Is the Amazon getting too big, still growing?
AMAZON’S general counsel, David Zapolsky, had a lot on his mind last month when he and four members of his legal team visited the offices of New America, a liberal-leaning think tank in Washington. The retail juggernaut was days from announcing its US$ 13.8 billion ( RM62 billion) purchase of Whole Foods, a deal that would not only roil the grocery industry but also trigger a government anti-trust investigation into the strategies and practices of the “Everything Store.” And, as Zapolsky was no doubt aware, no organisation had been more dogged in raising those concerns than New America – and, in particular, a 28-year- old law student named Lina Khan.
Earlier this year, the Yale Law Journal published a 24,000-word “note” by Khan titled “Amazon’s Antitrust Paradox.” The article laid out with remarkable clarity and sophistication why American anti-trust law has evolved to the point that it is no longer equipped to deal with tech giants such as Amazon. com, which has made itself as essential to commerce in the 21st century as the railroads, telephone systems and computer hardware makers were in the 20th.
It’s not just Amazon, however, that animates concerns about competition and market power, and Khan is not the only one who is worrying. The same issues lie behind the European Union’s recent US$ 2.7 billion fine against Google for favouring its own services in the search results it presents to its users. They are also at the heart of the longrunning battle in the telecom industry over net neutrality and the ability of cable companies and Internet service providers to give favourable treatment to their own content. They are implicated in complaints that Facebook has aided the rise of “fake news” while draining readers and revenue from legitimate news media. They even emerge in debates over the corrupting role of corporate money in politics, the decline in entrepreneurship, the slowdown in corporate investment and the rise of income inequality.
And just last week, Democrats cited stepped-up anti-trust enforcement as a centrepiece of their plan to deliver “a better deal” for Americans should they regain control of Congress and the White House.
For Amazon, which prides itself on its relentless consumer focus, the suggestion that its spectacular growth might not be in the public interest poses a particular challenge. Since it was published, Khan’s “note” has drawn more than 50,000 readers online – an extraordinary reach for a law review article. Her work has been cited by the Economist, the Financial Times, Forbes, Wired, the Wall Street Journal and the New York Times, and she has appeared on major broadcast media. Last spring, she was invited to join some of the most prominent academics in anti-trust law to speak at an economic conference at the University of Chicago.
Khan is amazed and a bit amused by all the attention. Born in London, where her Pakistani parents met as college students, she grew up in a welltodo New York City suburb before heading off to Williams College, where she was editor of the school newspaper. Looking toward a future in journalism, she moved to Washington and soon found herself working as a researcher at New America on issues relating to economic power.
Thinking a law degree would allow her to be a more effective advocate, she headed off to Yale Law, where she impressed instructors with her keen mind, thorough preparation and passion for economic justice. In her second year, she began researching the history of antitrust law to understand why it has failed to provide much of a check on corporate power. “Amazon’s Antitrust Paradox” was the result.
“I was blown away by what she produced,” said David Grewal, a professor who advised Khan on her project. “It didn’t read like a student note. It was equal to the best legal scholarship, combining scholarly elegance with an activist agenda and enormous attention to detail.
“Most of my colleagues would give their little finger for a piece that got that much attention,” Grewal said, only half joking.
Next year, after the bar exam and a wedding, Khan will return to Yale for a postgraduate year before heading off for a clerkship with Judge Stephen Reinhardt on the US Court of Appeals for the 9th Circuit in California, a “feeder judge” to clerkships on the Supreme Court.
Next year will mark the 50th anniversary of the publication of Robert Bork’s “The Antitrust Paradox,” a book that even its critics acknowledge changed the direction of anti-trust law.
Although a long-time law professor at Yale, Bork was a charter member of the “Chicago school” of law and economics, which argued that judges should use rigorous analysis of economic consequences in deciding anti-trust cases.
Previously, much of anti-trust doctrine was based on somewhat vague political notions that big was bad – that large corporations with large market shares inevitably used their power to drive rivals from the market, raise prices, buy favourable treatment from legislators and regulators.
In 1963, the Supreme Court even went so far as to declare that any merger that achieved more than 30 per cent share of any market should be considered unlawful.
Relying on economic theories that competition – or the threat of it – could be counted on to discipline dominant firms, Bork argued that rather than helping consumers, most anti-trust enforcement was likely to do the opposite, stifling innovation and preventing companies from realising efficiencies of scale and scope that could be passed on to consumers in the form of lower prices, more choice and greater convenience.
Chicago school economics was a marriage of the latest in economic modeling and free market ideology. In considering whether a proposed merger or business practice would harm competition, courts and regulators narrowed their analysis to ask whether it would hurt consumers by raising prices. And since Chicago theory pretty much assumed away the ability of even a dominant firm to raise prices, the answer was almost always no.
And so began a 30-year stretch in which the government blocked relatively few mergers and prosecuted almost no companies for monopolising competition.
“The Chicago school runs deep, and the courts still partake of the Borkian Kool-Aid,” said Steven Salop, an antitrust expert at the Georgetown University Law Center who has long argued that antitrust enforcement is too permissive.
At the Chicago conference this spring, Richard Posner, a federal appeals court judge who, with Bork, is considered a pioneer of Chicago antitrust analysis, asked mischievously, “Antitrust is dead, isn’t it?” There is little debate that this cramped view of antitrust law has resulted in an economy where two-thirds of all industries are more concentrated than they were 20 years ago, according to a study by President Barack Obama’s Council of Economic Advisers, and many are dominated by three or four firms. What’s now at issue is whether the outcome has benefited society.
Research by John Kwoka of Northeastern University, for example, has found that three- quarters of mergers have resulted in price increases without any offsetting benefits. Kwoka cited industries such as airlines, hotels, car rentals, cable television and eyeglasses.
And even former anti-trust officials acknowledge that their approval of Google’s purchase of YouTube and ITA Software and Facebook’s acquisition of Instagram and WhatsApp look naive in hindsight, eliminating the kinds of companies that might have someday challenged the tech sector’s most dominant firms.
“The current market is not always a good indication of competitive harm,” said Khan in laying out for me her critique of the way the government goes about analysing proposed mergers. “They have to ask what the future market will look like.” — WP-Bloomberg