# Understanding the Amazon Antitrust Challenge: A Deep Dive
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Chapter 1: The Importance of Judicial Appointments
In a recent article, I discussed my voting considerations during federal elections, emphasizing the significance of judicial appointments over the candidates themselves. My rationale rests on two fundamental points: first, federal judges serve lifetime appointments, making their influence enduring; second, predicting judicial behavior in specific cases is often more straightforward than forecasting a political administration's actions on various issues.
My argument posited that over the past forty years, judges nominated by Republicans have increasingly shifted power from the electorate, workers, and everyday citizens toward politicians, lobbyists, large corporations, and law enforcement. Conversely, judges appointed by Democrats have tended to empower the average citizen. This is why I favor Democratic candidates—not necessarily due to my alignment with their policies, but because I resonate more with the rulings of their appointed judges.
While antitrust law wasn't a focal point in that discussion, it certainly could have been. Antitrust represents another realm where conservative judges have historically favored large corporations, whereas their liberal counterparts have shown support for small businesses and consumers.
In this piece, I will delve into the implications of antitrust law, using the recent actions against Amazon as a case study. I will reference the insights of FTC Chairwoman Lina Khan, whose work on Amazon I encourage you to explore. By the conclusion, I aim for you to grasp not only the threats posed by Amazon but also how our failure to recognize these dangers stems from decades of conservative ideologies dominating antitrust law.
Section 1.1: Structuralism vs. Consumer Welfare Theory
Antitrust law seeks to curb anti-competitive practices in the marketplace. Such behavior is detrimental for several reasons: a lack of competition allows businesses to charge higher prices and diminishes their motivation to innovate or uphold quality standards.
Historically, legislators and judges adopted a comprehensive approach to antitrust law, aiming to sustain a competitive environment with numerous small and medium-sized businesses vying for consumer attention. Conversely, when a market becomes dominated by a few large players, they can be expected to engage in actions that harm competitors and the public.
For instance, larger firms can easily collude to raise prices or carve up the market, a scenario less likely with many smaller entities. Additionally, these corporations can exert monopsony power, where a limited number of buyers can drive down prices for inputs like labor and raw materials.
Among legal scholars, this holistic perspective is termed structuralism, focusing on market competition based on its structure. This view prevailed throughout most of the twentieth century. However, in the 1980s, a new theory from Chicago School economists gained traction, often referred to as consumer welfare theory. This perspective contended that antitrust analysis should primarily assess whether a company's actions lead to price increases or decreases. Since competition inherently lowers prices, any behavior that results in lower prices could not be anti-competitive.
These two schools of thought not only disagree on the scope of antitrust analysis but also on the interpretation of market facts.
Section 1.2: Predatory Pricing and Vertical Integration
Consider predatory pricing: a company temporarily undercuts its prices to eliminate competitors, subsequently raising prices once it has secured a monopoly. Structuralists warn that this tactic is more likely in markets dominated by a few major players and can be harmful. Companies with diversified product lines can quickly recover losses by raising prices where competition is minimal.
In contrast, proponents of the Chicago School argue that predatory pricing is rare. They maintain that as soon as a firm attempts to raise prices to recover losses, it invites new entrants into the market, undermining its ability to sustain those higher prices.
Moreover, vertical integration—where a company expands its operations either up or down the supply chain—also poses potential anti-competitive risks. Structuralists view both horizontal and vertical integration as potentially harmful to competition. For instance, vertical integration may prevent competitors from accessing essential resources or compel them to acquire inferior inputs.
Welfarists dismiss these concerns, asserting that if vertical integration enhances efficiency, it cannot be anti-competitive. This reasoning has gained favor among judges aligned with the Federalist Society since Reagan's presidency.
Chapter 2: Amazon's Role in the Antitrust Debate
The ongoing debate between structuralists and welfarists continues, with liberals typically siding with structuralism and conservatives with consumer welfare. However, Lina Khan argues that the rise of e-commerce has intensified market dynamics supporting the structuralist viewpoint.
For instance, predatory pricing is easier to implement in platform-based markets. Khan cites Amazon's Kindle, where the company sold eBooks at a loss, recouping losses through sales of other titles. While regulators viewed this as a legitimate strategy, the consequences of such pricing strategies differ significantly in digital markets compared to physical stores.
Additionally, Amazon's vertical integration has expanded beyond bookselling, encompassing publishing, film production, cloud services, and logistics. This consolidation makes it increasingly challenging for new entrants to penetrate the market and compete with Amazon's dominance.
Conclusion: The Need for a Holistic Approach to Antitrust
According to Chicago School logic, a company like Amazon shouldn't exist, as no business should sustain losses indefinitely while expanding its market share. This perspective reveals a significant blind spot influenced by libertarian ideology, particularly in the context of the digital economy.
The rise of consumer welfare theory within federal courts and regulatory bodies has left us ill-equipped to confront the anti-competitive models prevalent in e-commerce. This regulatory gap has enabled corporate consolidation to transform American capitalism into a landscape filled with challenges, where consumers and workers struggle to navigate.
Structuralism anticipated these threats long before they manifested. Unless we return to a more comprehensive understanding of competition, emphasizing not just price levels but the concentration of power among a select few, the repercussions will extend far beyond the marketplace.