Is Ama­zon get­ting too big?

A 28-year-old law stu­dent takes on the ‘Every­thing Store’ by ask­ing if an­titrust law is ad­e­quate in a win­ner-take-all econ­omy

The Washington Post Sunday - - BUSINESS - STEVEN PEARL­STEIN pearl­stein@wash­

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 $13.8 bil­lion pur­chase of Whole Foods, a deal that would not only roil the gro­cery in­dus­try but also trig­ger a govern­ment an­titrust in­ves­ti­ga­tion into the strate­gies and prac­tices of the “Every­thing Store.” And, as Zapol­sky was no doubt aware, no or­ga­ni­za­tion 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 so­phis­tica- tion why Amer­i­can an­titrust law has evolved to the point that it is no longer equipped to deal with tech gi­ants such as Ama­, 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 $2.7 bil­lion fine against Google for fa­vor­ing its own ser­vices in the search re­sults it presents to its users. They are also at the heart of the long-run­ning bat­tle in the tele­com in­dus­try over net neu­tral­ity and the abil­ity of cable com­pa­nies and In­ter­net ser­vice providers to give fa­vor­able 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 an­titrust en­force­ment as a cen­ter­piece 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 an­titrust 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 well-to-do 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 U.S. Court of Ap­peals for the 9th Cir­cuit in Cal­i­for­nia, a “feeder judge” to clerk­ships on the Supreme Court.

‘The An­titrust Para­dox’

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 an­titrust law.

Al­though a long­time 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 an­titrust cases. Pre­vi­ously, much of an­titrust 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 fa­vor­able 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 per­cent 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 an­titrust en­force­ment was likely to do the op­po­site, sti­fling in­no­va­tion and pre­vent­ing com­pa­nies from re­al­iz­ing 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 mo­nop­o­liz­ing 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 three­quar­ters 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 an­titrust 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 an­a­lyz­ing pro­posed merg­ers. “They have to ask what the fu­ture mar­ket will look like.”

Econ­o­mists, mean­while, com­plain that an­titrust anal­y­sis has failed to fully in­cor­po­rate the in­sights of mod­ern game the­ory, in­for­ma­tion the­ory and be­hav­ioral eco­nom­ics that go a long way to ex­plain­ing why con­sumers, com­pa­nies and mar­kets don’t be­have the way Chicago school the­ory says they should.

As No­bel Prize-win­ning econ­o­mist Jean Ti­role has demon­strated, Chicago an­titrust the­ory is ill equipped to deal with high-tech in­dus­tries, which nat­u­rally tend to­ward win­ner-take-all com­pe­ti­tion. In these, most of the ex­penses are in the form of up­front in­vest­ments, such as soft­ware (think Ap­ple and Mi­crosoft), mean­ing that the cost of serv­ing ad­di­tional cus­tomers is close to zero. Cus­tomers nat­u­rally grav­i­tate to the plat­form with the largest net­work of cus­tomers (think Face­book). Or their suc­cess de­pends on hav­ing the most cus­tomer data (think Google).

They also of­ten have two sets of cus­tomers who need each other, such as credit card com­pa­nies that serve mer­chants and card­hold­ers, or In­ter­net ser­vice providers that link con­tent pro­duc­ers with con­tent con­sumers.

What this “post-Chicago” eco­nom­ics shows is that in such in­dus­tries, firms that jump into an early lead can gain such an over­whelm­ing ad­van­tage that new ri­vals find it nearly im­pos­si­ble to en­ter the mar­ket, while even ex­pe­ri­enced ones find it dif­fi­cult to stay in the game.

To vary­ing de­grees, Ama­zon dis­plays all these char­ac­ter­is­tics, and by its breadth and com­plex­ity, con­founds tra­di­tional an­titrust anal­y­sis. What be­gan as an on­line book re­tailer now sells just about every­thing— not just on­line but, more re­cently, also through phys­i­cal stores and pickup de­pots. In hun­dreds of high­vol­ume cat­e­gories, Ama­zon is not only a re­tailer but also pro­duces its own branded line of mer­chan­dise.

Through its on­line mar­ket­place, cus­tomers can buy from Ama­zon but also from mil­lions of com­pet­ing re­tail­ers who typ­i­cally pay a 15 per­cent to 20 per­cent com­mis­sion and now ac­count for half of all unit sales on the Ama­zon plat­form — and a quar­ter of Ama­zon’s to­tal prof­its. Many of these “third-party sellers” pay ad­di­tional fees to store their in­ven­tory in Ama­zon ware­houses, use Ama­zon ro­bots and per­son­nel to ful­fill cus­tomer or­ders, or rely on Ama­zon to de­liver their goods to cus­tomers across the globe through its fleet of 25 planes and 4,000 trucks or its deeply dis­counted de­liv­ery con­tracts with UPS and FedEx.

This re­mark­able busi­ness ma­chine, of­fer­ing 350 mil­lion items for sale, is fast ap­proach­ing the point where it can claim nearly ev­ery house­hold in Amer­ica as a cus­tomer. And through its $99-a-year Prime pro­gram, Ama­zon uses free de­liv­ery and ac­cess to its pre­mium video ser­vice to bol­ster loy­alty of cus­tomers who each spend an av­er­age of $1,500 per year. (The ex­pe­ri­ence of my own house­hold surely at­tests to this.) By one es­ti­mate, at cur­rent growth rates, half of all Amer­i­can house­holds will be Prime cus­tomers by 2020.

This de­scrip­tion of Ama­zon’s busi­ness is drawn largely from its pub­lic fil­ings and re­ports from mar­ket an­a­lysts. As is its cus­tom, Ama­zon de­clined to com­ment or an­swer ques­tions for the record. Jef­frey P. Be­zos, the com­pany’s founder and chief ex­ec­u­tive, is the owner of The Wash­ing­ton Post.

“Ama­zon has brought us to a new and bet­ter place,” Khan said. “So did the early rail­roads and steel com­pany gi­ants. But I don’t think Ama­zon is the prob­lem — the state of the law is the prob­lem, and Ama­zon il­lus­trates that in a pow­er­ful way.”

Ama­zon’s busi­ness boom

Is Ama­zon so suc­cess­ful, is it get­ting so big, that it poses a threat to con­sumers or com­pe­ti­tion? By cur­rent an­titrust stan­dards, cer­tainly not.

Here is a com­pany, af­ter all, known for dis­rupt­ing and tur­bocharg­ing com­pe­ti­tion in ev­ery mar­ket it en­ters, low­er­ing prices and forc­ing ri­vals to match the re­lent­less ef­fi­ciency of its op­er­a­tions and the qual­ity of its ser­vice. That is, af­ter all, usu­ally how firms come to dom­i­nate an in­dus­try, and there is noth­ing il­le­gal about that. But un­der the an­titrust law, once a firm is dom­i­nant, its ac­tions and busi­ness prac­tices be­come sub­ject to more rig­or­ous scru­tiny, to make sure it is not abus­ing its dom­i­nant po­si­tion. And like all dom­i­nant firms, Ama­zon dis­putes its dom­i­nance.

Much is made of the fact that more than half — 55 per­cent — of Amer­i­cans be­gin their on­line shop­ping trips on Ama­zon. But as Ama­zon is quick to point out, on­line sales still ac­count for less than 10 per­cent of all re­tail sales, which is the more rel­e­vant fig­ure as the line be­tween on­line and bricks-and-mor­tar dis­ap­pears. By that stan­dard, Wal­mart is still nearly four times Ama­zon’s size.

Re­tail­ing, how­ever, is a sec­tor, not a prod­uct mar­ket, the usual frame of ref­er­ence for an­titrust anal­y­sis. And other than books, Ama­zon’s orig­i­nal mar­ket where it main­tains a com­mand­ing 40 per­cent mar­ket share, Ama­zon doesn’t have any­thing close to mo­nop­oly-like mar­ket shares.

In cloth­ing, for ex­am­ple, where it has made a big push, Ama­zon ac­counts for 20 per­cent of on­line sales but less than 7 per­cent over­all. Ama­zon will soon de­throne Best Buy as the largest seller of con­sumer elec­tron­ics, but even there, its over­all share will be only 20 per­cent. Ama­zon’s pur­chase of the par­ent of Di­a­ has helped give it a 43 per­cent share of the on­line baby prod­ucts mar­ket, but that trans­lates into less than 20 per­cent of sales in that cat­e­gory.

Even with the Whole Foods pur­chase, Ama­zon will have only a 2 per­cent share of the $600 bil­lion-a-year Amer­i­can gro­cery mar­ket, well be­low the more than 20 per­cent mar­ket share for Wal­mart and 7 per­cent for Kroger. That is why most an­titrust ex­perts think there is lit­tle chance that the govern­ment will try to block the deal.

But in her ar­ti­cle, Khan ar­gues that these met­rics do not cap­ture the “ar­chi­tec­ture” of Ama­zon’s emerg­ing mar­ket power.

If Ama­zon is so small and its growth so benign, she asks, then why does the prospect of Ama­zon’s en­try into a mar­ket dra­mat­i­cally drive up its own stock price while driv­ing down those of its ri­vals?

Why, she asks, have so many large and suc­cess­ful bricks-and­mor­tar re­tail­ers been un­able to make sig­nif­i­cant in­roads into on­line re­tail­ing while so many small re­tail­ers feel they have no choice but to use Ama­zon’s plat­form to reach cus­tomers?

An­titrust anal­y­sis gen­er­ally as­sumes dom­i­nant firms of­ten ex­er­cise their mar­ket power by rais­ing prices, but what if Ama­zon ex­er­cises its mar­ket power, Khan asks, by squeez­ing the profit mar­gins of its sup­pli­ers? What if its strat­egy is to keep prices low in mar­kets it dom­i­nates to gain en­try into new mar­kets that will gen­er­ate still more sales and prof­its?

How, she asks, can an­titrust reg­u­la­tors an­a­lyze the struc­ture of a mar­ket, and Ama­zon’s bar­gain­ing power in it, when so many of Ama­zon’s com­peti­tors are also its cus­tomers or sup­pli­ers? Why did Sears stock rise 19 per­cent on the day that it an­nounced its Ken­more line of ap­pli­ances would be sold through Ama­zon? Why do Wal­mart, Google, Or­a­cle and UPS all con­sider Ama­zon their big­gest threat?

And if Ama­zon is not a mo­nop­o­list, Khan asks, why are fi­nan­cial mar­kets pric­ing its stock as if it is go­ing to be?

“An­titrust en­forcers should be . . . con­cerned about the fact that Ama­zon in­creas­ingly con­trols the in­fra­struc­ture of on­line com­merce and the ways it is har­ness­ing this dom­i­nance to ex­pand and ad­van­tage its new busi­ness ven­tures,” Khan wrote in her law re­view ar­ti­cle.

As Khan sees it, Ama­zon’s strat­egy and busi­ness prac­tices are “nei­ther an­tic­i­pated nor un­der­stood by cur­rent an­titrust doc­trines,” and the lan­guage and tools by which reg­u­la­tors and judges now an­a­lyze the com­pany’s busi­ness prac­tices “to­tally miss the game.”

“What’s the dif­fer­ence be­tween be­hav­ior de­signed to in­crease mar­ket share and be­hav­ior to drive out com­peti­tors?” Khan asks. “The prob­lem is they look a lot alike.”

An­titrust’s old guard

It prob­a­bly won’t sur­prise you to learn that most an­titrust prac­ti­tion­ers re­ject ac­cu­sa­tions from a third-year law stu­dent that the le­gal prece­dents and an­a­lyt­i­cal tools they have de­vel­oped and mas­tered over the years are in­ad­e­quate to the task of pro­tect­ing us from the pre­da­tions of Big Tech.

“Lame ar­gu­ment,” huffs Ti­mothy Bres­na­han, an eco­nom­ics pro­fes­sor at Stan­ford who, as chief econ­o­mist for the Jus­tice De­part­ment’s an­titrust divi­sion, helped bring the mo­nop­o­liza­tion case against Mi­crosoft.

“I don’t lie awake at night wor­ry­ing that there are so few cre­ative peo­ple in this coun­try that one com­pany might turn out to be the best at every­thing,” said a for­mer head of the an­titrust divi­sion.

A for­mer mem­ber of the Fed­eral Trade Com­mis­sion put it this way: “The an­titrust law I be­lieve in is that we want to give as much lat­i­tude as pos­si­ble to in­no­vate and de­liver bet­ter prod­ucts at lower prices, and only stop them when we see some ev­i­dence of con­duct that ex­cludes oth­ers from com­pet­ing.”

They also scorn Khan’s sug­ges­tion that the con­sumer wel­fare stan­dard that un­der­lies most an­titrust anal­y­sis should be broad­ened to a pub­lic in­ter­est stan­dard that takes into ac­count the im­pact of dom­i­nant firms on work­ers, com­mu­ni­ties and the po­lit­i­cal process. As they see it, such vague and sub­jec­tive stan­dards would in­vite po­lit­i­cal and ide­o­log­i­cal mis­chief.

But if you push, most of these old hands will ac­knowl­edge that the law has not fully come to grips with the com­pet­i­tive dy­namic in the era of on­line plat­forms and net­works.

“I think there is a fair bit of flex­i­bil­ity in the law to al­low us to ad­just and adapt to mod­ern mar­kets and tech­nolo­gies,” said Diana Moss, pres­i­dent of the Amer­i­can An­titrust In­sti­tute.

Moss cited re­cent cases that looked be­yond con­sumer prices to take in is­sues such as in­no­va­tion, bar­gain­ing power and ar­range­ments that lock con­sumers into ex­ist­ing prod­ucts. The real prob­lem, she said, is in get­ting more judges and en­force­ment agency of­fi­cials to pay at­ten­tion.

In­deed with­out the fo­cus on prices, judges would be forced to make more sub­jec­tive judg­ments about the in­tent be­hind a com­pany’s ac­tion or spec­u­late about whether new com­pa­nies would, or could, en­ter a mar­ket in the fu­ture. While judges are re­luc­tant to wade into such murky wa­ters, par­tic­u­larly in mar­kets where the tech­nol­ogy and busi­ness strate­gies are rapidly evolv­ing, it is pre­cisely in those in­dus­tries that a more holis­tic ap­proach is re­quired.

Lurk­ing in the back­ground of the cur­rent de­bate is U.S. v Mi­crosoft, the big­gest an­ti­monopoly case to come along in a gen­er­a­tion. While the Chicago school’s ad­her­ents view the Clin­ton-era pros­e­cu­tion as a fla­grant over­reach against a suc­cess­ful innovator, de­fend­ers cite it as proof that cur­rent law has been suc­cess­ful in deal­ing with high-tech mo­nop­o­lists. And if the rul­ing had been fully up­held, that might be the proper con­clu­sion.

But, in fact, a fed­eral ap­peals court sub­se­quently nar­rowed that rul­ing and re­jected the trial judge’s or­der that the com­pany should be bro­ken up, as John D. Rock­e­feller’s Stan­dard Oil Trust had been nearly a cen­tury be­fore. In the end, the case was set­tled by the Bush ad­min­is­tra­tion on terms con­sid­ered largely fa­vor­able to Mi­crosoft.

The am­bigu­ous legacy of the Mi­crosoft case — and the rel­a­tive weak­ness of Amer­i­can an­titrust law — was high­lighted last month when the Euro­pean Union im­posed a record fine on Google for us­ing its vir­tual mo­nop­oly in search to fa­vor its own com­par­a­tive shop­ping sites. The Fed­eral Trade Com­mis­sion had looked at the same is­sue sev­eral years be­fore and closed its in­ves­ti­ga­tion with­out tak­ing se­ri­ous ac­tion. One rea­son: It was not clear that, even if Google is fa­vor­ing its own site (which it de­nies), such prac­tices are il­le­gal.

That wasn’t al­ways the case. Back in the pre-Chicago days when big was bad, the Supreme Court had ruled that East­man Ko­dak could not lever­age its mo­nop­oly in the film mar­ket to gain ad­van­tage in the mar­ket for film de­vel­op­ing. But in more re­cent cases, the Supreme Court and two ap­peals courts, re­ly­ing on Chicago law and eco­nom­ics, raised the bar, declar­ing that there must be a “dan­ger­ous prob­a­bil­ity” of ob­tain­ing a sec­ond mo­nop­oly for a dom­i­nant firm’s be­hav­ior to be il­le­gal.

Some ob­servers point to the E.U.’s Google case as an ex­am­ple of the dif­fer­ence be­tween the Amer­i­can and Euro­pean ap­proach: They pro­tect com­peti­tors; we pro­tect con­sumers. This of­ten-used dis­tinc­tion be­trays a cul­tural smug­ness on the part of Amer­i­cans, one based on the view that our ap­proach fos­ters the kind of cre­ative de­struc­tion that re­sults in great leaps of tech­no­log­i­cal, man­age­rial or fi­nan­cial in­no­va­tion, while theirs al­lows sec­ond-rate ri­vals to ac­com­plish through pol­i­tics what they could not ac­com­plish in the mar­ket­place.

To me, this view be­trays a naive be­lief that in our open mar­ket sys­tem, ev­ery per­son and ev­ery com­pany has the same op­por­tu­nity to suc­ceed. Al­though govern­ment can­not and should not try to neu­tral­ize all the ways in which suc­cess breeds more suc­cess, nei­ther should we as­sume that suc­cess in the mar­ket­place is solely due to hard work, in­ge­nu­ity and su­pe­rior ex­e­cu­tion. Level­ing the play­ing field is a le­git­i­mate pol­icy goal. A good eco­nomic sys­tem is not only ef­fi­cient but also con­forms to com­mon in­tu­itions of fair play.

The logic and in­tent be­hind Amer­ica’s cen­tury-old an­titrust laws is that even in­no­va­tion- and pro­duc­tiv­ity-in­duc­ing com­pe­ti­tion needs to be man­aged to en­sure a healthy ecosys­tem in which a rel­a­tively few cor­po­rate gi­ants don’t use the eco­nomic ad­van­tages they have won to tilt the play­ing field even fur­ther in their fa­vor.

“I think we have to go back to the orig­i­nal spirit of the an­titrust laws,” said Luigi Zin­gales, an econ­o­mist at the Univer­sity of Chicago’s busi­ness school known for his skep­ti­cism about govern­ment reg­u­la­tion. “A nar­row, purely eco­nomic ap­proach has been un­able to cap­ture the con­cerns peo­ple have about the con­cen­tra­tion of eco­nomic and po­lit­i­cal power.”

When to step in

While Ama­zon is not yet a threat to com­pe­ti­tion, it is well on its way to be­com­ing one, which is prob­a­bly why the com­pany is tak­ing these ar­gu­ments more se­ri­ously. Ama­zon is re­ported to be in the mar­ket for an an­titrust econ­o­mist, and in the wake of the Whole Foods an­nounce­ment, it has en­gaged the ser­vices of two for­mer heads of the Jus­tice De­part­ment an­titrust divi­sion, one Demo­crat and one Repub­li­can.

I can’t tell you ex­actly at what point the govern­ment should step in to block Ama­zon from buy­ing an­other com­pany or cur­tail some of its prac­tices. I am, how­ever, fairly con­fi­dent in say­ing it ought to be well be­fore Ama­zon achieves a 40 per­cent mar­ket share in books, gro­ceries, cloth­ing, hard­ware, elec­tron­ics and home fur­nish­ings. And it ought to be be­fore Ama­zon pulls even with UPS in ship­ping, Or­a­cle in com­put­ing and Com­cast in me­dia con­tent. Khan’s rea­son­able in­sight is that if we don’t yet have the tools to iden­tify when com­pa­nies have reached that com­pet­i­tive tip­ping point, then some­one ought to in­vent them.

And as for those “bad old days” when of­fi­cials still had the courage to call a mo­nop­o­list a mo­nop­o­list, let’s re­mem­ber it was the govern­ment’s aborted pros­e­cu­tion of IBM, the most in­no­va­tive and re­spected com­pany of its day, that made Mi­crosoft pos­si­ble; the pros­e­cu­tion of Mi­crosoft that made Google pos­si­ble; and the breakup of AT&T that made Ap­ple and wire­less tele­phony pos­si­ble.

“Google, Ap­ple and Ama­zon have cre­ated dis­rup­tive tech­nolo­gies that changed the world, and ev­ery day they de­liver enor­mously valu­able prod­ucts,” said Sen. El­iz­a­beth War­ren (DMass.) in a speech last month at New Amer­ica. “But the op­por­tu­nity to com­pete must re­main open for new en­trants and smaller com­peti­tors.”

There is noth­ing in eco­nomic the­ory that makes it in­evitable that suc­cess­ful dis­rupters will be dis­rupted. In­deed, what his­tory demon­strates — and what a 28year-old law stu­dent re­minds us — is that it some­times takes a lit­tle pub­lic power to keep pri­vate power in check.

“I don’t think Ama­zon is the prob­lem — the state of the law is the prob­lem.” Lina Khan, au­thor of the law ar­ti­cle “Ama­zon’s An­titrust Para­dox”


Steven Pearl­stein


TOP: Lina Khan, au­thor of “Ama­zon’s An­titrust Para­dox.” ABOVE: The Ama­zon Books store in New York.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.