instead, the Prime membership program gets consumers in the regular habit of at least checking with Amazon before making any online purchase.”).
223
Greg
Bensinger
Amazon Raises Prime Subscription Price to $99 a Year
Wall St. J
. (Mar. 13, 2014, …
Greg
Bensinger
Amazon Raises Prime Subscription Price to $99 a Year
Wall St. J
. (Mar. 13, 2014, 7:22 PM),
/SB10001424052702303546204579
4369033094
11092 [http://perma.cc/33TK-76GS].
224
Lance Whitney,
Amazon Prime Members Will Renew
Despite
Price Hike, Survey Finds
, CNET (July 23, 20…
Lance Whitney,
Amazon Prime Members Will Renew
Despite
Price Hike, Survey Finds
, CNET (July 23, 2014),
-renew-despite-price-increase [http://perma.cc/Z585-YU8P].
225
See
Adam
Candeub
Behavioral Economics, Internet Search, and Antitrus
t, 9
I/S
407, 409 (2014) (“…
See
Adam
Candeub
Behavioral Economics, Internet Search, and Antitrus
t, 9
I/S
407, 409 (2014) (“[O]
nline
market behavior may differ from the brick and mortar world . . . . In particular, behavioral tendencies related to habit and information costs may disrupt conventional economic assumptions.”).
226
As Justice White wrote in his dissent in
Matsushita
, “The Court, in discussing the unlikelihood …
As Justice White wrote in his dissent in
Matsushita
, “The Court, in discussing the unlikelihood of a predatory conspiracy, also consistently assumes that petitioners valued profit-maximization over growth.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 604 (1986) (White, J., dissenting).
227
Indeed, to get a sense of Amazon’s breadth, it is helpful to see the range of actors Amazon list…
Indeed, to get a sense of Amazon’s breadth, it is helpful to see the range of actors Amazon lists among its “current and potential competitors”:
(1) online, offline, and multichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products we offer and sell to consumers and businesses; (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and all distribution channels; (3) web search engines, comparison shopping websites, social networks, web portals, and other online and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration with other retailers; (4) companies that provide e-commerce services, including website development, advertising, fulfillment, customer service, and payment processing; (5) companies that provide fulfillment and logistics services for themselves or for third parties, whether online or offline; (6) companies that provide information technology services or products, including on-premises or cloud-based infrastructure and other services; and (7) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.
Amazon.com, Inc., Annual Report (Form 10-K) 4 (Apr. 6, 2016),
-ir.net/External.File?item=UGFyZW50SUQ9NjI4NTg0fENoaWxkSUQ9MzI5NTMwfFR 5c
GU9MQ==&t=1 [http://perma.cc/96HQ-TZDT].
228
See generally
id.
describing
Amazon’s businesses).
See generally
id.
describing
Amazon’s businesses).
229
As of 2012, Amazon had acquired or invested in over seventy companies.
See
Sucharita
Mulpuru
& Bri…
As of 2012, Amazon had acquired or invested in over seventy companies.
See
Sucharita
Mulpuru
& Brian K. Walker, Forrester, Why Amazon Matters Now More than Ever
5 (2012).
230
Id
. at 17.
Id
. at 17.
231
See
LaVecchia
& Mitchell,
supra
note 6, at 1.
See
LaVecchia
& Mitchell,
supra
note 6, at 1.
232
Tiernan
Ray,
Amazon: All Retail’s SKUs Are Belong to Them, Goldman Tells CNBC
Barrons
: Tech Trade…
Tiernan
Ray,
Amazon: All Retail’s SKUs Are Belong to Them, Goldman Tells CNBC
Barrons
: Tech Trader Daily
(June 16, 2016, 11:40 AM),
/techtrader daily
/2016
/06/16/amazon-all-retails-skus-are-belong-to-them-goldman-tells-cnbc [http://
perma.cc
/Z95R-JYGR] (quoting a Goldman Sachs analyst as saying, “[p]
rojected
e-commerce growth of 22% this year is largely thanks to Amazon,” and “Amazon ‘is going to outgrow that,’ with perhaps ‘mid to high 20s growth,’ . . . given ‘Amazon is taking share, and seeing acceleration in their international business’”).
See generally
Leonard,
supra
note 207 (“Amazon’s growth has been
preposterous .
. . . The company is the fifth-most valuable in the world: Its market capitalization is about $366 billion, which is roughly equal to the combined worth of Walmart, FedEx, and Boeing.”).
233
Leonard,
supra
note 207.
Leonard,
supra
note 207.
234
Shelly Banjo,
Amazon Eats the Department Store
Bloomberg: Gadfly
(Sept. 20, 2016, 9:27 AM), http:…
Shelly Banjo,
Amazon Eats the Department Store
Bloomberg: Gadfly
(Sept. 20, 2016, 9:27 AM),
-could-soon-top-
macy
s [http://perma.cc/63UJ-5Y67].
235
Its clothing sales are greater than the combined online sales of its five largest online apparel c…
Its clothing sales are greater than the combined online sales of its five largest online apparel competitors: Macy’s, Nordstrom, Kohl’s, Gap, and Victoria’s Secret’s parent.
Id.
236
In some contexts, “dominance” connotes a legal definition. I am not using it in this way.
See supr…
In some contexts, “dominance” connotes a legal definition. I am not using it in this way.
See supra
note 191.
237
See
Caroline McCarthy,
Amazon Debuts Kindle E-Book Reader
CNET
(Nov. 19, 2007, 10:33 AM), http://…
See
Caroline McCarthy,
Amazon Debuts Kindle E-Book Reader
CNET
(Nov. 19, 2007, 10:33 AM),
[http://perma.cc
/VF4Z-2V77].
238
See id.
See id.
239
See
Brad Stone, The Everything Store
(2013); George Packer,
Cheap Words
New Yorker
(Feb. 17, 2014…
See
Brad Stone, The Everything Store
(2013); George Packer,
Cheap Words
New Yorker
(Feb. 17, 2014),
[http://
perma.cc
/42AN-Y6UT].
240
Prior to 2009, many publishers set a wholesale price for e-books at a 20% discount from the equiva…
Prior to 2009, many publishers set a wholesale price for e-books at a 20% discount from the equivalent physical book, at which point Amazon’s $9.99 price point roughly matched the wholesale price of many of its e-books. In 2009, publishers eliminated the wholesale discount, yet Amazon continued to price e-books at $9.99. This is the point at which it clearly sold e-books below cost.
See
United States v. Apple, Inc.
, 952 F. Supp. 2d 638, 649-50 (S.D.N.Y. 2013);
see also
Packer,
supra
note 239 (“The price was below wholesale in some cases, and so low that it represented a serious threat to the market in twenty-six-dollar hardcovers.”); Jeffrey A. Trachtenberg,
E-Book Sales Fall After New Amazon Contracts
Wall St. J. (
Sept. 3, 2015),
-prices-1441307826-lMyQjAxMTE1MzAxNDUwMjQ2Wj [http://
perma.cc/LVZ9-DK9Y] (“Amazon was willing to buy a title for $14.99 and sell it for $9.99, taking a loss to grab market share and encourage adoption of its Kindle e-reader.”).
241
See
Eric
Savitz
Amazon Selling Kindle Fire
Below
Cost, Analyst Contends
Forbes
(Sept. 30, 2011, …
See
Eric
Savitz
Amazon Selling Kindle Fire
Below
Cost, Analyst Contends
Forbes
(Sept. 30, 2011, 5:40 PM),
-fire-below-cost-analyst-contends [http://perma.cc/3AQ8-X9LZ]; Woo,
supra
note 210 (“Mr. Munster estimated that Amazon sells each Kindle model at a loss of $10 to $15.”).
242
See
Packer,
supra
note 239 (“In the mid-
aughts
, Bezos, having watched Apple take over the music-se…
See
Packer,
supra
note 239 (“In the mid-
aughts
, Bezos, having watched Apple take over the music-selling business with iTunes and the iPod, became determined not to let the same thing happen with books. In 2004, he set up a lab in Silicon Valley that would build Amazon’s first piece of consumer hardware: a device for reading digital books. According to Stone’s book, Bezos told the executive running the project, ‘Proceed as if your goal is to put everyone selling physical books out of a job.’”).
243
Apple
952 F. Supp. 2d at 649.
Apple
952 F. Supp. 2d at 649.
244
Id.
at 658-61.
Id.
at 658-61.
245
Id.
at 672.
Id.
at 672.
246
Id.
at 679.
Id.
at 679.
247
Announcement: Macmillan E-Books
Amazon
(Jan. 31, 2010, 2:22 PM), http://
www
.amazon.com/forum/ki…
Announcement: Macmillan E-Books
Amazon
(Jan. 31, 2010, 2:22 PM),
www
.amazon.com/forum/kindle/Tx2MEGQWTNGIMHV [http://perma.cc/K64A-RF2C];
see also
Apple
, 952 F. Supp. 2d at 680-81 (describing the struggle between the publishing houses and Amazon leading up to Amazon’s capitulation).
248
Apple
, 952 F. Supp. 2d at 681.
Apple
, 952 F. Supp. 2d at 681.
249
Id.
at 645.
Id.
at 645.
250
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment at 21,
Apple
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment at 21,
Apple
, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC).
251
Id.
at 21-22 (quoting Complaint at 9,
Apple
, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC)).
Id.
at 21-22 (quoting Complaint at 9,
Apple
, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC)).
252
Apple
, 952 F. Supp. 2d at 708 (“This trial has not been the occasion to decide whether Amazon’…
Apple
, 952 F. Supp. 2d at 708 (“This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law.”).
253
See id.
at 650 (noting that Amazon “continued to sell many NYT Bestsellers as loss leaders”); Co…
See id.
at 650 (noting that Amazon “continued to sell many NYT Bestsellers as loss leaders”); Complaint,
supra
note 251, at 9 (“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.”); Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra
note 250, at 21-22.
254
See generally
Jean-Charles
Rochet
& Jean
Tirole
Platform Competition in Two-Sided Markets
J.
E…
See generally
Jean-Charles
Rochet
& Jean
Tirole
Platform Competition in Two-Sided Markets
J.
Eur.
Econ.
Ass’n
990 (2003) (explaining the dynamics of competition in two-sided markets).
255
Traditionally,
a retailer loss-leads
when it prices one good below cost in order to sell more of a…
Traditionally,
a retailer loss-leads
when it prices one good below cost in order to sell more of another good, assuming that discounts on one good will attract and retain consumers. Walmart choosing to price t-shirts below cost to sell more shorts would be an example of loss leading.
256
John B. Kirkwood,
Collusion
To
Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy
,…
John B. Kirkwood,
Collusion
To
Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy
, 69 U.
Miami L. Rev
. 1, 38-39 (2014).
257
Id.
at 39.
Id.
at 39.
258
See id.
See id.
259
See
Cory Doctorow,
Why the Death of DRM Would Be Good News for Readers, Writers and Publishers
Gu…
See
Cory Doctorow,
Why the Death of DRM Would Be Good News for Readers, Writers and Publishers
Guardian
(May 3, 2012, 10:25 AM),
/technology/2012/may/03/death-of-drm-good-news [http://perma.cc/H77L-7KZ8] (“If Tor sells you one of my books for the Kindle locked with Amazon’s DRM, neither I, nor Tor, can
authorise
you to remove that DRM. If Amazon demands a deeper discount (something Amazon has been doing with many publishers as their initial
ebook
distribution deals come up for renegotiation) and Tor wants to shift its preferred
ebook
retail to a competitor like
Waterstone’s
, it will have to bank on its readers being willing to buy their books all over again.”).
260
See
Ana Carolina
Bittar
, Unlocking the Gates of Alexandria: DRM, Competition and Access to E-Books …
See
Ana Carolina
Bittar
, Unlocking the Gates of Alexandria: DRM, Competition and Access to E-Books 1 (July 25, 2014) (unpublished manuscript),
/abstract=2620354 [http://perma.cc/6RHH-6QM4] (“[S]
ince
each bookseller uses a different proprietary DRM scheme on their e-books, compatible with a limited number of reading platforms, consumers face problems with interoperability. For example, a Kindle owner cannot buy books from Barnes & Noble, and a Nook owner cannot buy books from Apple. This lack of interoperability can increase
barriers
to
entry
, switching costs, and
network
effects
. Consequently, consumers are often locked into an e-book ecosystem, which permits booksellers
to
act as gatekeepers of the e-book market.”).
261
See
Alexandra Alter,
Your E-Book Is Reading You
Wall St. J.
(July 19, 2012, 3:24 PM), http://
htt…
See
Alexandra Alter,
Your E-Book Is Reading You
Wall St. J.
(July 19, 2012, 3:24 PM),
[http://
perma.cc
/6LQW-BCKJ] (“The major new players in e-book publishing—Amazon, Apple and Google—can easily track how far readers are getting in books, how long they spend reading them and which search terms they use to find books. Book apps for tablets like the iPad, Kindle Fire and Nook record how many times readers open the app and how much time they spend reading. Retailers and some publishers are beginning to sift through the data, gaining unprecedented insight into how people engage with books.”).
262
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra
note …
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra
note 250, at 22.
263
October 2015 – Apple, B&N, Kobo, and Google: A Look at the Rest of the
Ebook
Market
Author Earnin…
October 2015 – Apple, B&N, Kobo, and Google: A Look at the Rest of the
Ebook
Market
Author Earnings (
Oct. 2015),
-google-a-look-at-the-rest-of-the-
ebook
-market [http://
perma.cc
/GKN4-SA43] (noting that Amazon also sells 85% of indie e-books).
264
Statistics and Facts
About
Amazon
Statista
(2016),
/amazon [ht…
Statistics and Facts
About
Amazon
Statista
(2016),
/amazon [http://perma.cc/YR3Q-D7YE].
265
Sony Gives Up on Selling E-Readers
BBC
(Aug. 5, 2014), http://www.bbc.com/news
/technology-286638…
Sony Gives Up on Selling E-Readers
BBC
(Aug. 5, 2014),
/technology-28663878 [http://perma.cc/D29U-W7NZ].
266
Jim
Milliot
B&N Cut Nook Investment by 74% in Third Quarter
Publishers Weekly (M
ar. 7, 2014), ht…
Jim
Milliot
B&N Cut Nook Investment by 74% in Third Quarter
Publishers Weekly (M
ar. 7, 2014),
/booksell ing
/article
/61331
-b-n-cut-nook-investment-by-74-in-third-quarter.html [http://
perma.cc
/846M -28HZ].
267
Nor is the decline of Amazon competitors unique to e-books. “Now, with Borders dead, Barnes & Nobl…
Nor is the decline of Amazon competitors unique to e-books. “Now, with Borders dead, Barnes & Noble struggling and independent booksellers greatly diminished, for many consumers there
is
simply no other way to get many books than through Amazon.”
Streitfeld
supra
note 1.
268
Id.
Id.
269
See id.
See id.
270
Several journalists have tracked instances of price discrimination in e-commerce.
See, e.g
., Julia…
Several journalists have tracked instances of price discrimination in e-commerce.
See, e.g
., Julia
Angwin
et al.,
The Tiger Mom Tax: Asians Are Nearly Twice as Likely To Get a Higher Price from Princeton Review
ProPublica
(Sept. 1, 2015),
/asians-nearly-twice-as-likely-to-get-higher-price-from-princeton-review [http://
perma.cc
/L96N-SZKR]; Jennifer Valentino-Devries et al.,
Websites Vary Prices, Deals Based on User Information
Wall St. J
. (Dec. 24, 2012),
/articles
/SB10001424127887323777204578189391813881534 [http://perma.cc/BF3S-ZX3C].
271
Roberto A.
Ferdman
Amazon Changes Its Prices More than 2.5 Million Times a Day
Quartz
(Dec. 14, …
Roberto A.
Ferdman
Amazon Changes Its Prices More than 2.5 Million Times a Day
Quartz
(Dec. 14, 2013),
-times-a-day [http://perma.cc/W25A-EUNP].
272
But recent reporting does suggest that Amazon manipulates how it presents pricing in order to favo…
But recent reporting does suggest that Amazon manipulates how it presents pricing in order to favor its own products.
See
Julia
Angwin
& Surya
Mattu
Amazon Says It Puts Customers First. But Its Pricing Algorithm Doesn’t
ProPublica
(Sept. 20, 2016),
www
.propublica.org
/article
/amazon-says-it-puts-customers-first-but-its -pricing
algo
rithm-doesnt
[http://perma.cc/RR6C-FTS4] (“[T]he company appears to be using its market power and proprietary algorithm to advantage itself at the expense of sellers and many customers.”).
273
See
Lina Khan,
Why You Might Pay More than Your Neighbor for the Same Bottle of Salad Dressing
Qu…
See
Lina Khan,
Why You Might Pay More than Your Neighbor for the Same Bottle of Salad Dressing
Quartz
(Jan. 19, 2014),
-neighbor-for-the-same-bottle-of-salad-dressing [http://perma.cc/KVL3-QCBC].
274
Id.
Id.
275
Id.
(“‘Coupons will be the doorway in to differential pricing,’ said Scott Anderson, princip…
Id.
(“‘Coupons will be the doorway in to differential pricing,’ said Scott Anderson, principal consultant at FICO, which provides data analytics and decision-making services. In other words, we could all end up paying significantly different amounts for the same items, even if we see the same prices while browsing.”).
276
As a group of authors stated in a recent letter to the Justice Department: [T]he corporation’s d…
As a group of authors stated in a recent letter to the Justice Department:
[T]he corporation’s detailed knowledge of the buying habits of millions of readers—which it amasses through a minute-by-minute tracking of their actions online—puts it in a powerful position to use such ‘personalized’ pricing and marketing to influence the decisions of readers and thereby extract the most amount of cash possible from each individual.
Letter from Authors United to William J. Baer, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice (July 14, 2015),
/longdocument
.html [http://perma.cc
/L9RN-YESR];
see also
David
Streitfeld
Accusing Amazon of Antitrust Violations, Authors and Booksellers Demand Inquiry
N.Y. Times
(July 13, 2015),
www
.ny
times.com/2015/07/14/technology/accusing-amazon-of-antitrust-violations-authors-and
-book
sellers-demand-us-inquiry.html [http://perma.cc/G8QF-5LYY] (reporting on the Authors United letter to the Assistant Attorney General and its claim that Amazon seems to be “
engag
ing
] in content control” in its decisions to sell certain books).
277
See supra
Section I.A. For accounts of how some retailers have successfully implemented discrimina…
See supra
Section I.A. For accounts of how some retailers have successfully implemented discriminatory pricing online, see
supra
note 270 and accompanying text.
278
Streitfeld
supra
note 1.
Streitfeld
supra
note 1.
279
See
Phillip
Areeda
& Herbert
Hovenkamp
, Fundamentals of Antitrust Law
7-72 (2010) (“There may be…
See
Phillip
Areeda
& Herbert
Hovenkamp
, Fundamentals of Antitrust Law
7-72 (2010) (“There may be cases in which a predator who makes more than one product or operates in more than one region selects only one for below-cost pricing but reaps recoupment benefits in
all .
. . . The courts have not dealt adequately with this problem.”); Leslie,
supra
note 94, at 1720 (“Courts apparently do not appreciate the prospect of recoupment in another market.”); Timothy J. Trujillo, Note,
Predatory Pricing Standards Under Recent Supreme Court Decisions and Their Failure To Recognize Strategic Behavior as a Barrier to Entry
, 19
J. Corp. L
. 809, 813, 825 (1994) (“The . . . recoupment analysis in
Matsushita
Cargill
, and
Brooke
refers to recoupment only in the market in which the predation actually occurs. Thus, the Court’s analyses and
test .
. . ignore the possibility that successful predation could occur because the dominant firm can spread its gains from predation over several markets.”).
280
See
Leslie,
supra
note 94, at 1720-21.
See
Leslie,
supra
note 94, at 1720-21.
281
See
Randy Kennedy,
Cash Up Front
N.Y. Times
(June 5, 2005), http://
/2005/…
See
Randy Kennedy,
Cash Up Front
N.Y. Times
(June 5, 2005),
/2005/06/05/books/review/cash-up-front.html [http://perma.cc/H9L2-RUPU].
282
See
James B. Stewart,
Booksellers Score Some Points in Amazon’s Spat with Hachette
N.Y. Times
(Ju…
See
James B. Stewart,
Booksellers Score Some Points in Amazon’s Spat with Hachette
N.Y. Times
(June 20, 2014),
-points-in-amazons-standoff-with-hachette.html [http://perma.cc/PD34-M28S].
283
Id.
Id.
284
See
LaVecchia
& Mitchell,
supra
note 6, at 2.
See
LaVecchia
& Mitchell,
supra
note 6, at 2.
285
Acquisition and maintenance of monopsony power are still recognized harms under the Sherman and Cl…
Acquisition and maintenance of monopsony power are still recognized harms under the Sherman and Clayton Acts, even though few cases are brought today.
But cf.
Complaint at 12-13, United States v. George’s Foods, LLC, No. 5:11-cv-00043-gec (W.D. Va. May 10, 2011)
(arguing that a company’s acquisition of a chicken complex would “substantially lessen competition for the purchase of broiler grower [chicken farmer] services . . . in violation of Section 7 of the Clayton Act”).
286
Boris
Kachka
Book Publishing’s Big Gamble
N.Y. Times
(July 9, 2013), http://
www
.nytimes.com/20…
Boris
Kachka
Book Publishing’s Big Gamble
N.Y. Times
(July 9, 2013),
www
.nytimes.com/2013/07/10/opinion/book-publishings-big-gamble.html [http://
perma.cc
/AP5X] (“The merger, announced last October and completed on July 1 after regulatory approval, shrinks the Big Six, which publish about two-thirds of books in the United States, down to the Big Five.”).
287
Id.
Publishers have also merged divisions internally.
See, e.g.
, Alex
Shephard
The Vanishing Mass…
Id.
Publishers have also merged divisions internally.
See, e.g.
, Alex
Shephard
The Vanishing Mass Market: Penguin Merges Two Mass Market Publishing Houses To Create New Mass Market Publishing House
Melville House
(June 26, 2015),
-van
ishing-mass-market-penguin-merges-two-mass-market-publishing-houses-merge-to -create-new-mass-market-publishing-house [http://perma.cc/F4V6-GGLU].
288
Cross-subsidization schemes can have widely different effects, depending on how the two submarkets…
Cross-subsidization schemes can have widely different effects, depending on how the two submarkets are or are not interrelated. In Amazon’s case, losses do have cross-market effects: Amazon prices below cost in order to generate higher sales in another line of business; its losses in one market
actively boost
another market. By contrast, the cross-subsidization model used by publishers has no analogous crossover effects. A publisher might decide to publish an obscure book, even if it knows it will lose money, and subsidize those losses through profits made on a more popular book. However, the publisher’s choice to sustain a loss on the obscure book does not
boost
sales of its popular books. The major difference in Amazon’s case is that it is an online platform. The market effects across its different segments are significant in ways that do not hold for brick-and-mortar stores or other non-platform entities.
289
Letter from Authors United to William J. Baer,
supra
note 276.
Letter from Authors United to William J. Baer,
supra
note 276.
290
Id.
Id.
291
Id.
Id.
292
That said
the DOJ did consider how rising consolidation in the media sector—specifically in the…
That said
the DOJ did consider how rising consolidation in the media sector—specifically in the context of a proposed merger between two newspapers—would risk undermining the spread of ideas. Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Files Antitrust Lawsuit To Stop L.A. Times Publisher from Acquiring Competing Newspapers (Mar. 17, 2016),
-antitrust-lawsuit-stop-la-times-publisher-acquiring-competing [http://perma.cc/3MNY -8XZE] (“‘Newspapers continue to play an important role in the dissemination of news and information to readers . . . .’” (quoting Assistant Attorney General Bill Baer of the DOJ’s Antitrust Division)).
293
At the height of its market share, this figure was closer to 90%. After Apple entered the market, …
At the height of its market share, this figure was closer to 90%. After Apple entered the market, Amazon’s share fell slightly and then stabilized around 65%.
See
Packer,
supra
note 239.
294
Stone
supra
note 239, at
297
(“
Quidsi
[grew] from nothing to $300 million in annual sales in just…
Stone
supra
note 239, at
297
(“
Quidsi
[grew] from nothing to $300 million in annual sales in just a few years. . . .”).
295
Id.
at 295-96.
Id.
at 295-96.
296
Id.
at 296.
Id.
at 296.
297
Id.
; Brad Stone,
The Secrets of Bezos: How Amazon Became the Everything Store
Bloomberg
(Oct. 10,…
Id.
; Brad Stone,
The Secrets of Bezos: How Amazon Became the Everything Store
Bloomberg
(Oct. 10, 2013, 5:57 AM),
/news
/articles/2013-10-10/jeff -bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone [http:// perma.cc/TD96-G6HV].
298
Brad Tuttle,
It’s Target Versus Amazon in the Battle for Moms
Time
(Sept. 26, 2013), http://busin…
Brad Tuttle,
It’s Target Versus Amazon in the Battle for Moms
Time
(Sept. 26, 2013),
-moms [http://perma.cc/UJE6-Y3R9].
299
Stone
supra
note 239, at 297.
Stone
supra
note 239, at 297.
300
d.
at 298.
d.
at 298.
301
Jason Del Ray,
How Jeff Bezos Crushed Diapers.com so Amazon Could Buy Diapers.com
All Things D
(O…
Jason Del Ray,
How Jeff Bezos Crushed Diapers.com so Amazon Could Buy Diapers.com
All Things D
(Oct. 10, 2013, 5:09 AM),
bezos
-crushed-diapers-com-so-amazon-could-buy-diapers-com [http://perma.cc/K98D -VGNP].
302
Will
Oremus
The Time Jeff Bezos Went Thermonuclear on Diapers.com
Slate
(Oct. 10, 2013, 12:37 PM…
Will
Oremus
The Time Jeff Bezos Went Thermonuclear on Diapers.com
Slate
(Oct. 10, 2013, 12:37 PM),
_book
_how
_jeff_bezos_went_thermonuclear_on_diapers_com.html [http://perma.cc/A9JE-VNWR].
303
Stone,
supra
note 297 (noting that Amazon offered $540 million, giving
Quidsi
a forty-eight-hour w…
Stone,
supra
note 297 (noting that Amazon offered $540 million, giving
Quidsi
a forty-eight-hour window in which to respond and “
rachet
ing
] up the pressure,” telling
Quidsi
that Bezos was “such a furious competitor [that he] would drive diaper prices to zero if they went with Walmart,” in which case “the Amazon Mom onslaught would continue”).
304
d.
d.
305
The FTC reviewed the deal under Section 7 of the Clayton Act, the provision that governs mergers, …
The FTC reviewed the deal under Section 7 of the Clayton Act, the provision that governs mergers, as well as section 5 of the Federal Trade Commission Act, which targets general unfair practices.
See
Letter from Donald S. Clark,
Sec’y
, FTC, to Peter C. Thomas, Simpson
Thacher
& Bartlett LLP (Mar. 23, 2011),
/sites/default
/files
/documents
/closing
_letters/amazon.com-inc./quidsi-inc./110323amazonthomas.pdf [http://
perma.cc
/7E5A
-LYMB];
see also
Stone,
supra
note 297 (“The Federal Trade Commission scrutinized the acquisition for four and a half months, going beyond the standard review to the second-request phase, where companies must provide more information about a transaction. The deal raised a host of red flags, such as the elimination of a major player in a competitive category, according to an FTC official familiar with the review.”).
306
See
Stone
supra
note 239, at 298.
See
Stone
supra
note 239, at 298.
307
“At this time, [Amazon Mom is] not accepting new members,” a company spokesman stated, declini…
“At this time, [Amazon Mom is] not accepting new members,” a company spokesman stated, declining to explain why. Thad
Rueter
Let’s Hope
Amazon Doesn’t Make Them Wait Until
Potty Training Ends
Internet Retailer
(Nov. 30, 2011, 3:35 PM),
.inte
rnet
re
tail
er
‌‌
.com/2011/11/30/now-amazon-closes-membership-moms-discount-program [http://
perma.cc
/L76R-XEHP].
308
Thad
Rueter
Amazon Tweaks Its Diaper Program, Moms Vent and a Competitor Pounces
Internet Retail…
Thad
Rueter
Amazon Tweaks Its Diaper Program, Moms Vent and a Competitor Pounces
Internet Retailer
(Feb. 23, 2012, 4:19 PM),
/02
/23
/amazon-tweaks-diaper-program-moms-vent-competitor-pounces [http://
perma.cc
/GBU7 -KYNF].
309
Id.
Id.
310
Laura Owen,
Amazon Cuts the Benefits Again in Amazon Mom, Its Prime Program for Parents
Gigaom
(S…
Laura Owen,
Amazon Cuts the Benefits Again in Amazon Mom, Its Prime Program for Parents
Gigaom
(Sept. 29, 2014, 7:42 AM),
-benefits-again-in-amazon-mom-its-prime-program-for-parents [http://perma.cc/993P -JPZN].
311
In response to complaints about Amazon’s abrupt change, followed by customers recommending Diape…
In response to complaints about Amazon’s abrupt change, followed by customers recommending Diapers.com, one customer stated, “Diapers.com has a different shipping program, but they were recently bought out by Amazon. I would think that their shipping policies might change soon as well.” Shopaholic, Comment to
Amazon Mom Benefits Misleading
Amazon
(June 15, 2011, 4:56 PM),
/forum
/baby
/ref
=cm_cd_pg_pg2?_encoding=UTF8&cdForum=FxSKWDWQRZ03WU&cdPage=2&cdThread=Tx1ZC5GMKB4JEQP
[http://perma.cc/E5NH-JCJ7].
312
Amazon leads the online market for baby supplies, holding 43%. Walmart and Target follow, with 23%…
Amazon leads the online market for baby supplies, holding 43%. Walmart and Target follow, with 23% and 18%, respectively.
Target, Walmart, Amazon Dominate the Online Baby Goods Market
Bus. Insider
(Apr. 22, 2016, 8:30 PM),
-walmart-amazon-dominate-the-online-baby-goods-market-2016-4
[http://perma.cc
/85KZ
-QQCR].
313
Bork
supra
note 32, at 153.
Bork
supra
note 32, at 153.
314
Id.
Id.
315
Id.
Id.
316
See generally
Tim Wu, The Master Switch: The Rise and Fall of Information Empires
(2010) (arguing …
See generally
Tim Wu, The Master Switch: The Rise and Fall of Information Empires
(2010) (arguing that all American information industries since the telephone have resulted in monopolies);
Candeub
supra
note 225 (suggesting that network effects may produce anticompetitive results in the online market because of the cognitive effort necessary to switch search engines); Nathan Newman,
Search, Antitrust, and the Economics of the Control of User Data
, 31
Yale J. on Reg
. 401 (2014) (proposing a new approach to antitrust investigations that would focus on the anticompetitive effects of corporations’ control of personal data); Frank Pasquale,
Privacy, Antitrust, and Power
, 20
Geo. Mason L. Rev
. 1009 (2013) (advocating reforms to privacy and antitrust policy to take into account the connections between market share and control over data).
317
For example, Amazon acquired Zappos.com in 2009 but chose to maintain the brand as a standalone ra…
For example, Amazon acquired Zappos.com in 2009 but chose to maintain the brand as a standalone rather than absorbing it within Amazon.com.
Sarah Lacy,
Amazon Buys
Zappos
; The Price Is $928m., Not $847m.
TechCrunch
(July 22, 2009),
techcrunch
.com
/2009/07/22/amazon-buys-zappos
[http://perma.cc/5NGV-P2AU].
318
See, e.g.
, Leslie,
supra
note 94, at 1728-29.
See, e.g.
, Leslie,
supra
note 94, at 1728-29.
319
Jet.com, the one company that
did
try to tackle Amazon, was recently purchased by Walmart.
See
Ste…
Jet.com, the one company that
did
try to tackle Amazon, was recently purchased by Walmart.
See
Steven Davidoff Solomon,
Tech Giants Gobble Start-Ups in an Antitrust Blind Spot
N.Y. Times:
DealBook
(Aug. 16, 2016),
/2016
/08
/17
/bus
iness
/dealbook/expect-little-antitrust-challenge-to-walmarts-bid-for-jet-com.html [http://
perma.cc/WRC9-QGKR].
320
Moore,
supra
note 14. Google has stated that its biggest rival in search is not Bing or Yahoo, but…
Moore,
supra
note 14. Google has stated that its biggest rival in search is not Bing or Yahoo, but Amazon.
See
Jeevan
Vasagar
& Alex Barker,
Amazon Is Our Biggest Search Rival,
Says
Google’s Eric Schmidt
Fin.
Times
(Oct. 13, 2014),
/cms/s
/0/748bff70
-52f2-11e4-b917-00144feab7de.html [http://perma.cc/3PHW-77EW].
321
Newman,
supra
note 316, at 409.
Newman,
supra
note 316, at 409.
322
See
Vauhini
Vara
Can Jet.com Take On Amazon and Win
New Yorker
(July 21, 2015), http://www.newy…
See
Vauhini
Vara
Can Jet.com Take On Amazon and Win
New Yorker
(July 21, 2015),
-win [http://perma.cc/S2K2-SMHA].
323
Shannon
Pettypiece
& Selina Wang,
Wal-Mart
To
Acquire Jet.com for $3.3 Billion To Fight Amazon
Bl…
Shannon
Pettypiece
& Selina Wang,
Wal-Mart
To
Acquire Jet.com for $3.3 Billion To Fight Amazon
Bloomberg
(Aug. 8, 2016),
-08/wal-mart-agrees-to-buy-jet-com-for-3-billion-to-fight-amazon [http://
perma.cc
/FEK9
-NMR9].
324
See
Grace
Noto
Jet.Com Acquisition Not Enough To Challenge Amazon, Experts Say
Bank Innovation
(…
See
Grace
Noto
Jet.Com Acquisition Not Enough To Challenge Amazon, Experts Say
Bank Innovation
(Aug. 22, 2016),
-enough-to-challenge-amazon-experts-say [http://perma.cc/CQ3Y-6J8X] (“[T]here remains a healthy amount of skepticism in the industry about anyone’s ability to topple Amazon from its throne. ‘Amazon is quite dominant and will continue to be in the foreseeable future, because the resources they are putting into ecommerce and all of their other initiatives are formidable,’ said vice president and principal analyst at Forester Research
Sucharita
Mulpuru-Kodali
. ‘Walmart has slowly been gaining some share in some ways, but it’s often two steps forward, one step back for them.’”);
Pettypiece
& Wang,
supra
note 323 (“Amazon is such a
machine .
. . . You aren’t going to out-Amazon Amazon.”).
325
See
Tuttle,
supra
note 298.
See
Tuttle,
supra
note 298.
326
See id.
noting
that Amazon’s market share is double Target’s).
See id.
noting
that Amazon’s market share is double Target’s).
327
See
infra
Section IV.D.
See
infra
Section IV.D.
328
See
LaVecchia
& Mitchell,
supra
note 6, at 18.
See
LaVecchia
& Mitchell,
supra
note 6, at 18.
329
Laura Stevens & Greg
Bensinger
Amazon Seeks
To
Ease Ties with UPS
Wall St. J
. (Dec. 22, 2015, 8:…
Laura Stevens & Greg
Bensinger
Amazon Seeks
To
Ease Ties with UPS
Wall St. J
. (Dec. 22, 2015, 8:52 PM),
-1450835575 [http://perma.cc/8385-A7AJ].
330
In its 10-K, UPS states that while no single customer accounts for more than 10% of its consolidat…
In its 10-K, UPS states that while no single customer accounts for more than 10% of its consolidated revenue, its business remains vulnerable to the choices of some big clients. UPS, Inc., Annual Report (Form 10-K) 15 (Jan. 29, 2016),
/Archives/edgar/data/1090727/000109072715000008/ups-12312014x10k.htm [http://
perma
.cc/TU7T-B4Q4] (“[S]
ome
of our large customers might account for a relatively significant portion of the growth in revenue in a particular quarter or
year .
. . . These customers could choose to divert all or a portion of their business with us to one of our competitors, demand pricing concessions for our services, require us to provide enhanced services that increase our costs, or develop their own shipping and distribution capabilities. If these factors drove some of our large customers to cancel all or a portion of their business relationships with us, it could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts.”).
331
See
Stephanie Clifford & Claire Cain Miller,
Wal-Mart Says ‘Try This On’: Free Shipping
N.Y. Time…
See
Stephanie Clifford & Claire Cain Miller,
Wal-Mart Says ‘Try This On’: Free Shipping
N.Y. Times
(Nov. 11, 2010),
[http://perma.cc/ULM8-3ASC] (“[A]
ir
shipping prices for big retailers are about 70 percent less than for a small company. Shipping at Amazon costs about 4 percent of sales, and Amazon loses money on it because it offers marketing
benefits .
. . . [S]hipping at small sites usually costs about 35 percent of
sales .
. . .”). Congress passed the Robinson-
Patman
Act precisely to prevent this sort of “waterbed effect.” As I describe earlier, Chicago School hostility to Robinson-
Patman
has meant that both the antitrust agencies and courts have largely stopped enforcing the law.
See supra
text accompanying notes 77-108.
332
See
Laura Stevens,
‘Free’ Shipping Crowds
Out
Small Retailers
Wall St. J
. (Apr. 27, 2016, 10:39 P…
See
Laura Stevens,
‘Free’ Shipping Crowds
Out
Small Retailers
Wall St. J
. (Apr. 27, 2016, 10:39 PM),
-supreme-1461789381 [http://perma.cc/R7YL-2FTS].
333
See
Paul W. Dobson & Roman
Inderst
The Waterbed Effect: Where Buying and Selling Power Come Toget…
See
Paul W. Dobson & Roman
Inderst
The Waterbed Effect: Where Buying and Selling Power Come Together
, 2008
Wis. L. Rev
. 331, 336-37 (“If, in contrast, the discounts to one or a few buyers were to put other buyers in a worse bargaining position to the extent of them paying even-higher prices (e.g., premiums rather than discounts) then the knock-on consequence could be higher retail prices and dampened competition. This latter case is an instance of a waterbed effect—where differential buyer power means that some buyers gain at both the relative and absolute expense of other buyers.”); John Kirkwood,
Powerful Buyers and Merger Enforcement
, 92
B.U. L. Rev
. 1485, 1544 (2012) (“[Suppose a firm] demands price or other concessions from . . . suppliers . . . . [
and
] that those concessions nevertheless cause the suppliers to increase prices to smaller buyers or otherwise worsen their terms.”).
334
Dobson &
Inderst
supra
note 333, at 337.
Dobson &
Inderst
supra
note 333, at 337.
335
Press Release, Amazon, Amazon Launches New Services To Help Small and Medium-Sized Businesses Enha…
Press Release, Amazon, Amazon Launches New Services To Help Small and Medium-Sized Businesses Enhance Their Customer Offerings by Accessing Amazon’s Order Fulfillment, Customer Service, and Website Functionality (Sept. 19, 2006),
-ir.net/
phoenix.zhtml?c
=97664&p=
irol-newsArticle&ID
=906817 [http://perma.cc/MC8G -9LRJ].
336
Id.
(“Amazon.com customers can now use offers such as Amazon Prime and Free Super Saver Shipping…
Id.
(“Amazon.com customers can now use offers such as Amazon Prime and Free Super Saver Shipping when buying products with the ‘Fulfilled by Amazon’ icon next to the offering listing.”).
337
See
Paul Cole,
Should You Use Amazon Discounted UPS Shipping
SellerEngine
(2012),
seller…
See
Paul Cole,
Should You Use Amazon Discounted UPS Shipping
SellerEngine
(2012),
sellerengine.com/should-you-use-amazon-discounted-ups-shipping [http://
perma.cc/54ND-B2WH] (“Probably the most common choice is to use Amazon’s discounted rate with UPS. For many sellers, this is the way to go. It’s a lower rate than you’re likely to receive from UPS or FedEx if you have your own account. Currently, Amazon’s UPS rate is about 20% cheaper than an average FedEx account, $.38/lb. compared to $.48/lb.”).
338
Before building out its own delivery operations, Amazon used (among others) UPS and FedEx.
See, e.…
Before building out its own delivery operations, Amazon used (among others) UPS and FedEx.
See, e.g.
, Marcus
Wohlsen
Amazon Takes a Big Step Towards Finally Making Its Own Deliveries
Wired
(Sept. 25, 2014, 2:30 PM),
-takes-big-step-toward-competing-directly-ups [http://perma.cc/42AT-Y4JK].
339
Daniella
Kucera
Why Amazon Is on a Building Spree
Bloomberg
(Aug. 29, 2013 8:51 AM), http://www.…
Daniella
Kucera
Why Amazon Is on a Building Spree
Bloomberg
(Aug. 29, 2013 8:51 AM),
-on-a-warehouse-building-spree [http://perma.cc/999P-MLSN].
340
Leonard,
supra
note 207.
Leonard,
supra
note 207.
341
Greg
Bensinger
& Laura Stevens,
Amazon’s Newest Ambition: Competing Directly with UPS and FedEx
W…
Greg
Bensinger
& Laura Stevens,
Amazon’s Newest Ambition: Competing Directly with UPS and FedEx
Wall St. J. (
Sept. 27, 2016, 1:45 PM),
zons-newest-ambitioncompeting-directly-with-ups-and-fedex-1474994758 [http://
perma.cc
/BB7F-PXJP].
342
Id.
Id.
343
Jillian
D’Onfro
Here Are All of Amazon’s Warehouses in the US
Bus. Insider
(Mar. 24, 2015, 1:48 …
Jillian
D’Onfro
Here Are All of Amazon’s Warehouses in the US
Bus. Insider
(Mar. 24, 2015, 1:48 PM),
-have-in-the-us-2015-3#ixzz3f3AX8zda
[http://perma.cc/TF8G-BJ72].
344
Bensinger
& Stevens,
supra
note 341.
Bensinger
& Stevens,
supra
note 341.
345
See
Spencer
Soper
EBay Ends Same-Day Delivery in U.S. in Face of Amazon Effort
Bloomberg
(July 2…
See
Spencer
Soper
EBay Ends Same-Day Delivery in U.S. in Face of Amazon Effort
Bloomberg
(July 27, 2015, 3:53 PM),
-ends-same-day-delivery-in-u-s-in-face-of-amazon-effort [http://perma.cc/5TD9-XDC5].
346
Stone,
supra
note 206;
see also
JP
Mangalindan
Amazon’s Prime and Punishment
Fortune
(Feb. 21, 2…
Stone,
supra
note 206;
see also
JP
Mangalindan
Amazon’s Prime and Punishment
Fortune
(Feb. 21, 2012, 8:02 PM),
ment [http://perma.cc/68KL-8C5Z] (“‘If you’re a competing retailer, it should be in your plans that Prime will someday be a next-day or same-day delivery service with 100,000 free movies—it’s going in that direction,’ chimes analyst [Matt]
Nemer
. If that day comes, Prime won’t just be a nominal loyalty program or balance sheet customer acquisition cost. It’ll be a monolith few can compete with.”).
347
Jason Del Ray,
Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Gro…
Jason Del Ray,
Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Grow
ReCode
(Dec. 4, 2015, 8:00 AM),
-buys-thousands-of-its-own-trucks-as-its-transportation-ambitions-grow [http://
perma.cc
/8LBF-NCYB]; Leonard,
supra
note 207.
348
Robin Lewis,
Amazon’s Shipping Ambitions Are Larger than It’s Letting On
Forbes
(Apr. 1, 2016, 8:…
Robin Lewis,
Amazon’s Shipping Ambitions Are Larger than It’s Letting On
Forbes
(Apr. 1, 2016, 8:30 AM),
-and-ships/#260c3aa1408c [http://perma.cc/HZ4V-KCLE].
349
Farhad
Manjoo
Think Amazon’s Drone Idea Is a Gimmick? Think Again
, N.Y. T
imes
(Aug. 10, 2016), ht…
Farhad
Manjoo
Think Amazon’s Drone Idea Is a Gimmick? Think Again
, N.Y. T
imes
(Aug. 10, 2016),
-idea-is-a-gimmick-think-again.html [http://perma.cc/9A7F-VAY6].
350
Id.
Id.
351
See
Del Ray,
supra
note 347;
see also
Leonard,
supra
note 207 (“Others believe that Amazon will …
See
Del Ray,
supra
note 347;
see also
Leonard,
supra
note 207 (“Others believe that Amazon will make a business out of its delivery network, as it did with Amazon Web Services, thereby challenging the world’s leading shipping companies . . . . The fear has spread to Wall Street, where analysts say investors worry about what Amazon’s strategy means for the shipping industry. ‘The natural inclination among any observers of the market when they see Amazon is to be scared,’ says David Vernon, a Sanford C. Bernstein analyst who tracks the shipping market. ‘Amazon is the epitome of a zero-sum game.’”).
352
A tie is created when a firm requires consumers interested in purchasing good A to purchase good A…
A tie is created when a firm requires consumers interested in purchasing good A to purchase good A (the tying
good
) and good B (the tied good) from the firm. The practice forces an unwilling customer to purchase the tied good while a refusal-to-deal turns away a willing customer.
See
Einer
Elhauge
Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theorem
, 123
Harv
. L. Rev.
397, 466–67 (2009).
353
See
Will Mitchell,
How
To
Rank Your Products on Amazon—The Ultimate Guide
StartupBros
, http://sta…
See
Will Mitchell,
How
To
Rank Your Products on Amazon—The Ultimate Guide
StartupBros
[http://perma.cc/6X3E-KNHF].
354
“One of the biggest themes is the challenge of getting product to your consumers, and relying on…
“One of the biggest themes is the challenge of getting product to your consumers, and relying on [fulfillment companies], but they don’t have another option, they can’t make investments [if] Amazon is in fulfillment.”
Ray,
supra
note
232
355
Moore,
supra
note 14.
Moore,
supra
note 14.
356
See
Bensinger
supra
note 223.
See
Bensinger
supra
note 223.
357
See
Angus
Loten
& Adam
Janofsky
Sellers Need Amazon, but at What Cost
Wall St. J
. (Jan. 14, 201…
See
Angus
Loten
& Adam
Janofsky
Sellers Need Amazon, but at What Cost
Wall St. J
. (Jan. 14, 2015, 6:30 PM),
-cost-1421278220 [http://
perma.cc/4MYB-PHQN] (“If you say no to Amazon, you’re closing the door on tons of sales.”).
358
Id.
Id.
359
Id.
Id.
360
Greg
Bensinger
Competing with Amazon on Amazon
Wall St. J
. (June 27, 2012, 6:15 PM), http://www.…
Greg
Bensinger
Competing with Amazon on Amazon
Wall St. J
. (June 27, 2012, 6:15 PM),
[http://
perma.cc/W9AG-BDRC].
361
Nancee
Halpin
Third-Party Merchants Account for More than Three-Quarters of Items Sold on Amazon
,…
Nancee
Halpin
Third-Party Merchants Account for More than Three-Quarters of Items Sold on Amazon
Bus. Insider (
Oct. 16, 2015, 2:55 PM),
-party-merchants-drive-amazon-grow-2015-10 [http://perma.cc/5XL9-NTCQ].
362
Loten
Janofsky
supra
note 357.
Loten
Janofsky
supra
note 357.
363
Bensinger
supra
note 360.
Bensinger
supra
note 360.
364
Id.
Id.
365
Id.
Id.
366
Id.
Id.
367
Id.
Id.
368
Id.
Id.
369
Spencer
Soper
Got a Hot Seller on Amazon? Prepare for E-
Tailer
To
Make One Too
Bloomberg
(Apr. 2…
Spencer
Soper
Got a Hot Seller on Amazon? Prepare for E-
Tailer
To
Make One Too
Bloomberg
(Apr. 20, 2016, 7:00 AM),
-04-20/got-a-hot-seller-on-amazon-prepare-for-e-tailer-to-make-one-too [http://
perma
.cc/79GL-5A8E].
370
Id.
(quoting a report by
Skubana
, an e-commerce company).
Id.
(quoting a report by
Skubana
, an e-commerce company).
371
Id.
Id.
372
George Anderson,
Is Amazon Undercutting Third-Party Sellers Using Their Own Data
Forbes
(Oct. 30…
George Anderson,
Is Amazon Undercutting Third-Party Sellers Using Their Own Data
Forbes
(Oct. 30, 2014, 9:23 AM),
/is-amazon-undercutting-third-party-sellers-using-their-own-data [http://perma.cc/SQE3 -SEU8].
373
As one analyst said of Amazon employees, “They’re data scientists. They know what people want …
As one analyst said of Amazon employees, “They’re data scientists. They know what people want and they’re going to mop it up.” Nick Bravo,
Amazon Private Labels Threaten Manufacturers
TrendSource
(July 5, 2016, 8:00 AM),
/trusted-insight-trends/amazon-private-labels-threaten-manufacturers [http://perma.cc
/W7VE-LXSS].
374
See Alistair Barr,
Amazon Finds Startup Investments in the ‘Cloud
Reuters
(Nov. 9, 2011, 3:44 PM…
See Alistair Barr,
Amazon Finds Startup Investments in the ‘Cloud
Reuters
(Nov. 9, 2011, 3:44 PM),
[http://
perma.cc/BH4Q-JPW7].
375
Id.
Id.
376
European antitrust authorities do investigate how concentrated control over data may have anticomp…
European antitrust authorities do investigate how concentrated control over data may have anticompetitive effects, and—unlike U.S. antitrust authorities—investigated the Facebook/WhatsApp merger for this reason. Complaints from companies that their rivals are acquiring an unfair competitive advantage through acquiring a firm with huge troves of data may also prompt U.S. authorities to take the exclusionary potential of data more seriously. In September, Salesforce announced it would urge regulators in the United States and in Europe to block Microsoft’s bid to acquire LinkedIn, on grounds that the deal would foreclose competition by giving Microsoft too much control over data.
See
Rachael King,
Salesforce.com
To Press Regulators To
Block Microsoft-LinkedIn Deal
Wall St. J.
(Sept. 29, 2016, 7:18 PM),
-microsoft-linkedin-deal-1475178870 [http://perma.cc/5EZE-GVBC].
377
See
David S. Evans,
The Antitrust Economics of Multi-Sided Platform Markets
, 20
Yale J. on Reg
. 32…
See
David S. Evans,
The Antitrust Economics of Multi-Sided Platform Markets
, 20
Yale J. on Reg
. 325 (2003); King,
supra
note 377; David S. Evans & Richard
Schmalensee
The Antitrust Analysis of Multi-Sided Platform Businesses
Coase-Sandor
Inst. for Law & Econ., Working Paper No. 623, 2012).
378
See
Julian Wright,
One-Sided Logic in Two-Sided Markets
, 3
Rev. Network Econ.
44 (2004).
See
Julian Wright,
One-Sided Logic in Two-Sided Markets
, 3
Rev. Network Econ.
44 (2004).
379
See
David S. Evans, Platform Economics: Essays on Multi-Sided Business
112 (2011).
See
David S. Evans, Platform Economics: Essays on Multi-Sided Business
112 (2011).
380
Two-sided markets are platforms that have two distinct user groups that offer each other network b…
Two-sided markets are platforms that have two distinct user groups that offer each other network benefits.
381
See
Evans
supra
note
379
, at
112
(“The pricing and investment strategies that firms in two-side…
See
Evans
supra
note
379
, at
112
(“The pricing and investment strategies that firms in two-sided markets use to ‘get both sides on board’ and ‘balance the interests of both sides’ raise novel ones. These pricing and other business strategies are needed to solve a fundamental economic problem arising from the interdependency of demand on both sides of the market. In some cases, the product could not even exist without efforts to subsidize one side of the market or the other.”).
382
Brody Mullins et al.,
Inside the U.S. Antitrust Probe of Google
Wall St. J.
(Mar. 19, 2015, 7:38 …
Brody Mullins et al.,
Inside the U.S. Antitrust Probe of Google
Wall St. J.
(Mar. 19, 2015, 7:38 PM),
-1426793274 [http://perma.cc/H4PZ-JZ9K].
383
Mark Scott & James
Kanter
Google Faces New Round of Antitrust Charges in Europe
N.Y. Times
(July…
Mark Scott & James
Kanter
Google Faces New Round of Antitrust Charges in Europe
N.Y. Times
(July 14, 2016),
-union-antitrust-charges.html [http://perma.cc/2SYP-5Z4B].
384
See
supra
note 319.
See
supra
note 319.
385
Stucke
& Grunes,
supra
note 47, at
163
Stucke
& Grunes,
supra
note 47, at
163
386
This is a form of “scale of data” network effect rather than a “traditional network effect.”
Id.
a…
This is a form of “scale of data” network effect rather than a “traditional network effect.”
Id.
at 170.
387
Novell Inc. v. Microsoft Corp., 505 F.3d 302, 308 (4th Cir. 2007).
Novell Inc. v. Microsoft Corp., 505 F.3d 302, 308 (4th Cir. 2007).
388
See
Guy
Rolnik
& Asher Schechter,
Is the Digital Economy Much Less Competitive than We Think It Is
See
Guy
Rolnik
& Asher Schechter,
Is the Digital Economy Much Less Competitive than We Think It Is
ProMarket
(Sept. 23, 2016),
-less-competitive-think [http://perma.cc/K2R6-TB7Q].
389
Interestingly, agencies have required vertically merging parties to erect firewalls to prevent ant…
Interestingly, agencies have required vertically merging parties to erect firewalls to prevent anticompetitive use of data.
See, e.g.
In re
Coca-Cola Co., 150 F.T.C. 520, 2010 WL 9549986 (2010) (ordering Coca-Cola to set up a firewall to ensure that its merger with a bottling subsidiary does not give it access to information from its competitor, Dr. Pepper Snapple Group); Press Release, FTC, FTC Puts Conditions on Coca-Cola’s $12.3 Billion Acquisition of its Largest North American Bottler
(S
ept. 27, 2010),
-e
vents/press-releases/2010/09/ftc-puts-conditions-coca-colas-123-billion-acquisition-its [http://
perma
.cc/BP7U-EY33] (discussing the Coca-Cola settlement and a similar PepsiCo settlement).
390
Mike Shields,
Amazon Looms Quietly in Digital Ad Landscape
Wall St. J.
(Oct. 6, 2016, 3:28 PM), h…
Mike Shields,
Amazon Looms Quietly in Digital Ad Landscape
Wall St. J.
(Oct. 6, 2016, 3:28 PM),
-1475782113 [http://
perma.cc/5ACL-MJ7D].
391
See
Eric Newcomer,
Uber
Draws Fresh Amazon Comparisons as Growth Trumps Profit
Bloomberg
(July 1,…
See
Eric Newcomer,
Uber
Draws Fresh Amazon Comparisons as Growth Trumps Profit
Bloomberg
(July 1, 2015, 12:30 AM),
-draws-fresh-comparison-with-amazon-as-growth-trumps-profit [http://perma.cc/AYF9 -9RJ7].
Uber
does not just lose money in the aggregate by reinvesting more than it generates, but also by pricing rides below what it pays drivers. In other words, it is pricing below its variable costs—which enforcers traditionally read as a sign of predatory pricing. “As anyone who has taken an
Uber
and talked to the driver knows, sometimes the fare collected from the rider is less than what
Uber
pays the driver.”
Id.
392
Charles Clover & Leslie Hook,
Uber
Losing More than $1bn a Year in China
Fin.
Times
(Feb. 18, 201…
Charles Clover & Leslie Hook,
Uber
Losing More than $1bn a Year in China
Fin.
Times
(Feb. 18, 2016, 7:25 PM),
-8564e7528e54 [http://perma.cc/6U6P-JQ7Q].
393
“‘They’re wise to expand as fast as they can,’ said Lou Shipley, a lecturer at the MIT Slo…
“‘They’re wise to expand as fast as they can,’ said Lou Shipley, a lecturer at the MIT Sloan School of Management. ‘I would liken it to what Amazon did with books.’” Newcomer,
supra
note 391.
394
Douglas MacMillan & Telis Demos,
Uber
Valued at More than $50 Billion
Wall St. J. (
July 31, 2015,…
Douglas MacMillan & Telis Demos,
Uber
Valued at More than $50 Billion
Wall St. J. (
July 31, 2015, 8:50 PM),
-1438367457 [http://perma.cc/T6GW-SY2J].
395
Leslie Hook,
Uber
Cranks Up Ride-Hailing Battle with $3.5
bn
Saudi Investment
Fin.
Times
(June 2,…
Leslie Hook,
Uber
Cranks Up Ride-Hailing Battle with $3.5
bn
Saudi Investment
Fin.
Times
(June 2, 2016),
[http://
perma.cc/RXV8-TPBP].
396
Eugene Kim,
Billionaire VC Says that Most Companies Will Eventually Pay an Amazon ‘Tax
Bus. Insi…
Eugene Kim,
Billionaire VC Says that Most Companies Will Eventually Pay an Amazon ‘Tax
Bus. Insider
(Jan. 21, 2016, 4:21 AM),
-says-that-most-companies-will-eventually-pay-an-Amazon-tax/articleshow/50662558.cms [http://
perma.cc/4ZGS-VSL7].
397
The Supreme Court has affirmed the validity of EMH.
See
Halliburton Co. v. Erica P. John Fund,
134…
The Supreme Court has affirmed the validity of EMH.
See
Halliburton Co. v. Erica P. John Fund,
134 S. Ct. 2398, 2409-11, 2417
(2014).
398
Horizontal Merger Guidelines
supra
note 44, at 4 (“For example, a purchase price in excess of t…
Horizontal Merger Guidelines
supra
note 44, at 4 (“For example, a purchase price in excess of the acquired firm’s stand-alone market value may indicate that the acquiring firm is paying a premium because it expects to be able to reduce competition or to achieve efficiencies.”).
399
Ironically, the logic that is motivating investors—the idea that it is worth encouraging platfor…
Ironically, the logic that is motivating investors—the idea that it is worth encouraging platforms to bleed money to establish a dominant position and capture the market, at which point these firms will be able to recoup those losses—maps on to the logic underpinning current predatory pricing doctrine. The main issue is how narrowly the law currently conceives of recoupment, which does not account for how Amazon can leverage its multiple lines of business.
400
See
Tim Hwang & Madeleine Clare
Elish
The Mirage of the Marketplace: The
Disingenuous Ways
Uber
H…
See
Tim Hwang & Madeleine Clare
Elish
The Mirage of the Marketplace: The
Disingenuous Ways
Uber
Hides Behind
Its Algorithm
Slate
(July 27, 2015, 6:00 AM),
_and
_the_mirage_of_the_marketplace.html [http://perma.cc/B5UR-P9PN].
401
See
Felix Salmon,
Why the Internet Is Perfect for Price Discrimination
Reuters (
Sept. 3, 2013), h…
See
Felix Salmon,
Why the Internet Is Perfect for Price Discrimination
Reuters (
Sept. 3, 2013),
[http://perma.cc/NZ4E-SVJJ].
402
See
David Singh Grewal,
Before Peer Production: Infrastructure Gaps and the Architecture of Openne…
See
David Singh Grewal,
Before Peer Production: Infrastructure Gaps and the Architecture of Openness in Synthetic Biology
, 20
Stan. Tech. L. Rev
. (forthcoming 2017).
403
The Justice Department wrote, “[A]s more retailers purchase
Bazaarvoice’s
PRR platform, the
Bazaar…
The Justice Department wrote, “[A]s more retailers purchase
Bazaarvoice’s
PRR platform, the
Bazaarvoice
network becomes more valuable for manufacturers because it will
allow[
] them to syndicate content to a greater number of retail outlets. The feedback between the manufacturers and retailers creates a network effect that is a significant and durable competitive advantage for
Bazaarvoice
.”
Complaint at 18, United States v.
Bazaarvoice
, Inc., No. 13-0133 2014 (N.D. Cal. Jan. 10, 2013), 2014 WL 203966.
404
Terrell
McSweeny
Comm’r
, FTC, Remarks to the U.S. Chamber of Commerce at
TecNation
2016 (Sept. 20…
Terrell
McSweeny
Comm’r
, FTC, Remarks to the U.S. Chamber of Commerce at
TecNation
2016 (Sept. 20, 2016),
/files/documents
/public
_state
ments
/985773
/mcsweeny_-_tecnation_2016_9-20-16.pdf [http://
perma
.cc
/N7GA-YN5P].
405
See supra
Section I.A.
See supra
Section I.A.
406
See
Stucke
supra
note 38;
Horizontal Merger
Guidelines
supra
note 44, at 2.
See
Stucke
supra
note 38;
Horizontal Merger
Guidelines
supra
note 44, at 2.
407
See
K.
Sabeel
Rahman & Lina Khan,
Restoring Competition
in the U.S. Economy
in
Untamed: How To Che…
See
K.
Sabeel
Rahman & Lina Khan,
Restoring Competition
in the U.S. Economy
in
Untamed: How To Check Corporate, Financial, and Monopoly Power
18, 18 (Nell Abernathy et al. eds., 2016).
408
See
Leslie,
supra
note 94, at 1753.
See
Leslie,
supra
note 94, at 1753.
409
See id.
at
1759.
See id.
at
1759.
410
Id.
at 1758.
Id.
at 1758.
411
Admittedly, this approach would not reach vertical integration that arose due to internal expansio…
Admittedly, this approach would not reach vertical integration that arose due to internal expansion. That type of vertical integration could be covered by the prophylactic approach discussed below.
412
For a list of FTC thresholds, see Revised Jurisdictional Thresholds for Section 7A of the Clayton …
For a list of FTC thresholds, see Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 81 Fed. Reg. 4,299 (Jan. 26, 2016).
413
See
Stucke
& Grunes
supra
note 47, at 74.
See
Stucke
& Grunes
supra
note 47, at 74.
414
For some of the potential concerns raised by this deal, see Kevin Carty,
Will
Uber
Rouse the Trust…
For some of the potential concerns raised by this deal, see Kevin Carty,
Will
Uber
Rouse the Trustbusters
Slate
(Aug. 9, 2016, 11:22 AM),
/articles/technology
/future_tense/2016/08/uber_s_deal_with_didi_chuxing_could_open_it_up_to_antitrust _scrutiny.html [http://perma.cc/F4NT-AYRZ].
415
See id.
See generally
Stucke
& Grunes,
supra
note 47 (analyzing how Big Data issues relate to comp…
See id.
See generally
Stucke
& Grunes,
supra
note 47 (analyzing how Big Data issues relate to competition laws and policy).
416
See, e.g.
, Scott &
Kanter
supra
note 384; Benjamin Edelman & Damien
Geradin
Android and Competit…
See, e.g.
, Scott &
Kanter
supra
note 384; Benjamin Edelman & Damien
Geradin
Android and Competition Law: Exploring and Assessing Google’s Practices in Mobile
1-2 (Harvard Bus. Sch. Negotiation, Orgs. &
Mkts
. Unit, Working Paper No. 17-018, 2016),
ssrn.com/abstract=2833476 [http://perma.cc/7JA6-RXPN].
417
This is a version of the “Separations Principle” that Tim Wu recommends for information indust…
This is a version of the “Separations Principle” that Tim Wu recommends for information industries.
Wu
supra
note 316, at 305 (“More than anything else, the preceding chapters chronicle the corrupting effects of vertically integrated power. A strong stake in more than one layer of the industry leaves a firm in a position of inherent conflict of interest. You cannot serve two masters, and the objectives of creating information are often at odds with those of disseminating it. That is the very first reason for the Separations Principle.”).
418
See supra
Section IV.D.
See supra
Section IV.D.
419
This prophylactic approach has also been applied in the power industry. For example, in 1996, the …
This prophylactic approach has also been applied in the power industry. For example, in 1996, the Federal Energy Regulatory Commission issued a mandate requiring vertically integrated utilities to “functionally separate their generation, transmission, and distribution business, and provide transmission access to all generators on transparent, nondiscriminatory terms.” Sandeep
Vaheesan
Reviving an Epithet: A New Way Forward for the Essential Facilities Doctrine
, 3
Utah L. Rev.
911, 927 (2010).
420
See, e.g.
Saule
T.
Omarova
The Merchants of Wall Street: Banking, Commerce, and Commodities
, 98
M…
See, e.g.
Saule
T.
Omarova
The Merchants of Wall Street: Banking, Commerce, and Commodities
, 98
Minn. L. Rev.
265, 268, 274-75 (2013); Bernard Shull,
Banking and Commerce in the United States
, 18 J.
Banking & Fin
. 255, 267 (1994); Bernard Shull,
The
Separation of Banking and Commerce in the United States: An Examination of Principal Issues
, 8
Fin.
Mkts
Institutions & Instruments
1, 1 (1999).
421
Omarova
supra
note 420, at 268.
Omarova
supra
note 420, at 268.
422
Bank Holding Company Act of 1956, Pub. L. No. 84-511, § 4, 70 Stat. 133, 135-37 (codified as ame…
Bank Holding Company Act of 1956, Pub. L. No. 84-511, § 4, 70 Stat. 133, 135-37 (codified as amended at 12 U.S.C. §§ 1841-48 (2012)).
423
Omarova
supra
note 420, at 268 (citing 12 U.S.C. § 1843(k
)(
1)(A)).
Omarova
supra
note 420, at 268 (citing 12 U.S.C. § 1843(k
)(
1)(A)).
424
Id.
at 275.
Id.
at 275.
425
See id.
at
275-76.
See id.
at
275-76.
426
Id.
at 276.
Id.
at 276.
427
Id.
Id.
428
Id.
at 275-77.
Notably, several banking regulations that previously sought to prevent concentratio…
Id.
at 275-77.
Notably, several banking regulations that previously sought to prevent concentration of systemic risk in our financial system were repealed by Congress in the 1990s—leading in part to the “too-big-to-fail” crisis.
See
Johnson & Kwak,
supra
note 179.
429
See
Sara E. Needleman & Greg
Bensinger
Small Businesses Are Finding an Unlikely Banker: Amazon
W…
See
Sara E. Needleman & Greg
Bensinger
Small Businesses Are Finding an Unlikely Banker: Amazon
Wall St. J.
(Oct. 4, 2012, 1:17 PM),
/SB10000
87239
39
0443
493304578034103049644978 [http://perma.cc/PUH8-XFKS]; Eric Newcomer & Olivia
Zaleski
Inside
Uber’s
Auto-Lease Machine, Where Almost Anyone Can Get a Car
Bloomberg
(May 31, 2016, 11:00 AM),
/news/
articles/2016 -05-31/inside-uber-s-auto-lease-machine-where-almost-anyone-can-get-a-car [http://
perma.cc
/A7AM-VZRJ]; Richard Waters & Barney
Jopson
Google Makes First Foray into Credit Business
Fin.
Times
(Oct. 7, 2012),
/content
/55be35f2-1093-11e2 -a5f7-00144feabdc0 [http://perma.cc/NC6P-2EEG].
430
Chris
Isidore
Target: Hacking Hit up to 110 Million Customers
CNN Money
(Jan. 11, 2014, 6:20 PM)…
Chris
Isidore
Target: Hacking Hit up to 110 Million Customers
CNN Money
(Jan. 11, 2014, 6:20 PM),
[http://
perma.cc/D6W3-TM75].
431
There have been some policy debates about whether Google should be considered “critical infrastr…
There have been some policy debates about whether Google should be considered “critical infrastructure.”
See, e.g.
, Eric
Engleman
Google Exception in Obama’s Cyber Order Questioned as Unwise Gap
Bloomberg
(Mar. 5, 2013, 12:01 AM),
/news/articles/2013-03-05/google-exception-in-obama-s-cyber-order-questioned-as-unwise -gap [http://perma.cc/5Z2M-HVU3]. That debate has not yet extended to Amazon, but—given the growth of Amazon Web Services—it may be appropriate.
432
That platforms’ concentration of economic power also concentrates political power is becoming in…
That platforms’ concentration of economic power also concentrates political power is becoming increasingly evident.
Amazon, Google, and
Uber
have all shifted regulatory debates and—in some cases—directly shaped outcomes.
See
Liam Dillon,
Uber
and
Lyft
Are Winning at the State Capitol—Here’s Why
, L.A.
Times
(May 7, 2016, 12:05 AM),
.com
/politics/la-pol-sac
-why
-uber
-is-winning-in-california-20160507-snap-html
story.html [http://perma.cc/7BRX-F39U]; Peter
Elkind
& Doris Burke,
Amazon’s (Not So Secret) War on Taxes
Fortune
(May 23, 2013, 10:42 AM),
/05/23/amazons-not -so-secret-war-on-taxes [http://
perma
.cc/LN8G-GTNN]; Simon Marks & Harry Davies,
Revealed: How Google Enlisted Members of US Congress It Bankrolled To Fight $6bn EU Antitrust Case
Guardian
, (Dec. 17, 2015, 7:30 AM),
/world/2015
/dec
/17/google-lobbyists-congress-antitrust-brussels-eu [http://perma.cc/NLA7-KNVC]; Anna Palmer & Scott Wong,
Lobbying Drives
Uber’s
Expansion
Politico
, (Sept. 18, 2013, 11:16 PM),
.com/story/2013/09/uber-taxi-lobbying-expansion-097028 [http://perma.cc/B3LA-7WUD]; Sam
Jewler
& Taylor Lincoln,
Mission Creep-y: Google Is Quietly Becoming One of the Nation’s Most Powerful Political Forces While Expanding Its Information-Collection Empire
Pub. Citizen
(Nov. 2014),
/Google
-Political-Spending-Mission-Creepy.pdf [http://perma.cc/83QR-X3PA]; Martin Moore,
Tech Giants and Civil Power
Ctr. for Study Media, Comm. & Power
(Apr. 2016),
www
.kcl.ac.uk/sspp/policy-institute/CMCP/Tech-Giants-and-Civic -Power.pdf [http://
perma
.cc/D76X-NALM].
433
See
LaVecchia
& Mitchell,
supra
note 6; Barry C. Lynn,
Killing the Competition: How New Monopolies…
See
LaVecchia
& Mitchell,
supra
note 6; Barry C. Lynn,
Killing the Competition: How New Monopolies Are Destroying Open Markets
Harper’s Mag
., Feb. 2012, at 27.
434
William Boyd,
Public Utility and the Low-Carbon Future,
61
UCLA L. Rev.
1614, 1616 (2014).
William Boyd,
Public Utility and the Low-Carbon Future,
61
UCLA L. Rev.
1614, 1616 (2014).
435
Id.
at 1643.
Id.
at 1643.
436
See
Christopher Leslie,
Antitrust Law as Public Interest Law
, 2
U.C. Irvine L. Rev.
885, 887 (2012…
See
Christopher Leslie,
Antitrust Law as Public Interest Law
, 2
U.C. Irvine L. Rev.
885, 887 (2012).
437
94 U.S. 113 (1877).
94 U.S. 113 (1877).
438
Id.
at 126.
Id.
at 126.
439
Id.
at 130.
Id.
at 130.
440
Id.
Id.
441
Boyd,
supra
note 434, at 1635.
Boyd,
supra
note 434, at 1635.
442
Id.
at 1643.
Id.
at 1643.
443
See
K.
Sabeel
Rahman,
From Railroad to
Uber
: Curbing the New Corporate Power
Bos
. Rev.
(May 4, 20…
See
K.
Sabeel
Rahman,
From Railroad to
Uber
: Curbing the New Corporate Power
Bos
. Rev.
(May 4, 2015),
-power [http://perma.cc/Y6TU-E449]; K.
Sabeel
Rahman, Private Power and Public Purpose: The Public Utility Concept and the Future of Corporate Law in the New Gilded Age, Address at the Association of American Law Schools’ 110th Annual Meeting (Jan. 8, 2016) (transcript on file with author).
444
Net neutrality is a form of common carrier regime. For an exposition of why net neutrality and sea…
Net neutrality is a form of common carrier regime. For an exposition of why net neutrality and search neutrality should apply to major platforms, see Frank Pasquale,
Internet Nondiscrimination Principles: Commercial Ethics for Carriers and Search Engines
, 2008
U. Chi. Legal F.
263.
445
A “fair return” has been variously defined. For an overview of public utility regulatory regim…
A “fair return” has been variously defined. For an overview of public utility regulatory regimes, see
William A. Prendergast,
Public Utilities and the People
2 (1933) (“What is a utility? . . . It is commonly used to denote a business the product or use of which serves the public
generally .
. . . [It is] a business which cannot choose its clients or customers.”).
446
I am indebted to David Kim for making this connection at the
Yale Law Journal
Author Seminar Works…
I am indebted to David Kim for making this connection at the
Yale Law Journal
Author Seminar Workshop on October 12, 2016.
447
Boyd,
supra
note 434, at 1656.
Boyd,
supra
note 434, at 1656.
448
Open Internet
Fed. Comm. Commission
, http://www.fcc.gov/general/open-internet [http://
perma.cc/Z…
Open Internet
Fed. Comm. Commission
[http://
perma.cc/ZL6S-6Q38].
449
Vaheesan
supra
note 419, at 911
Vaheesan
supra
note 419, at 911
450
708 F.2d 1081, 1132-33 (7th Cir. 1982).
708 F.2d 1081, 1132-33 (7th Cir. 1982).
451
Id.
This last factor allows for efficiency defenses.
Id.
This last factor allows for efficiency defenses.
452
Vaheesan
supra
note 419, at 921.
Vaheesan
supra
note 419, at 921.
453
Id.
at 918 (citing Marianna Lao,
Networks, Access, and ‘Essential Facilities
62
SMU L. Rev.
557 …
Id.
at 918 (citing Marianna Lao,
Networks, Access, and ‘Essential Facilities
62
SMU L. Rev.
557 (2009)).
The three cases that
Vaheesan
identifies are
United States v. Terminal Railroad
Ass’n
, 224 U.S. 383 (1912);
United States v. Associated Press
, 326 U.S. 1 (1945); and
Otter Tail Power Co. v. United States
, 410 U.S. 366 (1973).
454
See
Verizon
Commc’ns
Inc. v. Law Offices of Curtis V.
Trinko
, LLP, 540 U.S. 398, 410 (2004).
See
Verizon
Commc’ns
Inc. v. Law Offices of Curtis V.
Trinko
, LLP, 540 U.S. 398, 410 (2004).
455
See
Brett
Frischmann
& Spencer Weber Waller,
Revitalizing Essential Facilities
, 75
Antitrust L.J.
See
Brett
Frischmann
& Spencer Weber Waller,
Revitalizing Essential Facilities
, 75
Antitrust L.J.
1, 3 (2008).
456
Id.
at 4.
Id.
at 4.
457
For more pieces grappling with the possibility of applying the “essential facilities” doctrine…
For more pieces grappling with the possibility of applying the “essential facilities” doctrine to internet platforms, see Frank Pasquale,
Dominant Search Engines: An Essential Cultural & Political Facility
in
The Next Digital Decade 401 (
Berin
Szoka
et al. eds., 2011); and Zachary Abrahamson, Comment,
Essential Data
, 124
Yale
L.J. 576 (2014).
458
See a Giant Problem
Economist
(Sept. 17, 2016), http://
/news
/leaders/…
See a Giant Problem
Economist
(Sept. 17, 2016),
.com
/news
/leaders/21707210-rise-corporate-colossus-threatens-both-competition-and-legit
macy-bu
iness [http://perma.cc/DNN2-YKL3] (“[T]he most striking feature of business today
is .
. . the entrenchment of a group of superstar companies at the heart of the global economy . . . . But they have two big faults. They are squashing competition, and they are using the darker arts of management to stay ahead.”); Davidoff Solomon,
supra
note 319.
459
In a striking speech welcoming the public and political attention towards antitrust, Assistant Att…
In a striking speech welcoming the public and political attention towards antitrust, Assistant Attorney General for Antitrust
Renata
Hesse
stated, “Antitrust is too important to be left solely in the hands of antitrust experts.”
Renata
Hesse
, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice, Remarks at the 2016 Global Antitrust Enforcement Symposium: And Never the Twain Shall Meet? Connecting Popular and Professional Visions for Antitrust Enforcement (Sept. 20, 2016),
-general-
renata
hesse
-antitrust-division-delivers-opening [
].
460
Theo Francis & Ryan Knutson,
Wave of Megadeals Tests Antitrust Limits in U.S.
Wall St. J.
(Oct. 1…
Theo Francis & Ryan Knutson,
Wave of Megadeals Tests Antitrust Limits in U.S.
Wall St. J.
(Oct. 18, 2015),
-u-s-1445213306 [http://perma.cc/WA8J-ATZT].
461
Too Much of a Good Thing
Economist (
Mar. 26, 2016), http://
www
.economist
.com
/news/briefing/21…
Too Much of a Good Thing
Economist (
Mar. 26, 2016),
www
.economist
.com
/news/briefing/21695385-profits-are-too-high-america-needs-giant-dose-competition-too -much-good-thing [http://perma.cc/4YPA-G3HB].
462
See
Eduardo Porter,
With Competition in Tatters, the Rip of Inequality Widens
, N.Y.
Times
(July 12…
See
Eduardo Porter,
With Competition in Tatters, the Rip of Inequality Widens
, N.Y.
Times
(July 12, 2016),
-competition-inequality.html [http://perma.cc/8Z8A-KCFJ];
America’s Monopoly Problem
New Am
.,
[http://perma.cc/64YF-6KZV]; Marc
Jarsulic
et al.,
Reviving Antitrust
Ctr. for Am. Progress (
June 29, 2016),
/issues/economy
/report
/2016/06/29/140613/reviving-antitrust [http://perma.cc/QCV8-52TV];
Making Antitrust Work for the 21st Century
Ctr. for Equitable Growth
/event/making-antitrust-work-for-the-21st-century [http://perma.cc/HAX7-BRK2];
Untamed: How To Check Corporate, Financial, and Monopoly Power
, Roosevelt Inst.
2016),
-Pages
.pdf [http://perma.cc/FM9R-DXJJ].
463
See
Neil Irwin,
Liberal Economists Think Big Companies Are Too Powerful. Hillary Clinton Agrees
N…
See
Neil Irwin,
Liberal Economists Think Big Companies Are Too Powerful. Hillary Clinton Agrees
N.Y. Times
(Oct. 4, 2016),
eral-economists-think-big-companies-are-too-powerful-hillary-clinton-agrees.html [http://
perma.cc/WXA9-RX2J];
Hillary Clinton’s Vision for an Economy Where Our Businesses, Our Workers, and Our Consumers Grow and Prosper Together
Hillary Clinton,
-vision-for-an-economy-where-our-businesses-our-workers-and-our-consumers-grow-and -
pros
per-together
[http://perma.cc/2EHG-PT9Z] (“Promote Free and Fair Competition and Stopping Big Businesses from Hurting Small Businesses”).
464
One of the most striking aspects of
Hesse’s
speech is that she distances herself from a strict con…
One of the most striking aspects of
Hesse’s
speech is that she distances herself from a strict consumer-welfare based approach—departing from current orthodoxy:
But, although we believe competition maximizes consumer welfare, the ultimate standard by which we judge practices is their effect on competition, not on consumer welfare. It is certainly relevant when a merger will lead to higher prices and reduced output because these results are hallmarks of reduced competition. But the law instructs us to examine whether a merger may substantially lessen competition and that means we must sometimes look to other evidence of harm to competition.
Hesse
supra
note 460.
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David
Streitfeld
As Competition Wanes, Amazon Cuts Back Discounts
N.Y. Times
(July 4, 2013),
-cuts-back-its-discounts.html [http://perma.cc/J48L-8CPZ].
Ida Tarbell,
John D. Rockefeller: A Character Study
, 25
McClure’s Mag. 227, 245 (1905).
Amazon: Ponzi Scheme or Wal-Mart of the Web
Slate: Moneybox
(Feb. 8, 2000, 5:52 PM),
/2000/02
/amazon_ponzi_scheme
_or
_wal
mart_of_the_web.html [http://perma.cc/XQ22-YR9K].
Allison Enright,
Amazon Sales Climb 22% in Q4 and 20% in 2015
Internet Retailer
(Jan. 28, 2016, 4:06 PM),
-q4
-and-20-2015 [http://perma.cc/N6S3-XTSB].
Shelly Banjo & Paul
Ziobro
After Decades of Toil, Web Services Remain Small for Many Retailers
Wall St. J.
(Aug. 27, 2013, 8:31 PM),
/SB10001424127887324906304579039101568397122 [http://perma.cc/C8QJ-JYRN].
Olivia
LaVecchia
& Stacy Mitchell,
Amazon’s Stranglehold: How the Company’s Tightening Grip Is Stifling Competition, Eroding Jobs, and Threatening Communities
Inst. for Loc. Self-Reliance
10 (Nov. 2016),
/ILSR
_Amazon
Report
_final.pdf [http://perma.cc/A4ND-2NDJ].
Amazon Posts a Profit
, CNN
Money
(Jan. 22, 2002, 3:39 PM),
.cnn
.com
/2002
/01
/22/technology/amazon [http://perma.cc/SMF3-2UCK].
Partly due to the success of Amazon Web Services, Amazon has recently begun reporting consistent profits.
See
Nick
Wingfield
Amazon’s Cloud Business Lifts Its Profit to a Record
N.Y. Times
(Apr. 28, 2016),
-q1-earnings.html [http://perma.cc/ZHL6-JEZU]. Though this trend departs from the history on which I focus, my analysis stands given that I am interested in (1) the losses Amazon formerly undertook to establish dominant positions in certain sectors, (2) the investor backing and enthusiasm that Amazon consistently maintained
despite
these losses, and (3) whether these facts challenge the assumption—embedded in current doctrine—that losing money is only desirable (and hence rational)
if
followed by recoupment.
See id.
(“Amazon often flip-flops between showing profits and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company much wider leeway to do so than other technology companies of its size often receive, because of its history of delivering outsize growth.”);
see also
infra
Part III.
Amazon.com, Inc., Annual Report (Form 10-K) 17 (Jan. 29, 2016),
.sec .gov
/Archives
/edgar/data/1018724/000101872416000172/amzn-20151231x10k.htm [http://
perma.cc
‌‌
/GB6A-YWZT].
10
Matt
Krantz
Amazon Breaks Barrier: Now Most Costly Stock
, USA T
oday
(Nov. 11, 2015, 5:16 PM),
-valuation
-price/75519460 [http://perma.cc/P5BA-5REB].
11
Meagan Clark & Angelo Young,
Amazon: Nearly 20 Years in Business and It Still Doesn’t Make Money, but Investors Don’t Seem To Care
Int’l Bus. Times
(Dec. 18, 2013, 10:37 AM),
-dont-
seem-
care-1513368 [http://perma.cc/6NMH-HNC4].
12
Krantz
supra
note 10 (“Amazon’s [price/earnings ratio] isn’t just high relative to the market—but the stock is richly valued even if the company achieves the high expectations investors have. Amazon’s [price/earnings ratio] is now 14 times higher than the astounding 67% annual growth analysts expect long term from the company. That’s an off-the-charts valuation using traditional rules of thumb. Investors start to think a stock is pricey when its [price/earnings ratio] is just 2 times its expected growth rate.”).
13
See, e.g.
Farhad
Manjoo
How Amazon’s Long Game Yielded a Retail Juggernaut
N.Y. Times
(Nov. 18, 2015),
-long-game-yielded-a-retail-juggernaut.html [http://perma.cc/62WG-KQ67] (“For years, observers have wondered if Amazon’s shopping business—you know, its main business—could ever really work. Investors gave Mr. Bezos enormous leeway to spend billions building out a distribution-center infrastructure, but it remained a semi-open question if the scale and pace of investments would ever pay off. Could this company ever make a whole lot of money selling so much for so little?”).
14
Sam Moore,
Amazon Commands Nearly Half of Consumers’ First Product Search
Bloom- Reach
(Oct. 6, 2015),
-consumers-first-product-search [http://perma.cc/LVD9-F6W9].
15
Karsten
Strauss,
America’s Most Reputable Companies, 2016: Amazon Tops the List
Forbes
(Mar. 29, 2016, 12:00 PM),
/29
/americas-most-reputable-companies-2016-amazon-tops-the-list [http://perma.cc
/MN74
-K3NB];
see also
Melissa Hoffmann,
Amazon Has the Best Consumer Perception of Any Brand
AdWeek
(July 16, 2014),
/ama
zon -has-best-consumer-perception-any-brand-158945 [http://perma.cc/FG7W-YD7N] (observing that Amazon continues to be the best-perceived brand despite negative news reports).
16
David
Streitfeld
A New Book Portrays Amazon as Bully
N.Y. Times: Bits Blog
(Oct. 22, 2013, 6:00 AM),
-as-bully [http://perma.cc/E893-5EEN].
17
An article on Amazon’s treatment of workers in its warehouses,
see
Spencer
Soper
Inside Amazon’s Warehouse
Morning Call
(Aug. 17, 2015, 12:13 PM),
/news
/local
/amazon/mc-allentown-amazon-complaints-20110917-story.html [http://
perma.cc
/6BXK-RPCX], was a finalist for the prestigious Loeb Award,
see Morning Call’s Watchdog Journalism Recognized
Morning Call (
June 2, 2012),
-02/news/mc-morning-call-keystones-20120602_1_amazon-warehouse-gas-explosion-key
stone
-press-awards [http://
perma.cc
/9F3E-EBZS]. A
New York Times
piece on Amazon’s white-collar workplace generated more than five million page views, ranking among the
Times
’s
most-read pieces of 2015.
See
Nick
Wingfield
& Ravi
Somaiya
Amazon Spars with the Times over Investigative Article
N.Y. Times
(Oct. 19, 2015),
/20
/business/amazon-spars-with-the-times-over-investigative-article.html [http://
perma.cc
/VDG6-WZZQ].
18
David
Streitfeld
supra
note
16
19
See
Paul Krugman,
Amazon’s Monopsony Is Not O.K
, N.Y. Times
(Oct. 19, 2014),
www
.nytimes
.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html [http://
perma.cc/KJ2E-8ZPX] (“Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”).
20
See
Farhad
Manjoo
Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future
N.Y. Times
(Jan. 20, 2016),
-5-will-dominate-digital-life-for-foreseeable-future.html [http://perma.cc/YH6N-KG6J] (“By just about every measure worth collecting, these five American consumer technology companies [Amazon, Apple, Facebook, Google, and Microsoft] are getting larger, more entrenched in their own sectors, more powerful in new sectors and better insulated against surprising competition from upstarts. Though competition between the five remains fierce—and each year, a few of them seem up and a few down—it’s becoming harder to picture how any one of them, let alone two or three, may cede their growing clout in every aspect of American business and society.”); Brooke Masters,
Hooked on a Feeling that Amazon Is Too Addictive by Far
Fin.
Times
(Mar. 11, 2016),
/d2d2e376-e768-11e5-bc31-138df2ae9ee6.html [http://perma.cc/X25D-6NTS].
21
At a recent hearing held by the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, both Republican and Democratic senators interrogated Assistant Attorney General for Antitrust Bill Baer and Federal Trade Commission (FTC) Chair Edith Ramirez about their treatment of online platforms, and urged the Department of Justice (DOJ) and FTC to study closely the anticompetitive hazards these dominant firms may pose.
See
Oversight of the Enforcement of the Antitrust Laws: Hearing
Before the
Subcomm
on
Antitrust, Competition Policy & Consumer Rights of the S. Comm. on the Judiciary
, 114th Cong. (2016);
see also
Oversight of the Antitrust Enforcement Agencies: Hearing Before the
Subcomm
on
Regulatory Reform, Commercial & Antitrust Law of the H. Comm. on the Judiciary
, 114th Cong. (2015).
22
Vauhini
Vara
Is Amazon Creating a Cultural Monopoly
New Yorker
(Aug. 23, 2015),
‌‌
poly [http://
perma.cc/VZ84-8UX8].
23
See
United States v. Apple Inc.
, 952 F. Supp. 2d 638, 650 (S.D.N.Y. 2013).
24
See, e.g.
, Nat’l Collegiate Athletic
Ass’n
v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107-08 (1984) (“‘Congress designed the Sherman Act as a ‘consumer welfare
prescription.’ .
. . Restrictions on price and output are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit.” (quoting Reiter v.
Sonotone
Corp., 442 U.S. 330, 343 (1979)));
see also
infra
Part I.
25
See, e.g.
Joe S. Bain, Industrial Organization
(2d ed. 1968);
Donald F. Turner & Carl
Kaysen
, Antitrust Policy: An Economic and Legal Analysis
(1959); Joe S. Bain,
Workable Competition in Oligopoly: Theoretical Considerations and Some Empirical Evidence
, 40
Am.
Econ.
Rev
. 35, 36-38 (1950).
The
institutionalists
—scholars who emphasized the importance of social rules and organizations in producing economic outcomes—were also influential in this vein.
See, e.g
.,
John R. Commons, Legal Foundations of Capitalism
(1924).
26
See, e.g.
, United States v.
Phila
Nat’l Bank, 374 U.S. 321, 364-65 (1963).
27
See, e.g
., Brown Shoe Co. v. United States, 370 U.S. 294, 328-34 (1962).
28
See id.
29
I use “The Chicago School” to refer to the group of legal scholars and economists, primarily based at the University of Chicago, who developed neoclassical law and economics in the mid-twentieth century. But it is worth noting that a new group of scholars at the University of Chicago—such as Luigi
Zingales
and Guy
Rolnik
—have departed from the neoclassical approach and are studying market competition with an eye to power.
See, e.g.
Raghuram
Rajan
& Luigi
Zingales
, Saving Capitalism from the Capitalists
(2003).
See generally
ProMarket
[http://perma.cc/G3CD-45K2] (“This is the goal of the ‘
ProMarket
blog’: to educate the public about the many ways special interests subvert competition in order to make the market system work better.”).
30
Richard A. Posner,
The
Chicago School of Antitrust Analysis
, 127
U. Pa. L. Rev
. 925, 932 (1979). The key assumptions of price theory are “that demand curves slope downward, that an increase in the price of a product will reduce the demand for its complement, [and] that resources gravitate to areas where they will earn the highest return.”
Id.
at 928.
31
Marc Allen Eisner, Antitrust and the Triumph of Economics: Institutions, Expertise, and Policy Change
107 (1991).
32
See
Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (1978)
33
Eisner
supra
note 31, at 104.
34
George J. Stigler, The Organization of Industry
67 (1968).
35
Eisner
supra
note 31, at 105.
36
Id.
37
Bork,
supra
note 32, at 7 (“[T]he only legitimate goal of antitrust is the maximization of consumer welfare.”);
id.
at
405 (“The only goal that should guide interpretation of the antitrust laws is the welfare of consumers . . . . In judging consumer welfare, productive efficiency, the single most important factor contributing to that welfare, must be given due weight along with allocative efficiency.”);
see also
Daniel A. Crane,
The Tempting of Antitrust: Robert Bork and the Goals of Antitrust Policy
, 79
Antitrust L.J.
835, 847 (2014) (“Bork’s big move [was] his rejection of alternatives to efficiency or consumer welfare-oriented theories of antitrust
enforcement .
. . .”).
38
As has been widely noted, Bork defines consumer welfare not as consumer surplus but as total welfare. As a result, for Bork, outcomes that might otherwise be understood to harm consumers are not thought to reduce consumer welfare. For example, Bork concludes that wealth transfers from consumers to monopolist producers would not harm consumer welfare.
See
Bork
supra
note 32, at 110 (“Those who continue to buy after a monopoly is formed pay more for the same output, and that shifts income from them to the monopoly and its owners, who are also consumers. This is not dead-weight loss due to restriction of output but merely a shift in income between two classes of consumers. The consumer welfare model, which views consumers as a collectivity, does not take this income effect into account.”). For critiques of Bork’s conflation of consumer welfare and allocative efficiency, see John J. Flynn,
The Reagan Administration’s Antitrust Policy, “Original Intent” and the Legislative History of the Sherman Act
, 33
Antitrust Bull
. 259 (1988); Eleanor M. Fox,
The Modernization of Antitrust: A New Equilibrium
, 66
Cornell L. Rev
. 1140 (1981); Herbert
Hovenkamp
Antitrust’s
Protected Classes
, 88
Mich. L. Rev.
1 (1989); Robert H.
Lande
A Traditional and
Textualist
Analysis of the Goals of Antitrust: Efficiency, Preventing Theft from Consumers, and Consumer Choice
, 81
Fordham L. Rev.
2349 (2013) [hereinafter
Lande
A Traditional and
Textualist
Analysis
]; Robert H.
Lande
Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged
, 34
Hastings L.J.
65 (1982) [hereinafter
Lande
Wealth Transfers
]; and Maurice E.
Stucke
Reconsidering
Antitrust’s
Goals
, 53
B.C. L. Rev
. 551 (2012).
39
Reiter v.
Sonotone
Corp., 442 U.S. 330, 343 (1979) (quoting Bork,
supra
note 32, at 66).
40
See
Barak
Orbach
Foreword:
Antitrust’s
Pursuit of Purpose
, 81
Fordham L. Rev
. 2151, 2152 (2013).
41
1968 Merger Guidelines
U.S. Dep’t Just.
(1968),
/atr/legacy/2007/07/11/11247.pdf [http://perma.cc/884H-BGUH]. The guidelines continue, “Market structure is the focus of the Department’s merger policy chiefly because the conduct of the individual firms in a market tends to be controlled by the structure of that market.”
Id.
42
1982 Merger Guidelines
U.S. Dep’t Just.
(1982),
/atr
/legacy/2007/07/11/11248.pdf [http://perma.cc/7J32-ZQLY].
43
See, e.g.
Ginzburg
v.
Mem’l
Healthcare Sys., Inc., 993 F. Supp. 998, 1015 (S.D. Tex. 1997) (“[B]
ecause
‘the purpose of antitrust law is the promotion of consumer welfare,’ the court must analyze the antitrust injury question from the perspective of the
consumer .
. . . Thus, in order to show that he suffered an antitrust injury, ‘an antitrust plaintiff must prove that the challenged conduct affected the prices, quantity or quality of goods or services and not just his own welfare.’” (quoting
Reazin
v. Blue Cross & Blue Shield of Kan., 899 F.2d 951, 960 (10th Cir. 1990); Angelico v. Lehigh Valley Hosp., Inc., 984 F. Supp. 308, 312 (E.D. Pa. 1997))).
44
Horizontal Merger Guidelines
U.S. Dep’t Just.
& FTC
(Aug. 19, 2010),
www
.ftc
.gov
/sites/default
/files/attachments/merger-review/100819hmg.pdf [http://
perma.cc
/SQ8H-AB7P].
45
See
Emily Steel,
Under Regulators’ Scrutiny, Comcast and Time Warner Cable End Deal
N.Y. Times
(Apr. 24, 2015),
-time-warner-cable-deal.html [http://perma.cc/H4XS-9LMY].
46
Edith Ramirez, Chairwoman, FTC, Keynote Remarks at 10th Annual Global Antitrust Enforcement Symposium (Sept. 20, 2016) (citing Richard J. Gilbert & Hillary Greene,
Merging Innovation into Antitrust Agency Enforcement of the Clayton Act
, 83
Geo. Wash.
L.
Rev
. 1919, 1933 (2015)),
ftc-chair
woman
‌‌
edith-ramirez
[http://perma.cc/FNS8-6FL9].
47
And even merger review has “migrated towards assessing what
is measurable—namely short-term pricing effects
, primarily understood under their unilateral effects theory, and short-term productive efficiencies.”
Maurice E.
Stucke
& Allen P.
Grunes
, Big Data and Competition Policy 107
(2016).
“Price has become the common denominator in merger review.”
Id.
at 109.
48
Id.
at 108.
49
Crane,
supra
note 37, at 852.
50
See
Christopher R. Leslie,
Revisiting the Revisionist History of
Standard Oil
, 85
S. Cal. L. Rev
. 573, 575 (2012).
51
See
Ida Tarbell
A History of the Standard Oil Company 6-7 (1904)
52
Monopoly price refers to the price profitably above cost that a firm with monopoly power can charge.
53
Standard Oil Co. v. United States, 22 U.S. 1 (1911).
54
Leslie,
supra
note 50, at 576 (quoting United States v. A. Schrader’s Son, 264 F. 175, 181 (D. Ohio 1919),
rev’d
, 252 U.S. 85 (1920)).
55
Ch. 323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (2012)).
56
This legislative history makes plain that section 2 of the Clayton Act “was born of a desire by Congress to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers.”
FTC v. Anheuser–Busch, Inc
.,
363 U.S. 536, 543 (1959).
57
H.R. Rep. No
63-627, at 8 (1914).
Section 2 of the Clayton Act made it “unlawful for a firm to charge a low price in a targeted community while selling similar goods at a higher price elsewhere.” Herbert J.
Hovenkamp
United States Competition Policy in Crisis: 1890-1955
, 94
Minn. L. Rev.
311, 363 (2009).
58
Lawrence Shepard,
The Economic Effects of Repealing Fair Trade Laws
, 12
J. Consumer
Aff
220, 221 (1978) (“Fair trade marketing or ‘resale price maintenance’ enabled manufacturers to require retailers to charge producer-specified prices on certain goods.”).
59
See
Dr
Miles
Med. Co.
John D. Park & Sons Co., 220 U.S. 373 (1911).
60
Pub.
L. No. 75-314, 50 Stat. 693 (1937).
61
Schwegmann
Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951).
62
McGuire Act, Pub.
L. No. 82-542, 66 Stat. 632 (1952).
63
Pub.
L. No. 74-692, 49 Stat. 1526 (codified as amended at 15 U.S.C. §§ 13, 21 (2012)).
64
See
FTC v. Henry
Broch
& Co., 363 U.S. 166, 168 (1960) (“The Robinson-
Patman
Act was enacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power.”).
65
15 U.S.C. § 13(a) (2012).
66
§ 3, 49 Stat. at 1528.
67
See
United States v. Nat’l Dairy Prods. Corp., 372 U.S. 29, 35 (1963)
(“[I]n prohibiting sales at unreasonably low prices for the purpose of destroying competition, [the Act] listed as elements of the illegal conduct not only the intent to achieve a result—destruction of competition—but also the act—selling at unreasonably low prices—done in furtherance of that design or purpose.”
).
68
See id.
at
37.
69
Id
70
See, e.g
., Moore v. Mead’s Fine Bread Co., 348 U.S. 115, 119 (1954).
71
Id.
This basis for distinguishing legitimate from illegitimate price-cutting echoed other decisions.
See
FTC v. Morton Salt Co
, 334 U.S. 37, 43 (1948) (“The legislative history of the Robinson-
Patman
Act makes it abundantly clear that Congress considered it to be an evil that a large buyer could secure a competitive advantage over a small buyer solely because of the large buyer’s quantity purchasing ability. The Robinson-
Patman
Act was passed to deprive a large buyer of such
advantages .
. . .”);
United States v. N.Y.
Great Atl. & Pac. Tea Co., 173 F.2d 79
(7th Cir. 1949).
72
386 U.S. 685 (1967).
73
Id.
at 703.
74
Id.
at 696-97.
75
Id.
at 689.
76
Id.
at 706 (Stewart, J., dissenting).
77
Ward S. Bowman,
Restraint of Trade by the Supreme Court: The
Utah Pie
Case
77
Yale L.J
. 70,
86 (1967).
78
Id.
at 70.
79
Bork
supra
note 32, at 387.
80
Id.
at 154, 382.
81
See
Phillip
Areeda
& Donald F. Turner
Antitrust Law: An Analysis of Antitrust Principles and Their Application
189-90 (1978);
Herbert
Hovenkamp
, Economics and Federal Antitrust Law
188-89 (1985);
Richard A. Posner
Antitrust Law: An Economic Perspective
193-94 (1976).
82
See
Jonathan B. Baker,
Predatory Pricing After
Brooke Group
An Economic Perspective
, 62
Antitrust L.J
. 585, 586 (1994) (“The Chicago School view of predatory pricing was perhaps best captured by a 1987 dispute between two FTC Commissioners over the aptness of a metaphor: the animal that best represents price predation. For one Commissioner, predatory pricing was a ‘white tiger,’ an extremely rare creature. For the other Commissioner, price predation more closely resembled a ‘unicorn,’ a complete myth. The narrow spectrum of views between a white tiger and a unicorn fairly reflects the Chicago School view that predatory pricing is almost always irrational, and so is unlikely actually to occur.” (citations omitted)).
83
See
Bork
supra
note 32, at 149-55.
84
See
D. Daniel
Sokol
The
Transformation of Vertical Restraints: Per Se Illegality, the Rule of Reason, and Per Se Legality
, 79
Antitrust L.J
. 1003, 1014-15 (2014).
85
Id.
86
Id.
at 1008.
87
475 U.S. 574 (1986).
The government argued in the case as
amicus curiae
in support of Matsushita. Brief for the United States as Amicus Curiae Supporting Petitioners, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (No. 83-2004), 1985 WL 669667.
88
Matsushita
, 475 U.S. at 577-78.
89
Id.
at 580, 588-92.
90
Id.
at 589.
91
Id.
92
Bork
supra
note 32, at 157.
93
Matsushita
, 475 U.S. at 594;
see also
Cargill, Inc. v.
Monfort
of Colo., Inc., 479 U.S. 104, 116 (1986) (finding that a meat-packing company’s price-cutting practices constituted vigorous competition rather than an antitrust violation).
94
Christopher R. Leslie,
Predatory Pricing and Recoupment
, 113
Colum. L. Rev
. 1695, 1702 (2013).
95
Id.
96
See, e.g
., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989).
97
Matsushita
, 475 U.S. at 589.
98
509 U.S. 209 (1993).
99
Id.
at 213.
100
Id.
at 214.
101
Id.
at 216.
102
Id.
at 218.
103
Id.
at 226.
104
Id.
105
See id.
at
224 (“Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the
market,
and consumer welfare is enhanced.”).
106
As some commentators have noted, the Court’s reliance on scholarship advocating a retrenchment of enforcement against predatory pricing schemes did not reflect a dearth of opposing views.
See, e.g.
, F.M. Scherer,
Conservative Economics and Antitrust: A Variety of Influences
in
How the Chicago School Overshot the Mark
30, 33 (Robert
Pitofsky
ed., 2008) (“Already by the time of the
Matsushita
decision, there was a substantial scholarly literature documenting what should have passed for predation by any reasonable definition and showing the rationality of sharp price-cutting by a dominant firm to discourage new entrants. Since there was a diversity of scholarly views at the time key Supreme Court pronouncements were rendered on predation, the fault for ignoring one side of the scholarship must be attributed to the Court’s myopia or (without the obiter dictum) compelling facts, and not to economists’ contributions.” (
citation
omitted));
id.
at
34 (“If there was favoritism, it was not in the economic literature evaluated, but in the weighing of alternative perspectives.”).
107
Sokol
supra
note 84, at 1013 (“The recoupment prong eviscerated the
Utah Pie
standard and made it nearly impossible in practice for plaintiffs to win a primary line Robinson-
Patman
claim going forward.”). The only recent case in which plaintiffs survived a motion for summary judgment is
Spirit Airlines, Inc. v. Northwest Airlines, Inc
., 431 F.3d 917 (6th Cir. 2005), where the court denied summary judgment on the grounds that a reasonable trier of fact could find sufficient evidence of predatory pricing.
108
Sandeep
Vaheesan
Reconsidering
Brooke Group
Predatory Pricing in Light of the Empirical Learning
, 12
Berkeley
Bus.
L.J.
81, 82 (2015);
see also
Richard O.
Zerbe
, Jr. & Michael T. Mumford,
Does Predatory Pricing Exist? Economic Theory and the Courts
After
Brooke Group, 41
Antitrust Bull
. 949, 957-64 (1996) (discussing the empirical research that companies engage in predatory pricing).
109
Robert H. Cole,
General Discussion of Vertical Integration
in
Vertical Integration in Marketing
9, 9 (Nugent Wedding ed., 1952).
110
Clayton Act,
ch.
323, § 7, 38 Stat. 730, 731 (1914) (codified as amended at 15 U.S.C. § 18 (2012)).
111
Sherman Act,
ch.
647, §§ 1, 3, 26 Stat. 209, 209 (1890) (codified as amended at 15 U.S.C. § 1 (2012)).
112
Federal Trade Commission Act,
ch.
311, § 5, 38 Stat. 717, 719 (1914) (codified as amended at 15 U.S.C. § 45(a
)(
1) (2012)).
113
See
Herbert
Hovenkamp
Robert Bork and Vertical Integration: Leverage, Foreclosure, and Efficiency
79
Antitrust L.J. 983,
988-92
(2014).
114
Clayton Act,
ch.
1184, § 7, 64 Stat. 1125, 1125-26 (1950) (codified as amended at 15 U.S.C. § 18 (2012));
see
Hovenkamp
supra
note 113, at 985.
115
Friedrich Kessler & Richard H. Stern,
Competition, Contract, and Vertical Integration
, 69
Yale L.J.
1, 16 (1959).
116
See, e.g
., FTC v. Consol. Foods Corp., 380 U.S. 592, 594-95 (1965); United States v. Yellow Cab Co., 332 U.S. 218, 226-27 (1947); Miss. River Corp. v. FTC, 454 F.2d 1083, 1091 (8th Cir. 1972);
see also
Anchor Serum Co. v. FTC, 217 F.2d 867, 873 (7th Cir. 1954) (“It would require a naive mind to conclude, as petitioner would have us do, that the arrangements under consideration could result in other than an adverse effect upon competition.”).
But see
United States v. Columbia Steel Co., 334 U.S. 495, 507-08 (1948) (finding that a vertical combination did not violate antitrust law).
117
370 U.S. 294, 297 (1962).
118
Id.
at 324, 332.
119
Id.
at 323.
120
Id.
at 324.
121
Id.
at 372 (Harlan, J., concurring in part and dissenting in part).
122
Id.
at 294 (majority opinion).
123
Ford Motor Co. v. United States, 405 U.S. 562, 567 (1972) (quoting United States v. Ford Motor Co., 286 F. Supp. 407, 441 (E.D. Mich. 1968)).
124
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
125
Id.
(quoting
Ford Motor Co.
, 286 F. Supp. at 441).
126
Id.
at 568.
127
Id.
at 575.
128
In an influential 1954 essay that presaged his later arguments in
The Antitrust Paradox
, Bork defended vertical integration as nearly always procompetitive. Robert Bork,
Vertical Integration and the Sherman Act: The Legal History of an Economic Misconception
, 22
U. Chi. L. Rev
. 157, 194-201 (1954);
see also
Ward S. Bowman, Jr.,
Tying Arrangements and the Leverage Problem
, 67
Yale L.J.
19 (1957) (arguing that tying arrangements—a form of vertical control—cannot be used to leverage monopoly power from one market to another).
129
Bork
supra
note 32, at 231.
130
See, e.g.
id.
at
372-75, 380-81; Posner,
supra
note 30, at 925, 927 (“[I]t makes no sense for a monopoly producer to take over distribution in order to earn monopoly profits at the distribution as well as the manufacturing level. The product and its distribution are complements, and an increase in the price of distribution will reduce the demand for the product. Assuming that the product and its distribution are sold in fixed
proportions .
. . the conclusion is reached that vertical integration must be motivated by a desire for efficiency rather than for monopoly.”);
id.
at 929 (“If the [service] is already being priced at the optimal monopoly level, an increase in the price of [one component] above the competitive level will raise the total price of the service to the consumer above the optimal monopoly level and will thereby reduce the monopolist’s profits.”).
131
Bork
supra
note 32, at 232.
132
Id.
at 234.
133
Bork later modified his position on entry barriers when he consulted for Netscape in the Antitrust Division’s challenge to Microsoft’s exclusionary practices, which the company had employed primarily against Netscape. Although Bork had been a fierce critic of “leverage theory,” he described Microsoft’s attempt to tie its operating system to its software as a way “to leverage the [Windows] asset to make people use [Internet Explorer] instead of [Netscape] Navigator.”
Hovenkamp
supra
note 113, at 996-97 (citing Robert Bork,
High-Stakes Antitrust: The Last Hurrah
in
High-Stakes Antitrust: The Last Hurrah?
45, 50 (Robert W. Hahn ed., 2003)). But in an article later commissioned by Google, Bork returned to a critique of leverage theory, deriding the idea that Google could leverage its position in the general search market to gain additional profits in downstream markets.
See
Robert H. Bork & J. Gregory
Sidak
What
Does the Chicago School Teach
About Internet Search and the Antitrust Treatment of Google
, 8
J. Competition L. & Econ.
663, 675–77 (2012).
134
Bork
supra
note 32, at 234.
135
1982 Merger Guidelines
supra
note 42;
1984 Merger Guidelines
U.S. Dep’t Just.
(1984),
/files
/atr/legacy/2007/07/11/11249.pdf [http://
perma.cc/Y5JL-5PQS].
136
1984 Merger Guidelines
supra
note 135, at 24-32.
137
Id
138
William E.
Kovacic
Built To Last? The Antitrust Legacy of the Reagan Administration
, 35
Fed. B. News & J.
244, 245 (1988) (“Since 1981, the government antitrust agencies have issued no complaints or consent agreements in Robinson-
Patman
matters that originated after the arrival of Reagan appointees to head the FTC and the Justice Department. Reagan FTC leadership has said the Commission has not abandoned Robinson-
Patman
enforcement, but the government’s failure to initiate new enforcement actions during the Reagan Administration suggests that firms are virtually immune from federal prosecution for conduct the statute proscribes.”); Joseph Guinto,
Antitrust Targets Vertical Deals
Inv.’s Bus.
Daily
, June 17, 1999, at A01.
139
For example, Democrat-appointed antitrust leaders have also adopted the Chicago School view that most vertical mergers are benign. As then-FTC Commissioner Christine Varney (who would later go on to be assistant attorney general for antitrust in the Obama Administration) observed in a speech, “[M]
ost
vertical arrangements raise few competitive concerns.” Christine A. Varney,
Comm’r
, FTC, Vertical Merger Enforcement Challenges at the FTC (July 17, 1995),
/vertical-merger -enforcement-challenges-
ftc
[http://perma.cc/JDQ8-H5KB].
140
James B. Stewart,
Why a Media Merger that Should Go Through Might Not
N.Y. Times
(Oct. 25, 2016),
-merger-that-should-go-through-might-not.html [http://perma.cc/NTN7-LB9N] (“‘Over the last 40 to 50 years, antitrust law has evolved to be almost completely indifferent to vertical mergers,’ said Tim Wu, an antitrust and internet expert at Columbia Law School . . . .”).
141
By imposing conduct remedies, the antitrust agencies set out behavioral conditions that the merging parties must comply with, subject to agency oversight. By requiring divestitures, the antitrust agencies ask the merging parties to sell off a part of their business to another entity.
142
Martin H. Bosworth,
Consumer Groups Oppose Comcast-NBC Merger
Consumer
Aff
, (Dec. 3, 2009),
[http://
perma.cc
/N347-MTKQ]; David Segal,
Calling Almost Everyone’s Tune
N.Y. Times
(Apr. 24, 2010),
[http://
perma.cc
/3TT3-FHYA] (“To say this new conglomerate has inspired fear in the live-concert business doesn’t capture the extent of the quaking.”); Ethan Smith & Thomas
Catan
Concert Deal Wins Antitrust Approval
Wall St. J
. (Jan. 26, 2010, 12:01 AM),
.com
/articles/SB10001424052748704762904575025332380117008 [http://perma.cc/FWR9 -WUSR].
143
As Bork pointed out, the vertical deals would not increase the market share of either company.
See
Bork
supra
note 32, at 231. In Ticketmaster/
LiveNation’s
case, the deal instead “creates one company that will have a hand in just about every corner of the music business,” Smith &
Catan
supra
note 142, while in Comcast/NBC’s case, the merger created “a $30 billion media behemoth that controls not just how television shows and movies are made but how they are delivered to people’s homes,”
Yinka
Adegoke
& Dan Levine,
Comcast Completes NBC Universal Merger
Reuters
(Jan. 29, 2011, 11:50 AM),
www
.reuters
.com/article
/us-comcast-nbc-idUSTRE70S2WZ20110129 [http://perma.cc/EXC3-4PAU].
144
Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Allows Comcast-NBCU Joint Venture
To
Proceed with Conditions (Jan. 18, 2011),
www
.just ice
.gov
/opa/pr/justice-department-allows-comcast-nbcu-joint-venture-pro
ceed
‌‌
-conditions [http://
perma.cc/8FHZ-AL4W]; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Requires Ticketmaster Entertainment Inc. To Make Significant Changes to Its Merger with Live Nation Inc. (Jan. 25, 2010),
-department-requires-ticketmaster-entertainment-inc-make-significant-changes-its [http://
perma.cc
/PZ2E-X2FL];
see also
Jeremy
Pelofsky
Yinka
Adegoke
LiveNation
, Ticketmaster Merge; Agree to U.S. Terms
Reuters
(Jan. 25. 2010, 8:13 PM),
.com
/article/us-ticketmaster-livenation-idUSTRE60O4E520100126 [http://perma.cc
/QT7K -LPHA] (“‘The conditions seem to be relatively benign,’ said Tuna
Amobi
, equity analyst at Standard & Poor’s. ‘There are no major divestitures required. I don’t know that is going to create the kind of even, competitive field that was intended.’”); Smith &
Catan
supra
note 142.
145
Clayton Act,
ch.
323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (2012)). Former Assistant Attorney General for Antitrust Bill Baer described the incipiency standard as seeking to “prevent competitive conditions from deteriorating even when competition was not clearly problematic at the time of the lawsuit.” He continued, “Second, in order to arrest potential restraints ‘in their incipiency,’ the Act banned these practices where their effect ‘may be to substantially lessen competition.’ The intent was to consider likely future effect—not just palpable impact—in determining whether these practices were illegal.” Bill Baer, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice, Remarks at the American Bar Association Clayton Act 100th Anniversary Symposium (Dec. 4, 2014).
146
See
Hovenkamp
supra
note 57, at 359.
147
Daniel A. Crane,
Has the Obama Justice Department Reinvigorated Antitrust Enforcement
Stan. L. Rev. Online
(July 18, 2012),
/has-the-obama-justice-department-reinvigorated-antitrust-enforcement [http://
perma.cc
/56J4-NNSP] (“The final category is monopolization cases. Over the eight years of the Bush Administration, the Justice Department filed no monopolization cases. To date, the Obama Administration has filed only one case, hardly evidencing a major shift in tactics.”).
148
A growing body of work shows that the consumer welfare frame has failed even on its own terms—namely, by leading to higher prices without any clear efficiency gains.
See
John
Kwoka
, Mergers, Merger Control, and Remedies: A Retrospective Analysis of U.S. Policy
(2015);
Benefits of Competition and Indicators of Market Power
Council Econ. Advisers
(Apr. 2016),
_cea_competition_issue_brief.pdf [http://perma.cc/9NMS-4U9L]; Divs. of Research & Statistics & Monetary Affairs,
Evidence for the Effects of Mergers on Market Power and Efficiency
Fed. Res.
(2016),
.federalreserve.gov
/econresdata
/feds/2016
/files
/2016082pap.pdf [http://perma.cc/CY4Y-DGB2].
149
See
Barry C. Lynn & Lina Khan,
The Slow Motion Collapse of American Entrepreneur- ship
Wash. Monthly
July/Aug. 2012),
/julyaugust-2012/the-slow-motion-collapse-of-american-entrepreneurship [http://
perma.cc
/P9VM-9FM5];
see also
Ian Hathaway & Robert E.
Litan
What’s
Driving
the Decline in the Firm Formation Rate?
A Partial Explanation
Brookings Inst.
(Nov. 2014) (document -
ing
business consolidation as a contributing factor in the declining formation of new firms),
_firm
_for
ation
_rate_hathaway_litan.pdf [http://perma.cc/QA9M-ZGAT].
150
Reiter v.
Sonotone
Corp
, 442 U.S. 330, 343 (1979).
151
Heaps of
scholarship delve
into this legislative history.
See, e.g
., sources cited
supra
note 38.
152
Eleanor Fox,
Against Goals
, 81
Fordham L. Rev
. 2158, 2158 (2013).
153
Id.
154
21
Cong. Rec.
2461 (1890) (statement of Sen. Sherman).
155
Id.
at 2457 (statement of Sen. Sherman).
156
Robert
Pitofsky
The
Political Content of Antitrust
, 127
U. Pa. L. Rev.
1051, 1051 (1979).
157
Id.
158
21
Cong. Rec
. 3146 (1890) (statement of Sen. Hoar).
159
Lande
Wealth Transfers
supra
note 38, at 96-97.
160
21
Cong. Rec
. 2461 (1890) (statement of Sen. Sherman, quoting Sen. George).
161
Id.
at 2614 (statement of Sen. Coke).
162
Id.
at 4101 (statement of Rep. Heard).
163
Id.
at 4098 (statement of Rep. Taylor).
164
Id.
at 2461 (statement of Sen. Sherman, quoting Sen. George).
165
Lande
Wealth Transfers
supra
note 38, at 96-97.
166
Id.
at 98.
167
For a seminal discussion of why antitrust laws must take political values into account, see
Pitofsky
supra
note 156, at 1051 (“It is bad history, bad policy, and bad law to exclude certain political values in interpreting the antitrust laws. By ‘political values,’ I mean, first, a fear that excessive concentration of economic power will breed antidemocratic political pressures, and second, a desire to enhance individual and business freedom by reducing the range within which private discretion by a few in the economic sphere controls the welfare of all. A third and overriding political concern is that if the free-market sector of the economy is allowed to develop under antitrust rules that are blind to all but economic concerns, the likely result will be an economy so dominated by a few corporate giants that it will be impossible for the state not to play a more intrusive role in economic affairs.”).
168
51
Cong. Rec
. 13,231 (1914) (statement of Sen. Reed).
169
21
Cong. Rec
. 2598 (1890) (statement of Sen. George).
170
Louis D. Brandeis, The Curse of Bigness
38 (Osmond K.
Fraenkel
ed., 1934).
171
United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting).
172
Id
173
In
Economics and the Public Purpose
, Galbraith concluded that centralized planning, rather than open markets, was the best way to stabilize industries and boost prosperity.
John Kenneth Galbraith, Economics and the Public Purpose
55 (1973).
174
See
Michael
Sandel
, Democracy’s Discontent 246
(1996) (“Although Nader and his followers did not disparage, as did Bork, the civic tradition of antitrust, they too rested their arguments on considerations of consumer
welfare .
. . . According to Nader, the ‘modern relevance’ of traditional antitrust wisdom lay in its consequences for ‘the prices people pay for their bread, gasoline, auto parts, prescription drugs, and houses.’”).
175
See
Lina Khan,
New Tools
To
Promote Competition,
Democracy
(Fall 2016),
democracy
journal
.org/magazine/42/new-tools-to-promote-competition [http://
perma.cc
/VZ4N-CZBN].
176
I am by no means alone in arguing this.
See, e.g.
Barry C. Lynn, Cornered: The New Monopoly Capitalism and the Economics of Destruction
(2010); Fox,
supra
note 38, at 1153-54; Maurice E.
Stucke
Better Competition Advocacy
, 82
St. John’s L. Rev
. 951, 993 (2008);
Stucke
supra
note 38, at 564.
177
For a more recent argument in favor of rebalancing antitrust away from technocracy and toward democracy, see Harry First & Spencer Weber Waller,
Antitrust’s
Democracy Deficit
, 81
Fordham L. Rev
. 2543, 2544 (2013) (“[A]
ntitrust
is also public law designed to serve public ends. Today’s unbalanced system puts too much control in the hands of technical experts, moving antitrust enforcement too far away from its democratic roots.”).
178
See
Fox,
supra
note 38, at 1153-54 (“Rather than standing for efficiency, the American antitrust laws stand against private power. Distrust of power is the one central and common ground that over time has unified support for antitrust statutes. Interests of consumers have been a recurrent concern because consumers have been perceived as victims of the abuse of too much power. Interests of entrepreneurs and small business have been a recurrent concern because independent entrepreneurs have been seen as the heart and lifeblood of American free enterprise, and freedom of economic activity and opportunity has been thought central to the preservation of the American free enterprise system. One overarching idea has unified these three concerns (distrust of power, concern for consumers, and commitment to opportunity of entrepreneurs): competition as process. The competition process is the preferred governor of markets. If the impersonal forces of competition, rather than public or private power, determine market behavior and outcomes, power is by definition dispersed, opportunities and incentives for firms without market power are increased, and the results are acceptable and fair.” (citations omitted)).
179
For more on this connection, see
Simon Johnson & James
Kwak
, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
(2011); and
Lynn
supra
note 176.
180
The Justice Department recently cited the importance of media diversity when suing to block a merger between two newspapers.
See
Michaela Ross,
Even for Ailing Newspapers, U.S. Says a Monopoly Is a Monopoly
Bloomberg
(Mar. 22, 2016),
www
.bloomberg.com
/news/articles/2016-03-21/tribune-loses-out-on-local-newspaper-deal -
ov
er-antitrust-issues
[http://perma.cc/U2E5-ZHM9]. For why competition policy is important for promoting media diversity, see Maurice E.
Stucke
& Allen P.
Grunes
Toward a Better Competition Policy for the Media: The Challenge of Developing Antitrust Policies that Support the Media Sector’s Unique Role in Our Democracy
, 42
Conn. L. Rev.
101 (2009).
181
See
Fox,
supra
note 152.
182
For one perspective on how the Chicago School’s philosophy has shaped antitrust, see generally
How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust
supra
note 106. In his essay within this collection, Richard
Schmalensee
states, “
Competition .
. . generally means now, consumer or total welfare.” Richard
Schmalensee
Thoughts on the Chicago Legacy in U.S. Antitrust
in
How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust
supra
note
106, at 17.
183
See supra
Section I.A.
184
See
Bork
supra
note 32, at 278 (“Absent the power to restrict output, the decision to eliminate rivalry can only be made in order to achieve efficiency.”);
see supra
Section I.B.
185
See
Hovenkamp
supra
note 57, at 359 (“
[T]he guiding principle of the Chicago School critique of the S-C-P paradigm was that market power is not inherently a bad thing. Indeed, often market power as well as high concentration result from efficiency.”).
186
One line of argument holds that the concentration of private control—and the power it hands to a few over our economy—is itself problematic, and
if
and
how
those wielding this power choose to exercise it is beside the point.
See,
e.g
., United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting) (“In final analysis, size in steel is the measure of the power of a handful of men over our economy. That power can be utilized with lightning speed. It can be benign or it can be dangerous. The philosophy of the Sherman Act is that it should not exist.”).
187
I am not the first to argue that preserving a competitive process is vital to promoting competition.
See, e.g.
, Fox,
supra
note 38, at 1152-54. Instead, my contribution here is in (1) identifying how a consumer welfare-based approach is failing to detect and deter anticompetitive harms in the context of internet platforms, thereby (2) highlighting the need for a process-based approach as applied to internet platforms, and (3) detailing that this process-based approach would pay particular attention to entry barriers, conflicts of interest, the emergence of gatekeepers and bottlenecks, the use of and control over data, and dynamics of bargaining power.
188
This is one line of argument President Franklin Roosevelt offered in favor of robust antitrust. In a 1938 speech to Congress he said, “The enforcement of free competition is the least regulation business can expect.” Franklin D. Roosevelt,
Message to Congress on Curbing Monopolies
Am
Presidency Project
[http://
perma.cc/WP9P-83RF].
189
By “distorting,” I mean that a single player has enough control to dictate outcomes. This is the definition offered by Milton Friedman, a figure popular with the neoclassical school.
See
Milton Friedman, Capitalism and Freedom
119-20 (2002) (“Monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.”). The Chicago School accepts this definition with regard to price and output, but ignores other metrics of control.
190
See
Stucke
& Grunes,
supra
note 47, at
107-09
191
I am using “dominance” to connote that the company controls a significant share of market activity in a sector. I do not mean to attach the legal significance that sometimes attends “dominance.”
192
See
Greg
Bensinger
Cloud Unit Pushes Amazon
To
Record Profit
Wall St. J.
(Apr. 28, 2016, 7:31 PM),
[http://
perma.cc
/L4QS-RJ26] (“The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, [Amazon Web Services] generated 67% of the company’s operating income in the quarter.”).
193
Id
194
Amazon’s Profits
Ben-Evans
(Aug. 2013),
/benedictevans
/2013/8/8
/amazons-profits [http://perma.cc/G5JC-7XBL];
Amazon.com Inc.
MarketWatch
[http://perma.cc/JW97 -A624].
195
See
Streitfeld
supra
note 1 (“In its 16 years as a public company, Amazon has received unique permission from Wall Street to concentrate on expanding its infrastructure, increasing revenue at the expense of profit. Stockholders have pushed Amazon shares up to a record level, even though the company makes only pocket change. Profits were always promised tomorrow.”).
196
See, e.g.
, Justin Dini,
Amazon Losses Widen but Shares Rise After-Hours
TheStreet
(Feb, 2, 2000, 7:01 PM),
-shares-rise-after-hours.html [http://perma.cc/P6HJ-3VDG]; Quick Pen,
What’s Driving the Amazon Stock Up Despite 188% Full Year Income Drop?
GuruFocus
(Feb. 8, 2015),
-despite-188-full-year-income-drop [http://perma.cc/K6FJ-JWNA].
197
David
Streitfeld
Amazon Reports Unexpected Profit, and Stock Soars
N.Y. Times
(July 23, 2015),
[http://
perma.cc
/WJX9-CYG7];
see also
Philip Elmer-DeWitt,
This Is What Drives Apple Investors Nuts
About
Amazon
Fortune
(July 24, 2015, 2:58 PM),
/07/24
/apple-amazon-profits [http://perma.cc/56U5-Z2E3] (noting the same).
198
Matthew
Yglesias
Amazon Profits Fall 45 Percent, Still the Most Amazing Company in the World
Slate:
MoneyBox
(Jan. 29, 2013, 4:23 PM),
/blogs
/moneybox
/2013
/01/29/amazon_q4_profits_fall_45 _percent.html [http://perma.cc/J8AZ-R9S6].
199
Jeffrey P. Bezos,
Letter to Shareholders
Amazon.com, Inc.
(Mar. 30, 1998),
media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf [http://
perma.cc/793G-YML7].
200
Id.
at 2.
201
Id.
202
Id.
at 1-2.
203
Tonya Garcia,
Amazon Accounted for 60% of U.S. Online Sales Growth in 2015
MarketWatch
, (May 3, 2016, 3:17 PM),
zon-accounted-for-60-of-online-sales-growth-in-2015-2016-05-03 [http://perma.cc/8C5W -8NYW] (“Amazon makes up a larger percentage of e-commerce in the U.S. than any other player, and its retail growth has outpaced overall online retail.”);
see also The Everything Shipper: Amazon and the New Age of Delivery
BI Intelligence
(June 5, 2016),
-age-of-delivery-2016-6 [http://perma.cc/2SGJ-5ADY].
204
See
Phil
Wahba
This Chart Shows Just How Dominant Amazon Is
Fortune
(Nov. 6, 2015, 11:48 AM),
[http://perma.cc
/9YPV-SKM5]. The fact that Amazon was exempt from sales taxes for the first fifteen years of its existence gave it an 8-10% price advantage over brick-and-mortar stores. Its pricing lead over both traditional and online retailers, however, has been and still continues to be far greater than 8-10%. A review of a new price comparison tool stated: “And, as expected, it reported that Amazon indeed had the best prices for nearly everything we searched.” Zach Epstein,
Amazon Isn’t Always the Cheapest Option—Here’s How
To
Find the Best Prices
BGR
(July 17, 2014, 12:55 PM),
bgr.com/2014/07/17/amazon-price-comparison-tool -lowest-price [http://perma.cc/J7P3-BBY5].
205
Dawn Kawamoto,
Amazon Unveils Flat-Fee Shipping
, CNET (Feb. 2, 2005),
www
.cnet
.com
/news/amazon-unveils-flat-fee-shipping [http://perma.cc/Q8FS-7SQ7].
206
It has also been a key force driving up Amazon’s stock price. “Analysts describe Prime as one of the main factors driving Amazon’s stock price—up 296 percent in the last two years—and the main reason Amazon’s sales grew 30 percent during the recession while other retailers flailed.” Brad Stone,
What’s in Amazon’s Box? Instant Gratification
Bloomberg
Businessweek
(Nov. 24, 2010, 5:00 PM),
-24/
whats
-in-amazons-box-instant-gratification [http://perma.cc/Q7VL-95DQ];
see also
Tom
DiChristopher
Prime Will Grow Amazon Revenue Longer than You Think: Analyst
, CNBC (Sept. 11, 2015, 11:01 AM),
-ama
zon-revenue-longer-than-you-think-analyst.html [http://perma.cc/QG8H-Z4A6] (“During Amazon’s second quarter conference call, management said growing Prime adoption was one factor behind acceleration in domestic and international revenue growth.”).
207
Devin Leonard,
Will Amazon Kill FedEx
Bloomberg (
Aug. 31, 2016),
www
.bloomberg.com/features/2016-amazon-delivery [http://perma.cc/GE8F-D3BE].
208
Brad Tuttle,
Amazon Prime: Bigger, More Powerful, More Profitable than Anyone Imagined
Time
(Mar. 18, 2013),
-powerful-more-profitable-than-anyone-imagined [http://perma.cc/WNL5-MC29].
209
Dan
Frommer
Half of US Households Could Have Amazon Prime by 2020
Quartz
(Feb. 26, 2015),
[http://
perma.cc/ZW4Z-47UY].
210
Stu Woo,
Amazon ‘Primes’ Pump for Loyalty
Wall St. J
. (Nov. 14, 2011),
www
.wsj
.com
/articles/SB10001424052970203503204577036102353359784 [http://
perma.cc/87WW -TVNW].
211
Deepa
Seetharaman
& Nathan Layne,
Free Delivery Creates Holiday Boon for U.S. Consumers at High Cost
Reuters
(Jan. 2, 2015, 12:22 PM),
-shipping-holidays-analysis-idUSKBN0KB0P720150102 [http://perma.cc/CPH8-932W].
212
See
Elizabeth Weise,
Amazon Prime Is Big, but How Big
USA Today
(Feb. 3. 2015, 1:31 PM),
anni
ver
sary
/22755509 [http://perma.cc/5K2A-M3HA]. Amazon’s filings with the SEC show that its shipping costs have grown as a percentage of sales each year since 2009.
See
Amazon.com, Inc.,
supra
note 9, at 26; Amazon.com, Inc., Annual Report (Form 10-K) 25 (Jan. 30, 2013),
/Archives/edgar
/data/1018724
/000119312513028520
/d445434
10k
‌‌
.htm [http://perma.cc/RX85-5RJ3]; Amazon.com, Inc., Annual Report (Form 10-K) 27 (Jan. 29, 2010),
/000119312510016098
/d10k.htm [http://perma.cc/L27R-CHUY].
213
Stone,
supra
note 206.
214
Brad Tuttle,
How Amazon Prime Is Crushing the Competition
Time
(Jan. 25, 2016),
time
.com/money/4192528/amazon-prime-subscribers-spending [http://
perma.cc
‌‌
/Y9VT -VHD5].
215
Chad Rubin,
The Evolution of Amazon Prime and Their Followed Success
Skubana
(Mar. 31, 2016),
[http://
perma.cc
/T9ET-C6V8].
216
Ben Fox Rubin,
As Amazon Marks 20 Years, Prime Grows to 44 Million Members in US
CNET
(July 15, 2015, 4:26 AM),
-44-million-members-in-us [http://perma.cc/CEQ8-G996].
217
See
Brad Tuttle,
How Amazon Gets You
To
Stop Shopping Anywhere Else
Time
(Dec. 1, 2010),
‌‌
business.time.com/2010/12/01/how-amazon-gets-you-to-stop-shopping-any
where-else [http://perma.cc/GLQ2-65AT].
218
Clare O’Connor,
Walmart and Target Being Crowded
Out
Online by Amazon Prime
Forbes
(Apr. 6, 2015, 12:59 PM),
walmart
-and-target-being-crowded-out-online-by-amazon-prime [http://perma.cc/CM2E -GPER].
219
Id.
220
Id
221
Stone,
supra
note 206.
222
See
Tuttle,
supra
note 217 (“What this program has done is something that’s normally very difficult to accomplish: It’s changed consumer habits, and, perhaps even more remarkably, it’s changed them in ways that solely favor Amazon. The service is better than any freebie promotion, which even if it’s good at driving traffic to the website, is short-lived. Instead, the Prime membership program gets consumers in the regular habit of at least checking with Amazon before making any online purchase.”).
223
Greg
Bensinger
Amazon Raises Prime Subscription Price to $99 a Year
Wall St. J
. (Mar. 13, 2014, 7:22 PM),
/SB10001424052702303546204579
4369033094
11092 [http://perma.cc/33TK-76GS].
224
Lance Whitney,
Amazon Prime Members Will Renew
Despite
Price Hike, Survey Finds
, CNET (July 23, 2014),
-renew-despite-price-increase [http://perma.cc/Z585-YU8P].
225
See
Adam
Candeub
Behavioral Economics, Internet Search, and Antitrus
t, 9
I/S
407, 409 (2014) (“[O]
nline
market behavior may differ from the brick and mortar world . . . . In particular, behavioral tendencies related to habit and information costs may disrupt conventional economic assumptions.”).
226
As Justice White wrote in his dissent in
Matsushita
, “The Court, in discussing the unlikelihood of a predatory conspiracy, also consistently assumes that petitioners valued profit-maximization over growth.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 604 (1986) (White, J., dissenting).
227
Indeed, to get a sense of Amazon’s breadth, it is helpful to see the range of actors Amazon lists among its “current and potential competitors”:
(1) online, offline, and multichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products we offer and sell to consumers and businesses; (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and all distribution channels; (3) web search engines, comparison shopping websites, social networks, web portals, and other online and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration with other retailers; (4) companies that provide e-commerce services, including website development, advertising, fulfillment, customer service, and payment processing; (5) companies that provide fulfillment and logistics services for themselves or for third parties, whether online or offline; (6) companies that provide information technology services or products, including on-premises or cloud-based infrastructure and other services; and (7) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.
Amazon.com, Inc., Annual Report (Form 10-K) 4 (Apr. 6, 2016),
-ir.net/External.File?item=UGFyZW50SUQ9NjI4NTg0fENoaWxkSUQ9MzI5NTMwfFR 5c
GU9MQ==&t=1 [http://perma.cc/96HQ-TZDT].
228
See generally
id.
describing
Amazon’s businesses).
229
As of 2012, Amazon had acquired or invested in over seventy companies.
See
Sucharita
Mulpuru
& Brian K. Walker, Forrester, Why Amazon Matters Now More than Ever
5 (2012).
230
Id
. at 17.
231
See
LaVecchia
& Mitchell,
supra
note 6, at 1.
232
Tiernan
Ray,
Amazon: All Retail’s SKUs Are Belong to Them, Goldman Tells CNBC
Barrons
: Tech Trader Daily
(June 16, 2016, 11:40 AM),
/techtrader daily
/2016
/06/16/amazon-all-retails-skus-are-belong-to-them-goldman-tells-cnbc [http://
perma.cc
/Z95R-JYGR] (quoting a Goldman Sachs analyst as saying, “[p]
rojected
e-commerce growth of 22% this year is largely thanks to Amazon,” and “Amazon ‘is going to outgrow that,’ with perhaps ‘mid to high 20s growth,’ . . . given ‘Amazon is taking share, and seeing acceleration in their international business’”).
See generally
Leonard,
supra
note 207 (“Amazon’s growth has been
preposterous .
. . . The company is the fifth-most valuable in the world: Its market capitalization is about $366 billion, which is roughly equal to the combined worth of Walmart, FedEx, and Boeing.”).
233
Leonard,
supra
note 207.
234
Shelly Banjo,
Amazon Eats the Department Store
Bloomberg: Gadfly
(Sept. 20, 2016, 9:27 AM),
-could-soon-top-
macy
s [http://perma.cc/63UJ-5Y67].
235
Its clothing sales are greater than the combined online sales of its five largest online apparel competitors: Macy’s, Nordstrom, Kohl’s, Gap, and Victoria’s Secret’s parent.
Id.
236
In some contexts, “dominance” connotes a legal definition. I am not using it in this way.
See supra
note 191.
237
See
Caroline McCarthy,
Amazon Debuts Kindle E-Book Reader
CNET
(Nov. 19, 2007, 10:33 AM),
[http://perma.cc
/VF4Z-2V77].
238
See id.
239
See
Brad Stone, The Everything Store
(2013); George Packer,
Cheap Words
New Yorker
(Feb. 17, 2014),
[http://
perma.cc
/42AN-Y6UT].
240
Prior to 2009, many publishers set a wholesale price for e-books at a 20% discount from the equivalent physical book, at which point Amazon’s $9.99 price point roughly matched the wholesale price of many of its e-books. In 2009, publishers eliminated the wholesale discount, yet Amazon continued to price e-books at $9.99. This is the point at which it clearly sold e-books below cost.
See
United States v. Apple, Inc.
, 952 F. Supp. 2d 638, 649-50 (S.D.N.Y. 2013);
see also
Packer,
supra
note 239 (“The price was below wholesale in some cases, and so low that it represented a serious threat to the market in twenty-six-dollar hardcovers.”); Jeffrey A. Trachtenberg,
E-Book Sales Fall After New Amazon Contracts
Wall St. J. (
Sept. 3, 2015),
-prices-1441307826-lMyQjAxMTE1MzAxNDUwMjQ2Wj [http://
perma.cc/LVZ9-DK9Y] (“Amazon was willing to buy a title for $14.99 and sell it for $9.99, taking a loss to grab market share and encourage adoption of its Kindle e-reader.”).
241
See
Eric
Savitz
Amazon Selling Kindle Fire
Below
Cost, Analyst Contends
Forbes
(Sept. 30, 2011, 5:40 PM),
-fire-below-cost-analyst-contends [http://perma.cc/3AQ8-X9LZ]; Woo,
supra
note 210 (“Mr. Munster estimated that Amazon sells each Kindle model at a loss of $10 to $15.”).
242
See
Packer,
supra
note 239 (“In the mid-
aughts
, Bezos, having watched Apple take over the music-selling business with iTunes and the iPod, became determined not to let the same thing happen with books. In 2004, he set up a lab in Silicon Valley that would build Amazon’s first piece of consumer hardware: a device for reading digital books. According to Stone’s book, Bezos told the executive running the project, ‘Proceed as if your goal is to put everyone selling physical books out of a job.’”).
243
Apple
952 F. Supp. 2d at 649.
244
Id.
at 658-61.
245
Id.
at 672.
246
Id.
at 679.
247
Announcement: Macmillan E-Books
Amazon
(Jan. 31, 2010, 2:22 PM),
www
.amazon.com/forum/kindle/Tx2MEGQWTNGIMHV [http://perma.cc/K64A-RF2C];
see also
Apple
, 952 F. Supp. 2d at 680-81 (describing the struggle between the publishing houses and Amazon leading up to Amazon’s capitulation).
248
Apple
, 952 F. Supp. 2d at 681.
249
Id.
at 645.
250
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment at 21,
Apple
, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC).
251
Id.
at 21-22 (quoting Complaint at 9,
Apple
, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC)).
252
Apple
, 952 F. Supp. 2d at 708 (“This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law.”).
253
See id.
at 650 (noting that Amazon “continued to sell many NYT Bestsellers as loss leaders”); Complaint,
supra
note 251, at 9 (“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.”); Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra
note 250, at 21-22.
254
See generally
Jean-Charles
Rochet
& Jean
Tirole
Platform Competition in Two-Sided Markets
J.
Eur.
Econ.
Ass’n
990 (2003) (explaining the dynamics of competition in two-sided markets).
255
Traditionally,
a retailer loss-leads
when it prices one good below cost in order to sell more of another good, assuming that discounts on one good will attract and retain consumers. Walmart choosing to price t-shirts below cost to sell more shorts would be an example of loss leading.
256
John B. Kirkwood,
Collusion
To
Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy
, 69 U.
Miami L. Rev
. 1, 38-39 (2014).
257
Id.
at 39.
258
See id.
259
See
Cory Doctorow,
Why the Death of DRM Would Be Good News for Readers, Writers and Publishers
Guardian
(May 3, 2012, 10:25 AM),
/technology/2012/may/03/death-of-drm-good-news [http://perma.cc/H77L-7KZ8] (“If Tor sells you one of my books for the Kindle locked with Amazon’s DRM, neither I, nor Tor, can
authorise
you to remove that DRM. If Amazon demands a deeper discount (something Amazon has been doing with many publishers as their initial
ebook
distribution deals come up for renegotiation) and Tor wants to shift its preferred
ebook
retail to a competitor like
Waterstone’s
, it will have to bank on its readers being willing to buy their books all over again.”).
260
See
Ana Carolina
Bittar
, Unlocking the Gates of Alexandria: DRM, Competition and Access to E-Books 1 (July 25, 2014) (unpublished manuscript),
/abstract=2620354 [http://perma.cc/6RHH-6QM4] (“[S]
ince
each bookseller uses a different proprietary DRM scheme on their e-books, compatible with a limited number of reading platforms, consumers face problems with interoperability. For example, a Kindle owner cannot buy books from Barnes & Noble, and a Nook owner cannot buy books from Apple. This lack of interoperability can increase
barriers
to
entry
, switching costs, and
network
effects
. Consequently, consumers are often locked into an e-book ecosystem, which permits booksellers
to
act as gatekeepers of the e-book market.”).
261
See
Alexandra Alter,
Your E-Book Is Reading You
Wall St. J.
(July 19, 2012, 3:24 PM),
[http://
perma.cc
/6LQW-BCKJ] (“The major new players in e-book publishing—Amazon, Apple and Google—can easily track how far readers are getting in books, how long they spend reading them and which search terms they use to find books. Book apps for tablets like the iPad, Kindle Fire and Nook record how many times readers open the app and how much time they spend reading. Retailers and some publishers are beginning to sift through the data, gaining unprecedented insight into how people engage with books.”).
262
Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra
note 250, at 22.
263
October 2015 – Apple, B&N, Kobo, and Google: A Look at the Rest of the
Ebook
Market
Author Earnings (
Oct. 2015),
-google-a-look-at-the-rest-of-the-
ebook
-market [http://
perma.cc
/GKN4-SA43] (noting that Amazon also sells 85% of indie e-books).
264
Statistics and Facts
About
Amazon
Statista
(2016),
/amazon [http://perma.cc/YR3Q-D7YE].
265
Sony Gives Up on Selling E-Readers
BBC
(Aug. 5, 2014),
/technology-28663878 [http://perma.cc/D29U-W7NZ].
266
Jim
Milliot
B&N Cut Nook Investment by 74% in Third Quarter
Publishers Weekly (M
ar. 7, 2014),
/booksell ing
/article
/61331
-b-n-cut-nook-investment-by-74-in-third-quarter.html [http://
perma.cc
/846M -28HZ].
267
Nor is the decline of Amazon competitors unique to e-books. “Now, with Borders dead, Barnes & Noble struggling and independent booksellers greatly diminished, for many consumers there
is
simply no other way to get many books than through Amazon.”
Streitfeld
supra
note 1.
268
Id.
269
See id.
270
Several journalists have tracked instances of price discrimination in e-commerce.
See, e.g
., Julia
Angwin
et al.,
The Tiger Mom Tax: Asians Are Nearly Twice as Likely To Get a Higher Price from Princeton Review
ProPublica
(Sept. 1, 2015),
/asians-nearly-twice-as-likely-to-get-higher-price-from-princeton-review [http://
perma.cc
/L96N-SZKR]; Jennifer Valentino-Devries et al.,
Websites Vary Prices, Deals Based on User Information
Wall St. J
. (Dec. 24, 2012),
/articles
/SB10001424127887323777204578189391813881534 [http://perma.cc/BF3S-ZX3C].
271
Roberto A.
Ferdman
Amazon Changes Its Prices More than 2.5 Million Times a Day
Quartz
(Dec. 14, 2013),
-times-a-day [http://perma.cc/W25A-EUNP].
272
But recent reporting does suggest that Amazon manipulates how it presents pricing in order to favor its own products.
See
Julia
Angwin
& Surya
Mattu
Amazon Says It Puts Customers First. But Its Pricing Algorithm Doesn’t
ProPublica
(Sept. 20, 2016),
www
.propublica.org
/article
/amazon-says-it-puts-customers-first-but-its -pricing
algo
rithm-doesnt
[http://perma.cc/RR6C-FTS4] (“[T]he company appears to be using its market power and proprietary algorithm to advantage itself at the expense of sellers and many customers.”).
273
See
Lina Khan,
Why You Might Pay More than Your Neighbor for the Same Bottle of Salad Dressing
Quartz
(Jan. 19, 2014),
-neighbor-for-the-same-bottle-of-salad-dressing [http://perma.cc/KVL3-QCBC].
274
Id.
275
Id.
(“‘Coupons will be the doorway in to differential pricing,’ said Scott Anderson, principal consultant at FICO, which provides data analytics and decision-making services. In other words, we could all end up paying significantly different amounts for the same items, even if we see the same prices while browsing.”).
276
As a group of authors stated in a recent letter to the Justice Department:
[T]he corporation’s detailed knowledge of the buying habits of millions of readers—which it amasses through a minute-by-minute tracking of their actions online—puts it in a powerful position to use such ‘personalized’ pricing and marketing to influence the decisions of readers and thereby extract the most amount of cash possible from each individual.
Letter from Authors United to William J. Baer, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice (July 14, 2015),
/longdocument
.html [http://perma.cc
/L9RN-YESR];
see also
David
Streitfeld
Accusing Amazon of Antitrust Violations, Authors and Booksellers Demand Inquiry
N.Y. Times
(July 13, 2015),
www
.ny
times.com/2015/07/14/technology/accusing-amazon-of-antitrust-violations-authors-and
-book
sellers-demand-us-inquiry.html [http://perma.cc/G8QF-5LYY] (reporting on the Authors United letter to the Assistant Attorney General and its claim that Amazon seems to be “
engag
ing
] in content control” in its decisions to sell certain books).
277
See supra
Section I.A. For accounts of how some retailers have successfully implemented discriminatory pricing online, see
supra
note 270 and accompanying text.
278
Streitfeld
supra
note 1.
279
See
Phillip
Areeda
& Herbert
Hovenkamp
, Fundamentals of Antitrust Law
7-72 (2010) (“There may be cases in which a predator who makes more than one product or operates in more than one region selects only one for below-cost pricing but reaps recoupment benefits in
all .
. . . The courts have not dealt adequately with this problem.”); Leslie,
supra
note 94, at 1720 (“Courts apparently do not appreciate the prospect of recoupment in another market.”); Timothy J. Trujillo, Note,
Predatory Pricing Standards Under Recent Supreme Court Decisions and Their Failure To Recognize Strategic Behavior as a Barrier to Entry
, 19
J. Corp. L
. 809, 813, 825 (1994) (“The . . . recoupment analysis in
Matsushita
Cargill
, and
Brooke
refers to recoupment only in the market in which the predation actually occurs. Thus, the Court’s analyses and
test .
. . ignore the possibility that successful predation could occur because the dominant firm can spread its gains from predation over several markets.”).
280
See
Leslie,
supra
note 94, at 1720-21.
281
See
Randy Kennedy,
Cash Up Front
N.Y. Times
(June 5, 2005),
/2005/06/05/books/review/cash-up-front.html [http://perma.cc/H9L2-RUPU].
282
See
James B. Stewart,
Booksellers Score Some Points in Amazon’s Spat with Hachette
N.Y. Times
(June 20, 2014),
-points-in-amazons-standoff-with-hachette.html [http://perma.cc/PD34-M28S].
283
Id.
284
See
LaVecchia
& Mitchell,
supra
note 6, at 2.
285
Acquisition and maintenance of monopsony power are still recognized harms under the Sherman and Clayton Acts, even though few cases are brought today.
But cf.
Complaint at 12-13, United States v. George’s Foods, LLC, No. 5:11-cv-00043-gec (W.D. Va. May 10, 2011)
(arguing that a company’s acquisition of a chicken complex would “substantially lessen competition for the purchase of broiler grower [chicken farmer] services . . . in violation of Section 7 of the Clayton Act”).
286
Boris
Kachka
Book Publishing’s Big Gamble
N.Y. Times
(July 9, 2013),
www
.nytimes.com/2013/07/10/opinion/book-publishings-big-gamble.html [http://
perma.cc
/AP5X] (“The merger, announced last October and completed on July 1 after regulatory approval, shrinks the Big Six, which publish about two-thirds of books in the United States, down to the Big Five.”).
287
Id.
Publishers have also merged divisions internally.
See, e.g.
, Alex
Shephard
The Vanishing Mass Market: Penguin Merges Two Mass Market Publishing Houses To Create New Mass Market Publishing House
Melville House
(June 26, 2015),
-van
ishing-mass-market-penguin-merges-two-mass-market-publishing-houses-merge-to -create-new-mass-market-publishing-house [http://perma.cc/F4V6-GGLU].
288
Cross-subsidization schemes can have widely different effects, depending on how the two submarkets are or are not interrelated. In Amazon’s case, losses do have cross-market effects: Amazon prices below cost in order to generate higher sales in another line of business; its losses in one market
actively boost
another market. By contrast, the cross-subsidization model used by publishers has no analogous crossover effects. A publisher might decide to publish an obscure book, even if it knows it will lose money, and subsidize those losses through profits made on a more popular book. However, the publisher’s choice to sustain a loss on the obscure book does not
boost
sales of its popular books. The major difference in Amazon’s case is that it is an online platform. The market effects across its different segments are significant in ways that do not hold for brick-and-mortar stores or other non-platform entities.
289
Letter from Authors United to William J. Baer,
supra
note 276.
290
Id.
291
Id.
292
That said
the DOJ did consider how rising consolidation in the media sector—specifically in the context of a proposed merger between two newspapers—would risk undermining the spread of ideas. Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Files Antitrust Lawsuit To Stop L.A. Times Publisher from Acquiring Competing Newspapers (Mar. 17, 2016),
-antitrust-lawsuit-stop-la-times-publisher-acquiring-competing [http://perma.cc/3MNY -8XZE] (“‘Newspapers continue to play an important role in the dissemination of news and information to readers . . . .’” (quoting Assistant Attorney General Bill Baer of the DOJ’s Antitrust Division)).
293
At the height of its market share, this figure was closer to 90%. After Apple entered the market, Amazon’s share fell slightly and then stabilized around 65%.
See
Packer,
supra
note 239.
294
Stone
supra
note 239, at
297
(“
Quidsi
[grew] from nothing to $300 million in annual sales in just a few years. . . .”).
295
Id.
at 295-96.
296
Id.
at 296.
297
Id.
; Brad Stone,
The Secrets of Bezos: How Amazon Became the Everything Store
Bloomberg
(Oct. 10, 2013, 5:57 AM),
/news
/articles/2013-10-10/jeff -bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone [http:// perma.cc/TD96-G6HV].
298
Brad Tuttle,
It’s Target Versus Amazon in the Battle for Moms
Time
(Sept. 26, 2013),
-moms [http://perma.cc/UJE6-Y3R9].
299
Stone
supra
note 239, at 297.
300
d.
at 298.
301
Jason Del Ray,
How Jeff Bezos Crushed Diapers.com so Amazon Could Buy Diapers.com
All Things D
(Oct. 10, 2013, 5:09 AM),
bezos
-crushed-diapers-com-so-amazon-could-buy-diapers-com [http://perma.cc/K98D -VGNP].
302
Will
Oremus
The Time Jeff Bezos Went Thermonuclear on Diapers.com
Slate
(Oct. 10, 2013, 12:37 PM),
_book
_how
_jeff_bezos_went_thermonuclear_on_diapers_com.html [http://perma.cc/A9JE-VNWR].
303
Stone,
supra
note 297 (noting that Amazon offered $540 million, giving
Quidsi
a forty-eight-hour window in which to respond and “
rachet
ing
] up the pressure,” telling
Quidsi
that Bezos was “such a furious competitor [that he] would drive diaper prices to zero if they went with Walmart,” in which case “the Amazon Mom onslaught would continue”).
304
d.
305
The FTC reviewed the deal under Section 7 of the Clayton Act, the provision that governs mergers, as well as section 5 of the Federal Trade Commission Act, which targets general unfair practices.
See
Letter from Donald S. Clark,
Sec’y
, FTC, to Peter C. Thomas, Simpson
Thacher
& Bartlett LLP (Mar. 23, 2011),
/sites/default
/files
/documents
/closing
_letters/amazon.com-inc./quidsi-inc./110323amazonthomas.pdf [http://
perma.cc
/7E5A
-LYMB];
see also
Stone,
supra
note 297 (“The Federal Trade Commission scrutinized the acquisition for four and a half months, going beyond the standard review to the second-request phase, where companies must provide more information about a transaction. The deal raised a host of red flags, such as the elimination of a major player in a competitive category, according to an FTC official familiar with the review.”).
306
See
Stone
supra
note 239, at 298.
307
“At this time, [Amazon Mom is] not accepting new members,” a company spokesman stated, declining to explain why. Thad
Rueter
Let’s Hope
Amazon Doesn’t Make Them Wait Until
Potty Training Ends
Internet Retailer
(Nov. 30, 2011, 3:35 PM),
.inte
rnet
re
tail
er
‌‌
.com/2011/11/30/now-amazon-closes-membership-moms-discount-program [http://
perma.cc
/L76R-XEHP].
308
Thad
Rueter
Amazon Tweaks Its Diaper Program, Moms Vent and a Competitor Pounces
Internet Retailer
(Feb. 23, 2012, 4:19 PM),
/02
/23
/amazon-tweaks-diaper-program-moms-vent-competitor-pounces [http://
perma.cc
/GBU7 -KYNF].
309
Id.
310
Laura Owen,
Amazon Cuts the Benefits Again in Amazon Mom, Its Prime Program for Parents
Gigaom
(Sept. 29, 2014, 7:42 AM),
-benefits-again-in-amazon-mom-its-prime-program-for-parents [http://perma.cc/993P -JPZN].
311
In response to complaints about Amazon’s abrupt change, followed by customers recommending Diapers.com, one customer stated, “Diapers.com has a different shipping program, but they were recently bought out by Amazon. I would think that their shipping policies might change soon as well.” Shopaholic, Comment to
Amazon Mom Benefits Misleading
Amazon
(June 15, 2011, 4:56 PM),
/forum
/baby
/ref
=cm_cd_pg_pg2?_encoding=UTF8&cdForum=FxSKWDWQRZ03WU&cdPage=2&cdThread=Tx1ZC5GMKB4JEQP
[http://perma.cc/E5NH-JCJ7].
312
Amazon leads the online market for baby supplies, holding 43%. Walmart and Target follow, with 23% and 18%, respectively.
Target, Walmart, Amazon Dominate the Online Baby Goods Market
Bus. Insider
(Apr. 22, 2016, 8:30 PM),
-walmart-amazon-dominate-the-online-baby-goods-market-2016-4
[http://perma.cc
/85KZ
-QQCR].
313
Bork
supra
note 32, at 153.
314
Id.
315
Id.
316
See generally
Tim Wu, The Master Switch: The Rise and Fall of Information Empires
(2010) (arguing that all American information industries since the telephone have resulted in monopolies);
Candeub
supra
note 225 (suggesting that network effects may produce anticompetitive results in the online market because of the cognitive effort necessary to switch search engines); Nathan Newman,
Search, Antitrust, and the Economics of the Control of User Data
, 31
Yale J. on Reg
. 401 (2014) (proposing a new approach to antitrust investigations that would focus on the anticompetitive effects of corporations’ control of personal data); Frank Pasquale,
Privacy, Antitrust, and Power
, 20
Geo. Mason L. Rev
. 1009 (2013) (advocating reforms to privacy and antitrust policy to take into account the connections between market share and control over data).
317
For example, Amazon acquired Zappos.com in 2009 but chose to maintain the brand as a standalone rather than absorbing it within Amazon.com.
Sarah Lacy,
Amazon Buys
Zappos
; The Price Is $928m., Not $847m.
TechCrunch
(July 22, 2009),
techcrunch
.com
/2009/07/22/amazon-buys-zappos
[http://perma.cc/5NGV-P2AU].
318
See, e.g.
, Leslie,
supra
note 94, at 1728-29.
319
Jet.com, the one company that
did
try to tackle Amazon, was recently purchased by Walmart.
See
Steven Davidoff Solomon,
Tech Giants Gobble Start-Ups in an Antitrust Blind Spot
N.Y. Times:
DealBook
(Aug. 16, 2016),
/2016
/08
/17
/bus
iness
/dealbook/expect-little-antitrust-challenge-to-walmarts-bid-for-jet-com.html [http://
perma.cc/WRC9-QGKR].
320
Moore,
supra
note 14. Google has stated that its biggest rival in search is not Bing or Yahoo, but Amazon.
See
Jeevan
Vasagar
& Alex Barker,
Amazon Is Our Biggest Search Rival,
Says
Google’s Eric Schmidt
Fin.
Times
(Oct. 13, 2014),
/cms/s
/0/748bff70
-52f2-11e4-b917-00144feab7de.html [http://perma.cc/3PHW-77EW].
321
Newman,
supra
note 316, at 409.
322
See
Vauhini
Vara
Can Jet.com Take On Amazon and Win
New Yorker
(July 21, 2015),
-win [http://perma.cc/S2K2-SMHA].
323
Shannon
Pettypiece
& Selina Wang,
Wal-Mart
To
Acquire Jet.com for $3.3 Billion To Fight Amazon
Bloomberg
(Aug. 8, 2016),
-08/wal-mart-agrees-to-buy-jet-com-for-3-billion-to-fight-amazon [http://
perma.cc
/FEK9
-NMR9].
324
See
Grace
Noto
Jet.Com Acquisition Not Enough To Challenge Amazon, Experts Say
Bank Innovation
(Aug. 22, 2016),
-enough-to-challenge-amazon-experts-say [http://perma.cc/CQ3Y-6J8X] (“[T]here remains a healthy amount of skepticism in the industry about anyone’s ability to topple Amazon from its throne. ‘Amazon is quite dominant and will continue to be in the foreseeable future, because the resources they are putting into ecommerce and all of their other initiatives are formidable,’ said vice president and principal analyst at Forester Research
Sucharita
Mulpuru-Kodali
. ‘Walmart has slowly been gaining some share in some ways, but it’s often two steps forward, one step back for them.’”);
Pettypiece
& Wang,
supra
note 323 (“Amazon is such a
machine .
. . . You aren’t going to out-Amazon Amazon.”).
325
See
Tuttle,
supra
note 298.
326
See id.
noting
that Amazon’s market share is double Target’s).
327
See
infra
Section IV.D.
328
See
LaVecchia
& Mitchell,
supra
note 6, at 18.
329
Laura Stevens & Greg
Bensinger
Amazon Seeks
To
Ease Ties with UPS
Wall St. J
. (Dec. 22, 2015, 8:52 PM),
-1450835575 [http://perma.cc/8385-A7AJ].
330
In its 10-K, UPS states that while no single customer accounts for more than 10% of its consolidated revenue, its business remains vulnerable to the choices of some big clients. UPS, Inc., Annual Report (Form 10-K) 15 (Jan. 29, 2016),
/Archives/edgar/data/1090727/000109072715000008/ups-12312014x10k.htm [http://
perma
.cc/TU7T-B4Q4] (“[S]
ome
of our large customers might account for a relatively significant portion of the growth in revenue in a particular quarter or
year .
. . . These customers could choose to divert all or a portion of their business with us to one of our competitors, demand pricing concessions for our services, require us to provide enhanced services that increase our costs, or develop their own shipping and distribution capabilities. If these factors drove some of our large customers to cancel all or a portion of their business relationships with us, it could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts.”).
331
See
Stephanie Clifford & Claire Cain Miller,
Wal-Mart Says ‘Try This On’: Free Shipping
N.Y. Times
(Nov. 11, 2010),
[http://perma.cc/ULM8-3ASC] (“[A]
ir
shipping prices for big retailers are about 70 percent less than for a small company. Shipping at Amazon costs about 4 percent of sales, and Amazon loses money on it because it offers marketing
benefits .
. . . [S]hipping at small sites usually costs about 35 percent of
sales .
. . .”). Congress passed the Robinson-
Patman
Act precisely to prevent this sort of “waterbed effect.” As I describe earlier, Chicago School hostility to Robinson-
Patman
has meant that both the antitrust agencies and courts have largely stopped enforcing the law.
See supra
text accompanying notes 77-108.
332
See
Laura Stevens,
‘Free’ Shipping Crowds
Out
Small Retailers
Wall St. J
. (Apr. 27, 2016, 10:39 PM),
-supreme-1461789381 [http://perma.cc/R7YL-2FTS].
333
See
Paul W. Dobson & Roman
Inderst
The Waterbed Effect: Where Buying and Selling Power Come Together
, 2008
Wis. L. Rev
. 331, 336-37 (“If, in contrast, the discounts to one or a few buyers were to put other buyers in a worse bargaining position to the extent of them paying even-higher prices (e.g., premiums rather than discounts) then the knock-on consequence could be higher retail prices and dampened competition. This latter case is an instance of a waterbed effect—where differential buyer power means that some buyers gain at both the relative and absolute expense of other buyers.”); John Kirkwood,
Powerful Buyers and Merger Enforcement
, 92
B.U. L. Rev
. 1485, 1544 (2012) (“[Suppose a firm] demands price or other concessions from . . . suppliers . . . . [
and
] that those concessions nevertheless cause the suppliers to increase prices to smaller buyers or otherwise worsen their terms.”).
334
Dobson &
Inderst
supra
note 333, at 337.
335
Press Release, Amazon, Amazon Launches New Services To Help Small and Medium-Sized Businesses Enhance Their Customer Offerings by Accessing Amazon’s Order Fulfillment, Customer Service, and Website Functionality (Sept. 19, 2006),
-ir.net/
phoenix.zhtml?c
=97664&p=
irol-newsArticle&ID
=906817 [http://perma.cc/MC8G -9LRJ].
336
Id.
(“Amazon.com customers can now use offers such as Amazon Prime and Free Super Saver Shipping when buying products with the ‘Fulfilled by Amazon’ icon next to the offering listing.”).
337
See
Paul Cole,
Should You Use Amazon Discounted UPS Shipping
SellerEngine
(2012),
sellerengine.com/should-you-use-amazon-discounted-ups-shipping [http://
perma.cc/54ND-B2WH] (“Probably the most common choice is to use Amazon’s discounted rate with UPS. For many sellers, this is the way to go. It’s a lower rate than you’re likely to receive from UPS or FedEx if you have your own account. Currently, Amazon’s UPS rate is about 20% cheaper than an average FedEx account, $.38/lb. compared to $.48/lb.”).
338
Before building out its own delivery operations, Amazon used (among others) UPS and FedEx.
See, e.g.
, Marcus
Wohlsen
Amazon Takes a Big Step Towards Finally Making Its Own Deliveries
Wired
(Sept. 25, 2014, 2:30 PM),
-takes-big-step-toward-competing-directly-ups [http://perma.cc/42AT-Y4JK].
339
Daniella
Kucera
Why Amazon Is on a Building Spree
Bloomberg
(Aug. 29, 2013 8:51 AM),
-on-a-warehouse-building-spree [http://perma.cc/999P-MLSN].
340
Leonard,
supra
note 207.
341
Greg
Bensinger
& Laura Stevens,
Amazon’s Newest Ambition: Competing Directly with UPS and FedEx
Wall St. J. (
Sept. 27, 2016, 1:45 PM),
zons-newest-ambitioncompeting-directly-with-ups-and-fedex-1474994758 [http://
perma.cc
/BB7F-PXJP].
342
Id.
343
Jillian
D’Onfro
Here Are All of Amazon’s Warehouses in the US
Bus. Insider
(Mar. 24, 2015, 1:48 PM),
-have-in-the-us-2015-3#ixzz3f3AX8zda
[http://perma.cc/TF8G-BJ72].
344
Bensinger
& Stevens,
supra
note 341.
345
See
Spencer
Soper
EBay Ends Same-Day Delivery in U.S. in Face of Amazon Effort
Bloomberg
(July 27, 2015, 3:53 PM),
-ends-same-day-delivery-in-u-s-in-face-of-amazon-effort [http://perma.cc/5TD9-XDC5].
346
Stone,
supra
note 206;
see also
JP
Mangalindan
Amazon’s Prime and Punishment
Fortune
(Feb. 21, 2012, 8:02 PM),
ment [http://perma.cc/68KL-8C5Z] (“‘If you’re a competing retailer, it should be in your plans that Prime will someday be a next-day or same-day delivery service with 100,000 free movies—it’s going in that direction,’ chimes analyst [Matt]
Nemer
. If that day comes, Prime won’t just be a nominal loyalty program or balance sheet customer acquisition cost. It’ll be a monolith few can compete with.”).
347
Jason Del Ray,
Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Grow
ReCode
(Dec. 4, 2015, 8:00 AM),
-buys-thousands-of-its-own-trucks-as-its-transportation-ambitions-grow [http://
perma.cc
/8LBF-NCYB]; Leonard,
supra
note 207.
348
Robin Lewis,
Amazon’s Shipping Ambitions Are Larger than It’s Letting On
Forbes
(Apr. 1, 2016, 8:30 AM),
-and-ships/#260c3aa1408c [http://perma.cc/HZ4V-KCLE].
349
Farhad
Manjoo
Think Amazon’s Drone Idea Is a Gimmick? Think Again
, N.Y. T
imes
(Aug. 10, 2016),
-idea-is-a-gimmick-think-again.html [http://perma.cc/9A7F-VAY6].
350
Id.
351
See
Del Ray,
supra
note 347;
see also
Leonard,
supra
note 207 (“Others believe that Amazon will make a business out of its delivery network, as it did with Amazon Web Services, thereby challenging the world’s leading shipping companies . . . . The fear has spread to Wall Street, where analysts say investors worry about what Amazon’s strategy means for the shipping industry. ‘The natural inclination among any observers of the market when they see Amazon is to be scared,’ says David Vernon, a Sanford C. Bernstein analyst who tracks the shipping market. ‘Amazon is the epitome of a zero-sum game.’”).
352
A tie is created when a firm requires consumers interested in purchasing good A to purchase good A (the tying
good
) and good B (the tied good) from the firm. The practice forces an unwilling customer to purchase the tied good while a refusal-to-deal turns away a willing customer.
See
Einer
Elhauge
Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theorem
, 123
Harv
. L. Rev.
397, 466–67 (2009).
353
See
Will Mitchell,
How
To
Rank Your Products on Amazon—The Ultimate Guide
StartupBros
[http://perma.cc/6X3E-KNHF].
354
“One of the biggest themes is the challenge of getting product to your consumers, and relying on [fulfillment companies], but they don’t have another option, they can’t make investments [if] Amazon is in fulfillment.”
Ray,
supra
note
232
355
Moore,
supra
note 14.
356
See
Bensinger
supra
note 223.
357
See
Angus
Loten
& Adam
Janofsky
Sellers Need Amazon, but at What Cost
Wall St. J
. (Jan. 14, 2015, 6:30 PM),
-cost-1421278220 [http://
perma.cc/4MYB-PHQN] (“If you say no to Amazon, you’re closing the door on tons of sales.”).
358
Id.
359
Id.
360
Greg
Bensinger
Competing with Amazon on Amazon
Wall St. J
. (June 27, 2012, 6:15 PM),
[http://
perma.cc/W9AG-BDRC].
361
Nancee
Halpin
Third-Party Merchants Account for More than Three-Quarters of Items Sold on Amazon
Bus. Insider (
Oct. 16, 2015, 2:55 PM),
-party-merchants-drive-amazon-grow-2015-10 [http://perma.cc/5XL9-NTCQ].
362
Loten
Janofsky
supra
note 357.
363
Bensinger
supra
note 360.
364
Id.
365
Id.
366
Id.
367
Id.
368
Id.
369
Spencer
Soper
Got a Hot Seller on Amazon? Prepare for E-
Tailer
To
Make One Too
Bloomberg
(Apr. 20, 2016, 7:00 AM),
-04-20/got-a-hot-seller-on-amazon-prepare-for-e-tailer-to-make-one-too [http://
perma
.cc/79GL-5A8E].
370
Id.
(quoting a report by
Skubana
, an e-commerce company).
371
Id.
372
George Anderson,
Is Amazon Undercutting Third-Party Sellers Using Their Own Data
Forbes
(Oct. 30, 2014, 9:23 AM),
/is-amazon-undercutting-third-party-sellers-using-their-own-data [http://perma.cc/SQE3 -SEU8].
373
As one analyst said of Amazon employees, “They’re data scientists. They know what people want and they’re going to mop it up.” Nick Bravo,
Amazon Private Labels Threaten Manufacturers
TrendSource
(July 5, 2016, 8:00 AM),
/trusted-insight-trends/amazon-private-labels-threaten-manufacturers [http://perma.cc
/W7VE-LXSS].
374
See Alistair Barr,
Amazon Finds Startup Investments in the ‘Cloud
Reuters
(Nov. 9, 2011, 3:44 PM),
[http://
perma.cc/BH4Q-JPW7].
375
Id.
376
European antitrust authorities do investigate how concentrated control over data may have anticompetitive effects, and—unlike U.S. antitrust authorities—investigated the Facebook/WhatsApp merger for this reason. Complaints from companies that their rivals are acquiring an unfair competitive advantage through acquiring a firm with huge troves of data may also prompt U.S. authorities to take the exclusionary potential of data more seriously. In September, Salesforce announced it would urge regulators in the United States and in Europe to block Microsoft’s bid to acquire LinkedIn, on grounds that the deal would foreclose competition by giving Microsoft too much control over data.
See
Rachael King,
Salesforce.com
To Press Regulators To
Block Microsoft-LinkedIn Deal
Wall St. J.
(Sept. 29, 2016, 7:18 PM),
-microsoft-linkedin-deal-1475178870 [http://perma.cc/5EZE-GVBC].
377
See
David S. Evans,
The Antitrust Economics of Multi-Sided Platform Markets
, 20
Yale J. on Reg
. 325 (2003); King,
supra
note 377; David S. Evans & Richard
Schmalensee
The Antitrust Analysis of Multi-Sided Platform Businesses
Coase-Sandor
Inst. for Law & Econ., Working Paper No. 623, 2012).
378
See
Julian Wright,
One-Sided Logic in Two-Sided Markets
, 3
Rev. Network Econ.
44 (2004).
379
See
David S. Evans, Platform Economics: Essays on Multi-Sided Business
112 (2011).
380
Two-sided markets are platforms that have two distinct user groups that offer each other network benefits.
381
See
Evans
supra
note
379
, at
112
(“The pricing and investment strategies that firms in two-sided markets use to ‘get both sides on board’ and ‘balance the interests of both sides’ raise novel ones. These pricing and other business strategies are needed to solve a fundamental economic problem arising from the interdependency of demand on both sides of the market. In some cases, the product could not even exist without efforts to subsidize one side of the market or the other.”).
382
Brody Mullins et al.,
Inside the U.S. Antitrust Probe of Google
Wall St. J.
(Mar. 19, 2015, 7:38 PM),
-1426793274 [http://perma.cc/H4PZ-JZ9K].
383
Mark Scott & James
Kanter
Google Faces New Round of Antitrust Charges in Europe
N.Y. Times
(July 14, 2016),
-union-antitrust-charges.html [http://perma.cc/2SYP-5Z4B].
384
See
supra
note 319.
385
Stucke
& Grunes,
supra
note 47, at
163
386
This is a form of “scale of data” network effect rather than a “traditional network effect.”
Id.
at 170.
387
Novell Inc. v. Microsoft Corp., 505 F.3d 302, 308 (4th Cir. 2007).
388
See
Guy
Rolnik
& Asher Schechter,
Is the Digital Economy Much Less Competitive than We Think It Is
ProMarket
(Sept. 23, 2016),
-less-competitive-think [http://perma.cc/K2R6-TB7Q].
389
Interestingly, agencies have required vertically merging parties to erect firewalls to prevent anticompetitive use of data.
See, e.g.
In re
Coca-Cola Co., 150 F.T.C. 520, 2010 WL 9549986 (2010) (ordering Coca-Cola to set up a firewall to ensure that its merger with a bottling subsidiary does not give it access to information from its competitor, Dr. Pepper Snapple Group); Press Release, FTC, FTC Puts Conditions on Coca-Cola’s $12.3 Billion Acquisition of its Largest North American Bottler
(S
ept. 27, 2010),
-e
vents/press-releases/2010/09/ftc-puts-conditions-coca-colas-123-billion-acquisition-its [http://
perma
.cc/BP7U-EY33] (discussing the Coca-Cola settlement and a similar PepsiCo settlement).
390
Mike Shields,
Amazon Looms Quietly in Digital Ad Landscape
Wall St. J.
(Oct. 6, 2016, 3:28 PM),
-1475782113 [http://
perma.cc/5ACL-MJ7D].
391
See
Eric Newcomer,
Uber
Draws Fresh Amazon Comparisons as Growth Trumps Profit
Bloomberg
(July 1, 2015, 12:30 AM),
-draws-fresh-comparison-with-amazon-as-growth-trumps-profit [http://perma.cc/AYF9 -9RJ7].
Uber
does not just lose money in the aggregate by reinvesting more than it generates, but also by pricing rides below what it pays drivers. In other words, it is pricing below its variable costs—which enforcers traditionally read as a sign of predatory pricing. “As anyone who has taken an
Uber
and talked to the driver knows, sometimes the fare collected from the rider is less than what
Uber
pays the driver.”
Id.
392
Charles Clover & Leslie Hook,
Uber
Losing More than $1bn a Year in China
Fin.
Times
(Feb. 18, 2016, 7:25 PM),
-8564e7528e54 [http://perma.cc/6U6P-JQ7Q].
393
“‘They’re wise to expand as fast as they can,’ said Lou Shipley, a lecturer at the MIT Sloan School of Management. ‘I would liken it to what Amazon did with books.’” Newcomer,
supra
note 391.
394
Douglas MacMillan & Telis Demos,
Uber
Valued at More than $50 Billion
Wall St. J. (
July 31, 2015, 8:50 PM),
-1438367457 [http://perma.cc/T6GW-SY2J].
395
Leslie Hook,
Uber
Cranks Up Ride-Hailing Battle with $3.5
bn
Saudi Investment
Fin.
Times
(June 2, 2016),
[http://
perma.cc/RXV8-TPBP].
396
Eugene Kim,
Billionaire VC Says that Most Companies Will Eventually Pay an Amazon ‘Tax
Bus. Insider
(Jan. 21, 2016, 4:21 AM),
-says-that-most-companies-will-eventually-pay-an-Amazon-tax/articleshow/50662558.cms [http://
perma.cc/4ZGS-VSL7].
397
The Supreme Court has affirmed the validity of EMH.
See
Halliburton Co. v. Erica P. John Fund,
134 S. Ct. 2398, 2409-11, 2417
(2014).
398
Horizontal Merger Guidelines
supra
note 44, at 4 (“For example, a purchase price in excess of the acquired firm’s stand-alone market value may indicate that the acquiring firm is paying a premium because it expects to be able to reduce competition or to achieve efficiencies.”).
399
Ironically, the logic that is motivating investors—the idea that it is worth encouraging platforms to bleed money to establish a dominant position and capture the market, at which point these firms will be able to recoup those losses—maps on to the logic underpinning current predatory pricing doctrine. The main issue is how narrowly the law currently conceives of recoupment, which does not account for how Amazon can leverage its multiple lines of business.
400
See
Tim Hwang & Madeleine Clare
Elish
The Mirage of the Marketplace: The
Disingenuous Ways
Uber
Hides Behind
Its Algorithm
Slate
(July 27, 2015, 6:00 AM),
_and
_the_mirage_of_the_marketplace.html [http://perma.cc/B5UR-P9PN].
401
See
Felix Salmon,
Why the Internet Is Perfect for Price Discrimination
Reuters (
Sept. 3, 2013),
[http://perma.cc/NZ4E-SVJJ].
402
See
David Singh Grewal,
Before Peer Production: Infrastructure Gaps and the Architecture of Openness in Synthetic Biology
, 20
Stan. Tech. L. Rev
. (forthcoming 2017).
403
The Justice Department wrote, “[A]s more retailers purchase
Bazaarvoice’s
PRR platform, the
Bazaarvoice
network becomes more valuable for manufacturers because it will
allow[
] them to syndicate content to a greater number of retail outlets. The feedback between the manufacturers and retailers creates a network effect that is a significant and durable competitive advantage for
Bazaarvoice
.”
Complaint at 18, United States v.
Bazaarvoice
, Inc., No. 13-0133 2014 (N.D. Cal. Jan. 10, 2013), 2014 WL 203966.
404
Terrell
McSweeny
Comm’r
, FTC, Remarks to the U.S. Chamber of Commerce at
TecNation
2016 (Sept. 20, 2016),
/files/documents
/public
_state
ments
/985773
/mcsweeny_-_tecnation_2016_9-20-16.pdf [http://
perma
.cc
/N7GA-YN5P].
405
See supra
Section I.A.
406
See
Stucke
supra
note 38;
Horizontal Merger
Guidelines
supra
note 44, at 2.
407
See
K.
Sabeel
Rahman & Lina Khan,
Restoring Competition
in the U.S. Economy
in
Untamed: How To Check Corporate, Financial, and Monopoly Power
18, 18 (Nell Abernathy et al. eds., 2016).
408
See
Leslie,
supra
note 94, at 1753.
409
See id.
at
1759.
410
Id.
at 1758.
411
Admittedly, this approach would not reach vertical integration that arose due to internal expansion. That type of vertical integration could be covered by the prophylactic approach discussed below.
412
For a list of FTC thresholds, see Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 81 Fed. Reg. 4,299 (Jan. 26, 2016).
413
See
Stucke
& Grunes
supra
note 47, at 74.
414
For some of the potential concerns raised by this deal, see Kevin Carty,
Will
Uber
Rouse the Trustbusters
Slate
(Aug. 9, 2016, 11:22 AM),
/articles/technology
/future_tense/2016/08/uber_s_deal_with_didi_chuxing_could_open_it_up_to_antitrust _scrutiny.html [http://perma.cc/F4NT-AYRZ].
415
See id.
See generally
Stucke
& Grunes,
supra
note 47 (analyzing how Big Data issues relate to competition laws and policy).
416
See, e.g.
, Scott &
Kanter
supra
note 384; Benjamin Edelman & Damien
Geradin
Android and Competition Law: Exploring and Assessing Google’s Practices in Mobile
1-2 (Harvard Bus. Sch. Negotiation, Orgs. &
Mkts
. Unit, Working Paper No. 17-018, 2016),
ssrn.com/abstract=2833476 [http://perma.cc/7JA6-RXPN].
417
This is a version of the “Separations Principle” that Tim Wu recommends for information industries.
Wu
supra
note 316, at 305 (“More than anything else, the preceding chapters chronicle the corrupting effects of vertically integrated power. A strong stake in more than one layer of the industry leaves a firm in a position of inherent conflict of interest. You cannot serve two masters, and the objectives of creating information are often at odds with those of disseminating it. That is the very first reason for the Separations Principle.”).
418
See supra
Section IV.D.
419
This prophylactic approach has also been applied in the power industry. For example, in 1996, the Federal Energy Regulatory Commission issued a mandate requiring vertically integrated utilities to “functionally separate their generation, transmission, and distribution business, and provide transmission access to all generators on transparent, nondiscriminatory terms.” Sandeep
Vaheesan
Reviving an Epithet: A New Way Forward for the Essential Facilities Doctrine
, 3
Utah L. Rev.
911, 927 (2010).
420
See, e.g.
Saule
T.
Omarova
The Merchants of Wall Street: Banking, Commerce, and Commodities
, 98
Minn. L. Rev.
265, 268, 274-75 (2013); Bernard Shull,
Banking and Commerce in the United States
, 18 J.
Banking & Fin
. 255, 267 (1994); Bernard Shull,
The
Separation of Banking and Commerce in the United States: An Examination of Principal Issues
, 8
Fin.
Mkts
Institutions & Instruments
1, 1 (1999).
421
Omarova
supra
note 420, at 268.
422
Bank Holding Company Act of 1956, Pub. L. No. 84-511, § 4, 70 Stat. 133, 135-37 (codified as amended at 12 U.S.C. §§ 1841-48 (2012)).
423
Omarova
supra
note 420, at 268 (citing 12 U.S.C. § 1843(k
)(
1)(A)).
424
Id.
at 275.
425
See id.
at
275-76.
426
Id.
at 276.
427
Id.
428
Id.
at 275-77.
Notably, several banking regulations that previously sought to prevent concentration of systemic risk in our financial system were repealed by Congress in the 1990s—leading in part to the “too-big-to-fail” crisis.
See
Johnson & Kwak,
supra
note 179.
429
See
Sara E. Needleman & Greg
Bensinger
Small Businesses Are Finding an Unlikely Banker: Amazon
Wall St. J.
(Oct. 4, 2012, 1:17 PM),
/SB10000
87239
39
0443
493304578034103049644978 [http://perma.cc/PUH8-XFKS]; Eric Newcomer & Olivia
Zaleski
Inside
Uber’s
Auto-Lease Machine, Where Almost Anyone Can Get a Car
Bloomberg
(May 31, 2016, 11:00 AM),
/news/
articles/2016 -05-31/inside-uber-s-auto-lease-machine-where-almost-anyone-can-get-a-car [http://
perma.cc
/A7AM-VZRJ]; Richard Waters & Barney
Jopson
Google Makes First Foray into Credit Business
Fin.
Times
(Oct. 7, 2012),
/content
/55be35f2-1093-11e2 -a5f7-00144feabdc0 [http://perma.cc/NC6P-2EEG].
430
Chris
Isidore
Target: Hacking Hit up to 110 Million Customers
CNN Money
(Jan. 11, 2014, 6:20 PM),
[http://
perma.cc/D6W3-TM75].
431
There have been some policy debates about whether Google should be considered “critical infrastructure.”
See, e.g.
, Eric
Engleman
Google Exception in Obama’s Cyber Order Questioned as Unwise Gap
Bloomberg
(Mar. 5, 2013, 12:01 AM),
/news/articles/2013-03-05/google-exception-in-obama-s-cyber-order-questioned-as-unwise -gap [http://perma.cc/5Z2M-HVU3]. That debate has not yet extended to Amazon, but—given the growth of Amazon Web Services—it may be appropriate.
432
That platforms’ concentration of economic power also concentrates political power is becoming increasingly evident.
Amazon, Google, and
Uber
have all shifted regulatory debates and—in some cases—directly shaped outcomes.
See
Liam Dillon,
Uber
and
Lyft
Are Winning at the State Capitol—Here’s Why
, L.A.
Times
(May 7, 2016, 12:05 AM),
.com
/politics/la-pol-sac
-why
-uber
-is-winning-in-california-20160507-snap-html
story.html [http://perma.cc/7BRX-F39U]; Peter
Elkind
& Doris Burke,
Amazon’s (Not So Secret) War on Taxes
Fortune
(May 23, 2013, 10:42 AM),
/05/23/amazons-not -so-secret-war-on-taxes [http://
perma
.cc/LN8G-GTNN]; Simon Marks & Harry Davies,
Revealed: How Google Enlisted Members of US Congress It Bankrolled To Fight $6bn EU Antitrust Case
Guardian
, (Dec. 17, 2015, 7:30 AM),
/world/2015
/dec
/17/google-lobbyists-congress-antitrust-brussels-eu [http://perma.cc/NLA7-KNVC]; Anna Palmer & Scott Wong,
Lobbying Drives
Uber’s
Expansion
Politico
, (Sept. 18, 2013, 11:16 PM),
.com/story/2013/09/uber-taxi-lobbying-expansion-097028 [http://perma.cc/B3LA-7WUD]; Sam
Jewler
& Taylor Lincoln,
Mission Creep-y: Google Is Quietly Becoming One of the Nation’s Most Powerful Political Forces While Expanding Its Information-Collection Empire
Pub. Citizen
(Nov. 2014),
/Google
-Political-Spending-Mission-Creepy.pdf [http://perma.cc/83QR-X3PA]; Martin Moore,
Tech Giants and Civil Power
Ctr. for Study Media, Comm. & Power
(Apr. 2016),
www
.kcl.ac.uk/sspp/policy-institute/CMCP/Tech-Giants-and-Civic -Power.pdf [http://
perma
.cc/D76X-NALM].
433
See
LaVecchia
& Mitchell,
supra
note 6; Barry C. Lynn,
Killing the Competition: How New Monopolies Are Destroying Open Markets
Harper’s Mag
., Feb. 2012, at 27.
434
William Boyd,
Public Utility and the Low-Carbon Future,
61
UCLA L. Rev.
1614, 1616 (2014).
435
Id.
at 1643.
436
See
Christopher Leslie,
Antitrust Law as Public Interest Law
, 2
U.C. Irvine L. Rev.
885, 887 (2012).
437
94 U.S. 113 (1877).
438
Id.
at 126.
439
Id.
at 130.
440
Id.
441
Boyd,
supra
note 434, at 1635.
442
Id.
at 1643.
443
See
K.
Sabeel
Rahman,
From Railroad to
Uber
: Curbing the New Corporate Power
Bos
. Rev.
(May 4, 2015),
-power [http://perma.cc/Y6TU-E449]; K.
Sabeel
Rahman, Private Power and Public Purpose: The Public Utility Concept and the Future of Corporate Law in the New Gilded Age, Address at the Association of American Law Schools’ 110th Annual Meeting (Jan. 8, 2016) (transcript on file with author).
444
Net neutrality is a form of common carrier regime. For an exposition of why net neutrality and search neutrality should apply to major platforms, see Frank Pasquale,
Internet Nondiscrimination Principles: Commercial Ethics for Carriers and Search Engines
, 2008
U. Chi. Legal F.
263.
445
A “fair return” has been variously defined. For an overview of public utility regulatory regimes, see
William A. Prendergast,
Public Utilities and the People
2 (1933) (“What is a utility? . . . It is commonly used to denote a business the product or use of which serves the public
generally .
. . . [It is] a business which cannot choose its clients or customers.”).
446
I am indebted to David Kim for making this connection at the
Yale Law Journal
Author Seminar Workshop on October 12, 2016.
447
Boyd,
supra
note 434, at 1656.
448
Open Internet
Fed. Comm. Commission
[http://
perma.cc/ZL6S-6Q38].
449
Vaheesan
supra
note 419, at 911
450
708 F.2d 1081, 1132-33 (7th Cir. 1982).
451
Id.
This last factor allows for efficiency defenses.
452
Vaheesan
supra
note 419, at 921.
453
Id.
at 918 (citing Marianna Lao,
Networks, Access, and ‘Essential Facilities
62
SMU L. Rev.
557 (2009)).
The three cases that
Vaheesan
identifies are
United States v. Terminal Railroad
Ass’n
, 224 U.S. 383 (1912);
United States v. Associated Press
, 326 U.S. 1 (1945); and
Otter Tail Power Co. v. United States
, 410 U.S. 366 (1973).
454
See
Verizon
Commc’ns
Inc. v. Law Offices of Curtis V.
Trinko
, LLP, 540 U.S. 398, 410 (2004).
455
See
Brett
Frischmann
& Spencer Weber Waller,
Revitalizing Essential Facilities
, 75
Antitrust L.J.
1, 3 (2008).
456
Id.
at 4.
457
For more pieces grappling with the possibility of applying the “essential facilities” doctrine to internet platforms, see Frank Pasquale,
Dominant Search Engines: An Essential Cultural & Political Facility
in
The Next Digital Decade 401 (
Berin
Szoka
et al. eds., 2011); and Zachary Abrahamson, Comment,
Essential Data
, 124
Yale
L.J. 576 (2014).
458
See a Giant Problem
Economist
(Sept. 17, 2016),
.com
/news
/leaders/21707210-rise-corporate-colossus-threatens-both-competition-and-legit
macy-bu
iness [http://perma.cc/DNN2-YKL3] (“[T]he most striking feature of business today
is .
. . the entrenchment of a group of superstar companies at the heart of the global economy . . . . But they have two big faults. They are squashing competition, and they are using the darker arts of management to stay ahead.”); Davidoff Solomon,
supra
note 319.
459
In a striking speech welcoming the public and political attention towards antitrust, Assistant Attorney General for Antitrust
Renata
Hesse
stated, “Antitrust is too important to be left solely in the hands of antitrust experts.”
Renata
Hesse
, Assistant
Att’y
Gen., Antitrust Div., Dep’t of Justice, Remarks at the 2016 Global Antitrust Enforcement Symposium: And Never the Twain Shall Meet? Connecting Popular and Professional Visions for Antitrust Enforcement (Sept. 20, 2016),
-general-
renata
hesse
-antitrust-division-delivers-opening [
].
460
Theo Francis & Ryan Knutson,
Wave of Megadeals Tests Antitrust Limits in U.S.
Wall St. J.
(Oct. 18, 2015),
-u-s-1445213306 [http://perma.cc/WA8J-ATZT].
461
Too Much of a Good Thing
Economist (
Mar. 26, 2016),
www
.economist
.com
/news/briefing/21695385-profits-are-too-high-america-needs-giant-dose-competition-too -much-good-thing [http://perma.cc/4YPA-G3HB].
462
See
Eduardo Porter,
With Competition in Tatters, the Rip of Inequality Widens
, N.Y.
Times
(July 12, 2016),
-competition-inequality.html [http://perma.cc/8Z8A-KCFJ];
America’s Monopoly Problem
New Am
.,
[http://perma.cc/64YF-6KZV]; Marc
Jarsulic
et al.,
Reviving Antitrust
Ctr. for Am. Progress (
June 29, 2016),
/issues/economy
/report
/2016/06/29/140613/reviving-antitrust [http://perma.cc/QCV8-52TV];
Making Antitrust Work for the 21st Century
Ctr. for Equitable Growth
/event/making-antitrust-work-for-the-21st-century [http://perma.cc/HAX7-BRK2];
Untamed: How To Check Corporate, Financial, and Monopoly Power
, Roosevelt Inst.
2016),
-Pages
.pdf [http://perma.cc/FM9R-DXJJ].
463
See
Neil Irwin,
Liberal Economists Think Big Companies Are Too Powerful. Hillary Clinton Agrees
N.Y. Times
(Oct. 4, 2016),
eral-economists-think-big-companies-are-too-powerful-hillary-clinton-agrees.html [http://
perma.cc/WXA9-RX2J];
Hillary Clinton’s Vision for an Economy Where Our Businesses, Our Workers, and Our Consumers Grow and Prosper Together
Hillary Clinton,
-vision-for-an-economy-where-our-businesses-our-workers-and-our-consumers-grow-and -
pros
per-together
[http://perma.cc/2EHG-PT9Z] (“Promote Free and Fair Competition and Stopping Big Businesses from Hurting Small Businesses”).
464
One of the most striking aspects of
Hesse’s
speech is that she distances herself from a strict consumer-welfare based approach—departing from current orthodoxy:
But, although we believe competition maximizes consumer welfare, the ultimate standard by which we judge practices is their effect on competition, not on consumer welfare. It is certainly relevant when a merger will lead to higher prices and reduced output because these results are hallmarks of reduced competition. But the law instructs us to examine whether a merger may substantially lessen competition and that means we must sometimes look to other evidence of harm to competition.
Hesse
supra
note 460.