The focus of contemporary competition policy debates is shifting back to first principles, asking, “What are we trying to do? What is the purpose of antitrust?” Enforcers and some lawmakers in the US are proposing a shift from consumers to a radically different approach that focuses on exercising power over specific companies. This change of approach is also gaining traction in some U.S. states, as several state attorneys general recently sued tech companies for allegedly violating antitrust laws without considering the impact on consumers of the actual conduct or proposed remedy. California Attorney General (AG) Rob Bonta recently archived a civil antitrust and unfair competition lawsuit alleging that Amazon’s pricing practices prevent retailers from offering lower prices than the prices they offer in Amazon’s store. The mirrors of the California closet the suit that DC AG Karl Racine filed on behalf of the District of Columbia which also alleged that Amazon has too much control over how much third-party suppliers can charge for their products. However, the judgement issued by the DC Superior Court found not only that DC AG’s office was unable to substantiate its allegations against Amazon, but that the Amazon practices in question actually benefit consumers. These recent cases raise the important question: who should protect antitrust?
For the past four decades, enforcers and courts have agreed that antitrust laws and policies should protect consumer welfare by promoting competition rather than competitors. Importantly, the consumer welfare standard was developed in the 1970s in response to the belief that previous US antitrust policies had become too subjective and overly aggressive by focusing on the size of companies regardless of the effect on consumers. With enforcers and courts embracing the consumer welfare standard, it has since served as the backbone of US and global antitrust policy, as also indicated by the International competition network (ICN) and the organization for economic cooperation and development (OECD). As a result, the purpose of antitrust law has been to ensure economic efficiency by providing lower prices, fostering innovation, and increasing consumer benefits. Over the past few decades, the message has been clear: consumers are the ones who need to be protected by antitrust efforts. This approach has led to astounding levels of innovation, and it’s no coincidence that numerous digital and connected services have been able to provide consumers and businesses with the tremendous benefits they enjoy today.
Recently, however, U.S. antitrust enforcers and even some lawmakers appear to be moving away from a consumer welfare standard and returning to a “big is bad” approach that focuses on company size, rather than protecting and favoring consumers. While Senator Amy Klobuchar recently invoked David and Goliath in discussing her fight to pass antitrust legislation to regulate big tech companies, Jonathan Kanter, assistant attorney general for the Justice Department’s antitrust division, declared that “the era of lax enforcement is over, and the new era of vigorous and effective antitrust law enforcement has begun.” Unlike the consumer welfare standard that has provided a high degree of flexibility and objectivity to enforcement agencies and courts, the new proposals, which include concepts of fairness, labor rights and sustainability, raise a host of questions about their enforceability, clarity and subjectivity. And the increasing number of state antitrust cases shows a total lack of consumer focus. In fact, the California and DC cases against Amazon appear to conflict with core competition and consumer protection goals.
The California AGs lawsuit alleges that Amazon enforces agreements at the retail and wholesale levels that have “prevented effective price competition across a large number of online marketplaces and stores” as “competing sites do not offer lower prices as they would in a competitive marketplace because Amazon prohibits it by contract.” However, those confirmations are a misunderstanding of the highly competitive retail industry and don’t take into account the way Amazon operates. In practice, sellers on the Amazon store set their own prices for the products they list and can offer them even if they offer lower prices for the same product elsewhere. When sellers set prices that aren’t competitive, those offers are still available to customers in the Amazon store; however, they won’t be reflected in Amazon’s “buy box,” Amazon’s way of highlighting the products that are better for consumers. As such, Amazon offers an added benefit and service to consumers who know they will find competitive prices on the Amazon store and in the “buy box” in particular. The remedy suggested by California AG’s lawsuit would force Amazon to offer higher prices to consumers. How is that a consumer-friendly idea? Who would protect this antitrust tool? Not the consumers, who would end up paying higher prices.
The same question was asked in the DC suit, which the DC AG filed in May on behalf of the District of Columbia alleging that Amazon has too much control over how much third-party vendors can charge for their products. However, the judgement Issued by Judge Hiram Puig-Lugo of the District of Columbia Superior Court, DC AG’s office was unable to substantiate its allegations against Amazon. The Court explained that “based on what the policy says, sellers are free to set prices in the market. . . the only limitation is that they cannot set a price significantly higher than recent prices offered on or off Amazon,” which benefits consumers.
These recent state trials appear to go against the core objectives of antitrust law and policy. Do we want to go back and protect competitors? Or simply ban the practice of certain companies without demonstrable damage to competition? Or protect other social or policy objectives? And is antitrust the right tool to protect it? When we think about these basic questions, we should be guided by the US Supreme Courtstating that “growth or development as a result of a superior product [or] business sense is not a violation of antitrust laws.” Given the lawsuits in California and DC against Amazon and the recent story of antitrust goals shifting from a consumer welfare standard to a “big is bad” approach that focuses on auditing certain companies rather than protecting consumers , the question remains: who is antitrust supposed to protect?