*The views expressed in this article do not represent the views of Santa Clara University.
It is difficult to imagine the humble garage in which the economic powerhouse we know today as Amazon, Inc. was conceived. During the 1994 internet boom, entrepreneur Jeff Bezos started a virtual bookstore that flourished into a multinational technology giant focused on e-commerce, cloud computing, digital streaming, and artificial intelligence. (“History of Amazon,” n.d.) While some are concerned that this giant has grown too large despite numerous legal efforts to address its anti-competitive dominance, Amazon continues to successfully circumvent regulatory hurdles imposed by the current interpretation of antitrust law.
To understand the current reality of American antitrust law, we must first examine the history of the federal government’s intervention in American business. In the 19th century, the federal government lacked effective legislative controls to regulate the massive steel and oil corporate trusts suffocating the U.S. economic free market. (“US Antitrust Laws: Overview | Practical Law,” n.d.). In the absence of true competition, American consumers suffered under exclusive market controls, resulting in the creation of the Sherman Antitrust Act of 1890—the birth of antitrust law. Id. The act prohibited unfair competition and curtailed the formation of monopolies to better suit the American public and encourage market growth. Id. In an effort to bolster antitrust regulation, Congress created the Clayton Act and Federal Trade Commission (FTC) Act in 1914. The first prohibits certain types of conduct that substantially lessen competition such as price discrimination, exclusive dealing arrangements, tying arrangements, and certain mergers & acquisitions. Id. The second creates the governing body of commerce and antitrust, the FTC. Id.
Over time, the enforcement of antitrust law evolved and now focuses primarily on violations of the Clayton Act, where the actions of many large companies are analyzed for price discrimination and examined for potentially unlawful mergers that create an unfair advantage for companies attempting to control the largest portion of the market. The courts, the Department of Justice, and the FTC constantly engage in a balancing act in which they determine whether a merger benefits society and the consumer. (“What We Can Learn from Merger Deals That Never Happened.” Harvard Business Review, 21 June 2016). While many of our favorite large companies acquire or merge with other industry leaders quite frequently, no company endures more antitrust scrutiny than online retail giant, Amazon.
Jeff Bezos appropriately named his startup Amazon after the largest river in South America. In doing so, he believed the company would not be constrained to offering just one type of product or service. (“Amazon Opens for Business.” History.com, A&E Television Networks, 4 Nov. 2015). It’s safe to say that Bezos was spot on. In 1998, Amazon started selling more than just books, as CDs, toys, and electronics were added to digital shopping carts worldwide. Id. While Amazon had expanded to 3,000+ employees and over $600M in sales by 1999, the company’s first profitable year wasn’t until 2003. (“Jeff Bezos Biography - How He Started Amazon and More.” Entrepreneur, Entrepreneur, 16 May 2022).
In subsequent years, especially swelling throughout the COVID-19 pandemic, Amazon’s earnings have skyrocketed. Amazon’s annual revenue (AR) for 2019 was $280.522B, a 20.45% increase from 2018. (“Amazon Revenue 2010-2022: AMZN.” Macrotrends, n.d.). Annual Revenue for 2020 was $386.064B, a 37.62% increase from 2019 (Id.), and AR for 2021 was $469.822B, a 21.7% increase from 2020. Id. Amazon’s revenue for the quarter ending June 30, 2022 was $121.234B, a 7.21% increase year-over-year. Id. Holding true to its name, Amazon’s financial growth was mirrored by extraordinary horizontal integration. Acquisitions included, but certainly were not limited to: Zappos for $1.2B in 2009 (Wauters, Robin. “Amazon Closes Zappos Deal” TechCrunch, 2 Nov. 2009), Twitch for $970M in 2014 (“Amazon Buys Twitch” EME Outlook Magazine, n.d.), Whole Foods for $13.7B in 2017 (Bryan, Bob. “Amazon Is Buying Whole Foods” Business Insider n.d.), MGM Studios Inc. for $8.45B in 2021 (Lang, Brent. “Amazon Buys MGM” Variety, 27 May 2021), and One Medical for $3.9B in 2022. (Annierpalmer. “Amazon to Buy Primary Health-Care Provider One Medical”CNBC, 21 July 2022).
Particularly illustrative of Amazon’s repeated questionable antitrust activity is a monopolistic tendencies case brought by District of Columbia Attorney General (AG), Karl Racine. In May 2021, the AG’s filing contributed to the laundry list of lawsuits. (Ovide, Shira. “The Big Deal in Amazon's Antitrust Case.” The New York Times, 25 May 2021). The AG’s newsroom declared that “Amazon Has Illegally Used and Maintained its Monopoly Power, Raising Prices for Consumers & Stifling Competition in Online Retail Sales by Imposing Restrictive Agreements on Third-Party Sellers.” (“AG Racine Files Antitrust Lawsuit”, 25 May 2021).
A lynchpin of Racine’s lawsuit is the frequently-made claim by independent merchants on Amazon’s digital mall that the company punishes them if they list their products for less on their own websites or other shopping sites like Walmart.com. (Ovide, Shira. “The Big Deal in Amazon's Antitrust Case.” The New York Times, 25 May 2021). In doing so, Amazon effectuates control over other online shops and makes products more expensive for consumers. Id. These “most favored nation” agreements effectively require third-party sellers to incorporate the high fees charged by Amazon, up to and including 40% of the total product price, not only into the price charged to customers on Amazon’s platform, but also on any other online retail platform. (“AG Racine Files Antitrust Lawsuit”, 25 May 2021). As a result, these agreements impose an artificially-high price floor across the online retail marketplace and allow Amazon to build and maintain monopoly power in violation of the District of Columbia’s Antitrust Act. Id.
Racine’s was a novel approach to pursuing antitrust actions because the claim that Amazon is hurting the public by raising prices at will and strong-arming competition effectively bypasses the longstanding corporate insulation that has developed through the construction, interpretation, and enforcement of U.S. competition laws. (Ovide, Shira. “The Big Deal in Amazon's Antitrust Case.” The New York Times, 25 May 2021) Amazon told the Times that merchants have the freedom to list and price their products however they wish, but that Amazon can choose “not to highlight” products that are not competitively priced. Id. Amazon argued in its motion to dismiss the D.C. lawsuit that pricing restrictions in its contracts with sellers are common in the retail industry and entirely legal. (“Amazon Wins Dismissal of D.C. Antitrust Lawsuit.” The Wall Street Journal, 21 Mar. 2022) The company also argued that the lawsuit would hurt consumers if it succeeded. Id. Ultimately, District Of Columbia v. Amazon.Com, Inc. was dismissed in March of this year, and an appeal was filed by the AG’s office on August 25, 2022. (District of Columbia v. Amazon.Com, Inc., 2021-CA-001775-B).
Additionally, Amazon’s ongoing litigation over its 2022 purchase of iRobot for $1.7B (subject to FTC approval) is but one of the many antitrust actions initiated against the technology giant. (“FTC Digs in on Amazon's iRobot Deal.” POLITICO n.d.). On its face, one may suspect that Amazon is attempting to unfairly control the smart device industry by dominating the home AI market. However, the true underlying focus of FTC analysis is the ownership of user data relayed to Amazon by these products. Id. Opponents of the deal contend that the data provided by iRobot vacuums such as the Roomba will grant Amazon an unfair advantage in the furniture industry, as the robot collects floorplan data. Id. This may allow the online retailer to understand which furniture products to market to consumers, giving it a competitive advantage over other companies, potentially violating the Federal Trade Commission Act.
In conjunction with this deal is Amazon’s acquisition of OneMedical, a medical subscription service similar to Amazon’s own Amazon Care. This deal also raises concerns of consumer data advantages but illustrates another important concept: buying a company is more efficient than competing with it. OneMedical has an established company architecture with a broad network in the medical care area, and so rather than further developing their own competitor, Amazon simply replaced their Amazon Care with OneMedical. (Muoio, Dave. “Amazon's $3.9B One Medical Purchase.” Fierce Healthcare, 6 Sept. 2022). While this may appear to be an efficient way for larger companies to deal with pesky competitors and advance their own solutions, lack of competition in a market is detrimental to the consumer. As a basic principle of market economics, the more competition in a certain industry or market, the better the pricing for the consumer, the more innovation, and the higher the quality of goods and services. (“The Importance of Competition for the American Economy.” The White House, 11 July 2022). The OneMedical deal is still under review by the FTC, again for concerns that the vast amounts of data provide Amazon with an unfair advantage. (Muoio, Dave. “Amazon's $3.9B One Medical Purchase.” Fierce Healthcare, 6 Sept. 2022).
Overall, while lawsuits and stringent reviews regarding Amazon’s business deals continue to occur, the retail leviathan maintains its market dominance in a variety of areas due to interpretation of U.S. antitrust law. (Ovide, Shira. “The Big Deal in Amazon's Antitrust Case.” The New York Times, 25 May 2021). Recently however, the FTC and the DOJ launched a joint inquiry to strengthen the merger review guidelines. (“Federal Trade Commission and Justice Department Seek to Strengthen Enforcement against Illegal Mergers.” Federal Trade Commission, 10 Mar. 2022). As a response to studies that indicate a decrease in competition across a variety of markets, the inquiry allows for public input to address current guidelines for the scope of merger review, legal presumptions of mergers that are anti-competitive, and more. Id. Perhaps with the solicitation of advice for new guidance, the pendulum may swing away from Amazon’s business deals and more acquisitions may be invalidated. Whatever the case may be, the impact of Amazon’s presence in the marketplace drastically impacts American antitrust law and will continue to push the boundaries of American economic competition.