Is Amazon Violating the Antitrust Laws?

Posted in: Business Law

A recent congressional hearing questioned whether Amazon is acting anti-competitively. A spokesperson for small and independent businesses reported that Amazon now captures more than half of all online retail sales and dominates many specific product categories, including books, toys, apparel, and electronics. According to the witness (Stacy F. Mitchell, Co-Director, Institute for Local Self-Reliance), “Amazon doesn’t just dominate the online market; it controls access to it.” According to testimony at the congressional hearing, many small and independent retailers feel compelled to sell through the Amazon platform but are concerned that Amazon misuses the data Amazon obtains from third-party transactions to advantage Amazon’s own products or to launch Amazon private-label brands in competition. An Amazon witness denied misuse of third-party data at the hearing.

In a similar vein, the European Union antitrust authorities just announced that they had opened a formal investigation into whether Amazon is unfairly boosting its own sales at the expense of independent third-party merchants on its platform by using the merchants’ non-public transaction data to compete against them.

So this raises the question—assuming Amazon is misusing the data of third-party merchants on its platform (which Amazon denies), would that violate the competition laws in the U.S. or the EU. The answer may well be different because the EU competition laws and the U.S. antitrust laws are interpreted today in markedly different manners.

In the EU, a “dominant company” has a “special responsibility” not to disadvantage rivals. As the EU statement announcing a multi-billion dollar fine against Google recently stated, “Dominant companies have a special responsibility not to abuse their powerful market positions by restricting competition, either in the market where they are dominant or in separate markets.” The EU antitrust authorities explained that a company dominant in one market—even if the dominance resulted from competition on the merits—should not be able to use its market power to cement or further expand its dominance, or to leverage it in two separate markets.

In contrast, over the last 40 years, antitrust enforcers and courts in the U.S., influenced by free-market “Chicago school” economic thinking, have reinterpreted the U.S. anti-monopoly law to give much more leeway to dominant firms. As a result, according to one witness at the recent congressional hearing, “Dominant corporations have been allowed to amass an unprecedented degree of market power, and have been given far more leeway to use that power to undermine, exclude, and crush their smaller rivals.”

In order to deal with the problems associated with “big tech” platforms and excessive concentration in many industries, some politicians and academics have called for a revitalization of the antitrust laws and beefed-up antitrust enforcement. Although questioned by “Chicago school” adherents, there are two potential theories of antitrust liability, which could be employed to address the kind of behavior Amazon is accused of—the “essential facilities” doctrine and the theory of “monopoly leveraging.”

The “Essential Facilities” Doctrine

The “essential facilities” doctrine imposes antitrust liability when one firm that controls an essential facility denies a second firm reasonable access to a product or service that the second firm must obtain in order to compete with the first. As broadly interpreted by some courts, under the “essential facilities” doctrine, a company that controls an “essential facility” or a “strategic bottleneck” in the market violates the antitrust laws if it fails to make access to that facility available to its competitors on fair and reasonable terms that do not disadvantage them.

When AT&T had a monopoly on local telephone lines, it was held liable under the “essential facilities” doctrine for denying access to its local telephone loop to an upstart long-distance company, which needed to hook into the local telephone network in order to provide long distance service.

An argument could be made today that selling through Amazon is an “essential facility” for smaller third-party online merchants and that Amazon unfairly discriminates against such merchants to the extent that Amazon misuses their customer data.

The “Monopoly Leveraging” Theory

Under the theory of “monopoly leveraging,” a firm with a monopoly in one market may violate the antitrust laws if it uses that monopoly power to gain an unfair competitive advantage in an adjacent or complementary market. As one court stated, “There is no reason to allow the exercise of [monopoly] power to the detriment of competition, either in the controlled market or any other. That the competition in the leveraged market may not be destroyed but merely distorted does not make it more palatable.”

The theory of monopoly leveraging has been rejected and criticized by some courts because it may sweep too broadly and condemn what should be viewed as pro-competitive conduct. Under this view, even a dominant firm should not be condemned for expanding the range of features, services, or products it offers. Nor should a large firm be held to violate the antitrust laws simply by reaping the competitive rewards attributable to its size or its greater ability to develop complementary products. Nevertheless, as noted, in the EU, the antitrust authorities accept the notion that a dominant firm may not improperly leverage its position to disadvantage smaller rivals.

I suggest that Congress, antitrust scholars, and enforcers take a second look at the “monopoly leveraging” theory where tangible harm to competition can be shown in the leveraged market.

With respect to Amazon, if it can be shown that Amazon has misled third-party merchants with respect to how it treats their data or that Amazon misuses the data of third parties to advantage itself, the “monopoly leveraging” theory of antitrust liability may apply.

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