Jun 04, 2021
On May 27, The Capitol Forum hosted a conference call with Shaoul Sussman, legal fellow at the Institute for Local Self-Reliance and associate at Pearl Cohen, to discuss the antitrust landscape for Amazon. The full transcript, which has been modified slightly for accuracy, can be found below.
MR. TEDDY DOWNEY: Thank you. Good morning, everyone. And thanks for joining The Capitol Forum’s conference call on Amazon’s Antitrust Predicament. I’m Teddy Downey, Executive Editor here at The Capitol Forum. And we’re speaking today with Shaoul Sussman, Fellow at the Institute for Local Self-Reliance and part of the litigation group at Pearl Cohen.
A quick note before we get underway. The first 20 or so minutes of the call will be an interview and then we’ll move into a Q&A format where we will entertain questions from the audience. If you have questions for us, please email them to editorial@thecapitolforum.com. That’s editorial@thecapitolforum.com. And Capitol is spelled
with an “O”. And thanks so much for joining us today, Shaoul.
MR. SHAOUL SUSSMAN: Thank you for inviting me.
MR. TEDDY DOWNEY: And so, of all people, I think you might be the least surprised to read the details of this antitrust complaint from D.C. Attorney General Karl Racine against Amazon. You wrote an article in 2019 “How Amazon Controls Its Marketplace”. And in the article, you laid out how Amazon keeps prices high at its competitive distributors. And I’d love for you to tell us a little bit about that article and the parallels between the article and the antitrust case that Racine just dropped.
MR. SHAOUL SUSSMAN: Sure. So the article really came about organically through interaction with Amazon sellers and people that reached out and wanted to describe their experience selling on the platform. And that really piqued my interest. And ultimately, it at least led me to write that article and to further investigate that issue. And the lawsuit has many parallels, like you mentioned. And I’ll be happy to go through the details of the lawsuit and kind of explain what is the mechanism at play here.
So basically, the complaint really focuses on two, not one, alleged exclusionary provision or exclusionary types of
conduct that are involved in Amazon setting prices on its website. So the first that I saw received a lot of attention in the media and also it was discussed pretty frequently, even prior to 2019, is the MFN or the Most Favored Nation clause, that Amazon had in place first explicitly, and then it transformed into this algorithmic MFN and the Fair Pricing Policy.
And just to briefly explain what that does is basically Amazon reserves the right to remove the buy box or the buy now button from products or offerings on the website if Amazon detects that that product is sold for a lower price on another online outlet. So if we think about how this actually operates is Amazon crawls the web searching for comparable offers of comparable products and other websites, and if it detects a lower price let’s say on Wal-Mart or Target or even on the manufacturer’s own website, it reserves the right to remove the buy now or the buy box or add to cart button on Amazon.
MR. TEDDY DOWNEY: Just to clarify, they basically penalize sellers that offer their stuff for cheaper on outlets that compete with Amazon, right?
MR. SHAOUL SUSSMAN: Right. But to be precise, really what the focus is on is not necessarily a seller. Because there’s a lot of Amazon sellers that are not brands and there’s
some brands that sell on Amazon. But basically, they reserve the right to remove the buy box or the add to cart button on Amazon if the offers are on Amazon, whether they’re by the brand itself or by a seller, the price that’s listed for the product is higher than any other price available online.
So basically what we have, again, is Amazon scanning the web to find, for instance, toothpaste offered for a lower price on any website, including the manufacturer’s website, but not necessarily that website, it will remove the buy box or the add to cart button. Now, the research or industry research has shown that by doing that, the volume or the amount of units that are being sold falls drastically on Amazon. So around 90 percent.
So, for instance, if a given good when the buy box is available or the add to cart button is available and moves let’s say 3,000 units a day, once that button is removed by Amazon, the volume or the amount of units moved a day can drop to 300. And that is what I would say the industry or the Amazon sellers call buy box suppression. And when Amazon does that, it removes the button and then it notifies the sellers that sell on that listing that it found that product at a lower price somewhere else on the Web. It doesn’t direct the brand or the seller to that lower price they found. That it is really up to the seller or the brand to locate on their own
and try to rectify the situation. And because of this unique mechanism, there is now an entire cottage industry that’s grown around helping brands and sellers solve these buy box suppression situations.
So that’s the first part, which is the MFN Fair Pricing Policy. And the second part, which received less attention in the media, but is extremely crucial in this context, is that Amazon effectively forces brands and sellers to bundle the cost of shipping into the price of the product or to the price of the goods. So what I mean by that is sellers are charged a referral fee to sell the good, which is pretty well known, but they’re also charged something that’s called an FBA fee or a Fulfillment By Amazon fee. And the reason that they’re charged that fee is that if they want their products to be offered as a Prime offer, which generates much more traffic on the website and receives also algorithmic preference by Amazon’s algorithm, the products have to be fulfilled by Amazon or through Amazon’s FBA service.
Now, Prime customers technically don’t pay for shipping. When I add a product into my cart and it’s offered with Prime, I receive free shipping from Amazon. So what happens is that brand, let’s say the toothpaste example, want to sell their goods as a Prime good, they have to incorporate the FBA fee, the fulfillment fees, into the cost of the goods itself because they cannot charge Prime customers for
shipping separately. But they do have to bear the costs of Prime fulfillment.
So technically, Prime customers don’t pay for shipping. But in reality they do pay for shipping because every product that’s sold through Prime or using Prime by a third party already incorporates the cost of shipping it or the cost that Amazon levies on that brand or seller to ship the goods to their customers.
So that is really the reason. The bundling is the reason that we saw such a drastic inflation in consumer prices across the retail industry. There is actually great consistency or great correlation also, from internal data that we looked at from sellers, between Amazon increasing the FBA fees they charge some sellers and the consumer prices.
So every time Amazon raises its FBA fees, of course, brands and sellers need to adjust their retail price because their costs of fulfilment increase as well.
MR. TEDDY DOWNEY: So there’s an actual inflationary effect across the whole economy when Amazon raises its FBA fees? Is that kind of what you’re saying?
MR. SHAOUL SUSSMAN: Exactly. So there is a reason that this happens. And the reason is, let’s say the toothpaste
example, you’re not allowed to charge—let’s say the toothpaste in 2014 costs four dollars and Prime shipping in 2014 would be three dollars let’s say. Now, once the brand is forced to bear that cost of fulfillment, those three dollars need to be added to the four dollar cost or whatever cost of manufacturing the goods are.
Now, every time the fee increases, the FBA fee increases, the price itself needs to increase on Amazon. So if the price on Amazon now is seven dollars let’s say, that price also needs to be the lowest price for the product. Otherwise, the MFM comes into play. Because the price on Amazon for a given good needs to be the lowest price in any online outlet.
So what happens is brands effectively need to raise their prices in any other outlet—let’s say Wal-Mart or Target—to reflect that increase in fees on Amazon. And this is essential because if the good is available anywhere else at a lower price, there is no ability to move the product than Amazon. And since brands are extremely reliant on Amazon at this point to move their goods, they enforce this price parity provision very aggressively. And that’s why we see these inflation across the board, not only on Amazon.
MR. TEDDY DOWNEY: When Wal-Mart doesn’t list their price with shipping included, are they ultimately going to
be—if that’s at seven dollars, are they going to be at ten dollars?
MR. SHAOUL SUSSMAN: This is exactly right. So this is exactly the interesting kind of thing that’s going on here, right? Once the price is inflated to seven or eight dollars, other websites now can also charge less for shipping because there is more margin in the product itself. But other websites and other outlets have been slower to adopt Amazon’s own model, which is that all the cost of the goods already reflect the cost of online two-day fulfillment. But I think that given the fact that there was such an inflation in consumer prices, eventually more and more websites could afford to offer two-day fulfillment like Amazon, because the margins on the goods are increasing and will allow that.
MR. TEDDY DOWNEY: So the customers get higher prices and less transparency into what they’re actually paying for in terms of both the cost of the underlying good and the shipping.
MR. SHAOUL SUSSMAN: That’s correct. And more than that, if I walk into CVS or Dollar General or other brick and mortar stores, chances are that the prices at those stores are going to be similar to the ones I see online for the products, for instance, on Amazon. And the reason for that is that if the price is at a brick and mortar store, for instance, that
toothpaste, are lower, that will allow for diversion or for arbitrage, where people buy a wholesale look at a lower price than brick and mortar and then undercut the brand on Amazon or other outlets online, which leads to buy out depression. So in order to protect themselves from further harm to their margin, brands essentially are forced to raise prices and ensure price parity in brick and mortar as well just to close the door on diversion. So if you think about it, even people that walk into Dollar General or CVS, for example, pay an inflated price that incorporates FBA fees.
MR. TEDDY DOWNEY: And this seems like it both has elements—so it’s got exclusionary conduct and, even under the typical legal preference which is to show that anti-competitive conduct has raised its prices, this has multiple elements that you’re looking for in a good antitrust case it seems. Tell us about what you think the strengths are and if there are any weaknesses in the case or where do you think the case is strongest as it ultimately goes to court?
MR. SHAOUL SUSSMAN: So without diving too much into the details and analyzing the strengths and weaknesses of the complaint, we can say that the complaint really focuses on one moment in time and the current situation. A lot of the criticism or kind of like the question marks that have been raised around the complaint said, wait a minute. Like for years, you told us that Amazon is engaging in
predatory pricing allegedly and undercutting on price. And all of a sudden, you’re saying that the prices are too high. And I saw people already bringing in the analogies or the joke about antitrust in that context. But it’s really important to, I think, focus on the fact that when [brief break in recording] when Fellows just joined at FBA or Fulfillment By Amazon back in 2014 or 2013, when the program was launched, the fees to fulfill through Amazon were significantly lower than what they are today. And, in fact, ISLR published a report called “The Monopoly Tollbooth” that really showed it studied that increase and that gradual inflation in the cost of fulfillment for merchants.
So if you think about what was the thinking there, back in 2014, Amazon was probably the cheapest option to fulfill online sales for many merchants. So it was very, very profitable. Amazon charged a very low fee for very quick shipping. And that is also why you started to see more and more sellers join the platform and why more and more customers joined the platform. Because you truly had products offered for a competitive price with very quick shipping.
Now, from 2014 to 2019, that’s when the ILSR study focused on, we saw a gradual inflation or a gradual increase in FBA fees. Now, that could be explained in one in of two ways. It could be either that wi
growth of its logistics arm, Amazon became less efficient and its cost of fulfillment increased, which is troubling just from the perspective of industrial organization. Because it means that they had more volume, but they got less favorable contracts with UPS or the Postal Service, et cetera. Or that their warehouses became less efficient and more expensive to operate. Or that actually this increase in fees is how they recoup what could have been losses in 2014, 2015 and 2017 when they were encouraging people to join Prime and encouraging people to join the Amazon platform itself.
So effectively, I wrote about that back in 2019 and a Melina Kind, of course, published a very influential paper around that. What this could be—and it will be very interesting to see how this case evolves—is that actually what we’re seeing right now with the FBA fees and these provisions is the way that Amazon recoups the losses or recoups or becomes profitable in the Prime business model of two-day or one-day shipping. And what that looks like is basically shifting the cost of fulfillment and logistics from Amazon itself carrying the burden of paying for two-day delivery onto the merchants and the sellers. And then the sellers and merchants in turn are forced to then pass off that increased cost to consumers.
MR. TEDDY DOWNEY: I’m curious. It’s just kind of hitting me that everyone is talking about inflation right now and risk of inflation and worries about inflation, and this is a pretty serious element or explanation for at least some of that that’s going on. Does that factor into making it easier to say show Amazon’s control/influence over the economy, dominance over retail, that this would work? And just that this kind of policing would work so effectively, does that make it easier to say that they’re dominant? I guess it’s a question I’m curious about.
MR. SHAOUL SUSSMAN: I mean, that’s an interesting perspective that I haven’t thought about. One thing I would say without commenting whether I agree or not, I would say that the fact that during the pandemic there is an increased reliance on online sales and delivery that inherently increases the cost of purchasing goods. Whether that’s reflected in shipping being charged separately from the product is one option. In the Amazon context, the reality is that those increased shipping costs are reflected in the prices of goods. So it’s an interesting theory. It will be interesting to study that for sure.
MR. TEDDY DOWNEY: Now, anything else anything else about this case that you think is interesting? I mean, it was only Karl Racine. He was a leader on Google and Facebook, came out with the first Facebook to my
recollection or was the first to really take on Facebook. Do you foresee other states, the federal government, piggybacking on this the way that we’ve seen with Google and if they follow-up from the federal government? And similarly with Facebook in some respect?
MR. SHAOUL SUSSMAN: Right. So I think, first of all, it’s important to note that there are many parallels between this lawsuit and the Colorado Google lawsuit in the sense that it zeroes in on a very specific type of conduct, a very specific line of business of Amazon. And it doesn’t really provide an expansive overview or an expansive narrative of Amazon’s conduct and its various lines of business, et cetera, which has its benefits. But it’s also one of the things that was brought up in the context of the Colorado lawsuit, in the Texas lawsuit, and the DOJ lawsuit, is that they each, you know, they’re kind of like mosquito bites. They’re each going on and targeting a very specific part of Google’s business. And I think this is something similar to that in the sense that it really pinpoints one element or one type of conduct and zeroes in on it.
So I can’t really tell what other state enforcers would do or whether or not federal enforcement is something we should expect. But I do think that one interesting thing to look for is whether if additional suits are filed, whether they target the same narrow kind of area or like line of business, or they
take a more holistic approach that really—or bring a more complex case that touches on more lines of business or kind of like in a more expansive view of Amazon or expansive kind of like overview of the business model. Does that help?
MR. TEDDY DOWNEY: Yeah, that does. I think that gives a great transition to my next question. So a day after being sued by Karl Racine for alleged antitrust violations, Amazon purchased MGM Studios for $8.5 billion. This comes on the heels of Amazon getting a little bit more aggressive in purchasing seemingly must-have content with Thursday Night Football and streaming, network. And I wanted to get your take, your reaction, to that merger and how it fits in with this broader Amazon strategy, Amazon’s business model historically and right now, just how does this fit?
MR. SHAOUL SUSSMAN: Right. So I think like this is where it’s helpful to zoom out and think about Prime itself. And the focus of this lawsuit—and this is actually a good transition to the merger—is it really focuses on what is the main attraction with Prime? Or what was the main attraction with Prime when it was initially launched, which was free same day or two-day delivery. And that really is what attracted or what really allowed Amazon to build this amazing network and platform by attracting so many households to subscribe to Prime.
Now, when the cost of goods on Amazon are increasing, like I said, that allows—it opens up the opportunity of other companies, for instance, like Wal-Mart, to now offer comparable products to Amazon in the sense that the cost of goods are inflated, margins are inflated on the goods, and then you can charge less for shipping or even offer free shipping, something you couldn’t do five or six years ago without losing money.
Now, that is a threat, of course, to Prime, which is really the glue or what holds this entire platform, kind of like as one very attractive proposition for consumers. And what Amazon is doing, I believe, is they’re trying to really protect and maintain the Prime membership base because the hallmark for what made Prime very attractive in the early days is going—there is a threat to that with the increase in consumer prices to reflect online sales. And one of the ways you do that is you offer all of these free perks with your Prime subscription.
So when a consumer now is posed with why not go with Wal-Mart plus or why not go with Target, they say maybe those are comparable offers on like the logistics and the overnight shipping and even they’re comparable in the prices of the goods. But Amazon also offers me, like you said, Thursday Night Football and great James Bond
movies. And that’s enough to nudge the customer toward Amazon and renewing their Prime membership. And that is the most important thing for Amazon, really, to keep that enormous membership base growing or at least at the same level it is right now. Because everything that goes through Prime to Prime members is where they collect the fees from the sellers. That’s where all of this is happening in terms of preserving the platform.
So we’re going to see constantly additional perks and additional types of products that are going to be added to the Prime bundle we can think about, like the special rates that Prime members get on all this audible or perks they get at Whole Food or the free music streaming services, et cetera, as something that really I think David Dayen put it nicely in an article. It’s like that’s what keeps Prime members subscribing to Prime and that’s what generates more the sale of socks on Amazon.
MR. TEDDY DOWNEY: So in some respects, it’s coming from a little bit of a competitive side because Wal-Mart and Target, as the cost of shipping is just integrated in the price of everything, they can start offering competitive rates on shipping and competitive solution to Prime. That’s interesting. But in terms of Amazon’s reputation for being really strategic about squeezing its suppliers and crowding out its competitors, one thing we’ve heard, and this is
mentioned in David Dayen’s article, is that Amazon’s very aggressive bidding for content is really pushing up the costs for TV and for movies, particularly for Netflix, in this kind of race to buy Must-Have content. And Amazon bids all of that up. Is there a way to think about this in terms of wanting to control that market?
MR. SHAOUL SUSSMAN: Right. So the reality is that we don’t really know. Amazon doesn’t separate all of these various ventures into like a line of business P&L in their 10Ks. So we really don’t know what the economics of Prime and Prime studios, et cetera, are. And one of the side effects of if Prime video and MGM, et cetera, is kind of like a product that’s there to attract consumers to stay within the Prime ecosystem and to continue to pay for Prime membership. We can think about those, at least theoretically, as kind of a loss leader. Like the stuff that you’re offering your customers so they can stay and purchase stuff on the website. And the effect of that is, of course, negatively impacting competition in that market where you’re offering this kind of like cheap or free entertainment solution.
So the thinking or the analysis for cost benefit for Amazon in the streaming world or in the production world is very different than that of Netflix or the TV and movie studios or production companies where that is their primary line of
business. And it’s not connected to this greater enterprise or to like a greater conglomerate of offers that are part of the Prime offer to consumers.
So that is something that we really need to keep in mind. Like even if the economics of that don’t make sense and even if it is around jacking up the prices for that industry, for Amazon that might be just a cost of doing business to protect its moat around the Prime consumer base.
So their motivation might be different than like the reason that, for instance, Netflix is engaging in a price war over content. Because the overall objective is different. And I think it will be essential when examining this deal to really pop up the hood and to start looking into what is the motivation behind this acquisition? How does it fit into Amazon’s business model? And what is the reality and the economics of Prime video?
MR. TEDDY DOWNEY: So the value here is that why are they really buying this? Why are they really buying this? What’s the competitive rationale? Which is something we don’t get because they don’t they don’t really break that out in there.
MR. SHAOUL SUSSMAN: Exactly. And it’s all theoretical at this point, even what I’m floating here. But the
question is are they doing it to protect themselves from competition in retail—which just seems a bit counterintuitive or e-commerce? Or are they doing it because they’re thinking about Netflix as a competitor in streaming? And if the motivation is to compete to protect the Prime moat, then also the consideration of what they’re willing to spend on various issues will change as well. If they want to prop up Prime video as a standalone profitable product, then obviously there’s different considerations that come into play. And I think it will be very important to understand what the motivation there.
MR. TEDDY DOWNEY: The question that comes to mind, if they’re adding all of these freebies and paying for all this other free stuff and it’s just to protect their retail operation, won’t they ultimately start charging even more for that? I mean, doesn’t that end up—
MR. SHAOUL SUSSMAN: Yes, right now, you know, the price of Prime has increased since the product was introduced. And the more value you add into it, the ability to charge more, also increases. And we need to remember that now really the introduction of FBA and the shifting of the piece to sellers means that Amazon generates a lot of its revenue and its profit exactly from those fulfillment fees from the merchants. So it’s hard to predict now what’s the calculus there for Amazon? But they definitely generate a
lot of revenue and profit from Prime membership itself and the annual fee. But there’s other ways in which Prime is profitable, namely the fees they collect on transactions on the platform that are fulfilled through Prime.
MR. TEDDY DOWNEY: And we have a question from the audience. I’ve got another question here, but let’s go to the audience. Why is strengthening Amazon Prime through a robust video library to compete with Wal-Mart and Target not pro-consumer welfare?
MR. SHAOUL SUSSMAN: Right. So that in itself is, I think, a very kind of interesting way to look at it. But what we really need to remember is that right now, at least according to Racine’s allegation, all of this is basically building a moat around the Prime membership base. So there could be this lack of competition where the real money is which is online e-comm. So you can think about that as like the protective moat that keeps the user base locked into the Prime ecosystem. So you can continue to charge high commissions and fees from the sellers and merchants on the platform.
And I think that also connects to the threat of Racine’s lawsuit. Because if either the MFN or the forced bundling provisions are removed, then that really spells a significant threat to Prime and to Amazon’s business model
respect. Because the bundling of prices will create significant competitive threats from multiple fronts for Amazon. And the removal of the MFN will also spell a significant threat to Amazon, because the prices of all these goods are sold on Amazon already are very much inflated and incorporate a significant margin for fulfillment.
So those two provisions are essential to keep this kind of gravy train going. And if we think about that as the center of profit making for Prime, all of these additions around it are a protective moat. And yes, there is some benefit for Prime customers. But in a sense, one thing that Prime customers lose is the opportunity or the option to purchase a product for a lower price. And more than that, there’s all the people that are not Prime members and are paying inflated prices for consumer goods to subsidize the acquisition of MGM, for example.
MR. TEDDY DOWNEY: And this gets me back to another point. I’m always wondering why Amazon doesn’t seem to get a lot of scrutiny. But I’m always curious about this, which is a conflict of interest as a big media owner. So Amazon will own MGM ostensibly. They have their own Amazon studios. They obviously distribute a lot of TV, music, movies. Bezos owns The Washington Post. So they own all this media. They influence a lot of media. And they also are a big defense contractor, a cloud computing defense
contractor. They obviously are a massive retail operation. There seems to be a lot of conflicts of interest that historically people would look at us, okay. Well, we don’t want this titan of industry and defense contractor to be owning all of these media assets because there’s a conflict of interest every which way you look when they’re writing about something or making content. What’s your take on that as kind of taking a step back and thinking about all this other influence over media?
MR. SHAOUL SUSSMAN: Yeah, I think that’s a very interesting point. I think in general it’s very much, you know, if we think about this moment in time—we can draw a lot of parallels to the 1930s where there was all this consolidation going on during the Great Depression and the vertical integration of the movie studios, et cetera, and how films at the time really reflected like an anti-New Deal approach. There was this kind of intersection of concentration and popular culture.
Like one example that comes to mind now is the movie that was on Netflix this year, “Mank”, that really describes the back story of how difficult it was to produce “Citizen Kane”, which was a movie that really targeted one of the titans of the industry and also someone that controlled a lot of the media and portrayed him in a very unfavorable way
and how difficult it was to produce that movie in that environment.
And another example that we can think about is like 1938 when the Justice Department started to go after the studios for concentration, you had the slew of movies that were very critical of populism and antimonopoly. The prime example is probably “All the King’s Men” that won the Oscar for best picture. That basically was a very critical view of Huey Long and his populist approach in Congress.
So, I haven’t thought about this question that much. But there is no question, at least historically, there was some correlation between the movies and the culture produced in Hollywood, and the intersection of concentration and issues of concentration versus populism.
MR. TEDDY DOWNEY: Yeah. Well, one thing that I think we’ll be watching for sure is Congress, a couple of Republican Congressmen, are already saying that this deal should either be blocked or is raising issues—Ken Buck in the House and I think there’s been at least one Senator calling for either it to be closely scrutinized or blocked. But one of the things I’m interested to see is whether or not Congress looks past just the antitrust issues and starts looking at other things like media ownership and media ownership law. FTC is really focused on broadcasting and
radio stations. Whereas, this is far outside what they typically do, but it seems like historically, to your point, relevant.
I’m looking for questions from the audience. We don’t have any more questions from the audience. I’ve got a couple more questions for you. When you take a step back and look at, okay, well, there’s this one narrow case that we have here from Karl Racine. But you’ve got a lot of different aspects of Amazon’s business. We haven’t even talked about their cloud business really. Are there other antitrust—from what you’ve seen or talked to people—are there other things about the Amazon business model or anything that Amazon is doing that you think is ripe for a separate antitrust case, either in the retail space or one of these other arms of the business?
MR. SHAOUL SUSSMAN: So what’s interesting is that this case, you can see, you can trace back, in also the case cites pretty extensively, the House antitrust report that was produced in the last session. And what was very remarkable about that report is how it really mapped out Amazon’s entire business and analyzed multiple aspects of Amazon’s conduct in various industries. And one of them is the cloud, like you mentioned. Other is around like brands and Amazon’s own Amazon basics arm. And all of those are kind of areas that Congress in the report scrutinized.
Now, the Racine case brought one specific chunk of that report we can say of the lawsuit and further elaborates and builds up on the report. But I think that all of the issues that were brought in the House antitrust report are probably fair game now for enforcers that are scrutinizing Amazon and companies that are scrutinizing Amazon and contemplating cases. Because all of that chunk of the report that focused on Amazon really analyzed specific areas where Congress identified potential conflicts of interest, potential leveraging. And in that sense, it took a very holistic approach, looking at the company, really zooming out.
So it wouldn’t surprise me if we would see further action either taking on other areas of the report or parts that were discussed in the report or bringing a case that is more holistic and tries to reconcile all of the issues that were identified in one case. And I also think there might be additional cases scrutinizing parts that the report didn’t address. It’s very hard to tell, I think, at this point. But I would be surprised if Racine’s case is the only case that is filed in the next few years. I expect that there will probably be additional cases. It’s just very hard to tell at this point.
MR. TEDDY DOWNEY: Now, Lina Khan was one of the authors of that report that you mentioned, the House antitrust report. Obviously, famously wrote the legal article,
“Amazon’s Antitrust Paradox”, which you mentioned earlier. She’s going to be an FTC commissioner potentially in the next couple of weeks here. If you’re her, if you’re Lina Khan, and you are about to go to the FTC, the law—to the extent that she’s interested in scrutinizing or bringing cases or cracking down on Amazon—the law is not great in some areas, predatory pricing, things like that. What can the FTC do procedurally? Is it guidelines? Is it rulemaking? We’ve heard people mention that Robinson-Patman should come back. What can the FTC do to put itself in a position to give it more tools to successfully go after Amazon? Given if you assume that people are generally right, that the reason these cases may be really narrow is because it’s hard to win in court taking on Amazon with the way the law is right now.
MR. SHAOUL SUSSMAN: So I think you’re right that a portion of the report that the House put together really pointed out to many areas or aspect in which in the last 40 years the Supreme Court and courts in general narrowed the scope and the reach of the antitrust laws. And I think that is a real problem. And we know that there are members of Congress in the Senate that I think really they recognize that fact. And they’re really thinking about ways in which the law could be strengthened and we could see more kind of assertive legislation coming down the pike. One example is, for instance, in New York, a new abuse of dominance bill has been introduced and perhaps will be passed.
So one area is, of course, beyond the control of the FTC and the administration. But I think we might see some action on the legislative front that might give those agencies more power. But separately, I think there is much work that the FTC and the administration can do. And one good example of someone that really outlined that recently is Sandeep Vaheesan from Open Market, where he wrote an article for Democracy Journal that really outlined in relative detail how Biden, how like the FTC can go after Google and Facebook. Or how can it use its rulemaking authority and its existing powers to act more aggressively in this space of big tech? So I think there are many tools in the FTC’s arsenal and that probably they’re all going to be examined. And I wouldn’t be surprised if they’re going to be used in creative and new ways.
MR. TEDDY DOWNEY: You mentioned this before—and I wonder if this is step one – you mentioned that peaking under the hood at Amazon as a result of this acquisition of MGM will be really useful. Whether or not it’s DOJ or the FTC that ultimately does that, do you think it’s safe to assume that the FTC, with Lina Khan there, is going to be doing investigations to get to the bottom—learn as much as they can about these companies with authorities that she didn’t have when she was in the House Antitrust Subcommittee?
MR. SHAOUL SUSSMAN: So it’s hard for me to predict what the FTC is going to do or what specific actions they’re going to take. But one thing I think is really necessary in general, even beyond big tech, is that we really don’t have a solid grasp of how our modern economy functions, how markets function. And one thing that I think we all kind of recognized after the House investigation is how much we did not know about these companies and these industries. And how much fear, for instance, exists in that area of, for instance, being an app on the App Store or the Google Play store, and what that dynamic looks like.
And I think one top priority should be investigating how markets function and operate in reality. And that broad investigation is not only for purposes of bringing lawsuits in and prosecuting cases, but also really I think it’s a matter of broader national interest to understand where and how markets operate. And that’s something that Congress and other agencies were very concerned with back in the 1930s and 40s and 50s.
One crucial part of the DOJ’s Antitrust Division, in the building up for World War II, was really to understand how the entire industry that was ramping up for war and building armaments and infrastructure was operating, and then intervening in specific areas where there could be
bottlenecks and monopolization, et cetera. That view, that holistic view, of the markets was also essential for the national interest in that time, which was winning the war, building up for the war.
And I think that is another approach where studying markets and understanding bottlenecks and problems is essential. I mean, we saw this during the pandemic when all of a sudden there were critical shortages in various industries that really hindered the response to COVID, and finding solutions in real time was very difficult. So I think it is in the national interest to understand, to deeply understand, how markets function and where there might be failures that are maybe not fully in view right now.
MR. TEDDY DOWNEY: And I don’t want to press you too hard on this, but did they stop doing that after the 50s? Or what happened? I mean, was it just the general focus at FTC and places like that on economic theory, as opposed to understanding how things actually work? Or what’s your explanation for how we lost that initiative at the FTC to actually understand how these markets really work?
MR. SHAOUL SUSSMAN: Right. So I think it was a much more sort of gradual decline. I think Matt Stoller’s book really does a good job in explaining how each administration, there was a gradual glacial shift towards the
consumer welfare approach and the world we live in today. But I think if we want to identify one turning point, it’s really the middle or the end of the Carter administration and the beginning of the Reagan administration, where you see the FTC trying to push very bold initiatives in the late 70s and those dying off pretty suddenly in the 80s.
MR. TEDDY DOWNEY: Well, I’ve kept you almost an hour. This has been a great conversation. I’ve learned a lot. I read the antitrust complaint and I feel like I understand it ten times better after talking about it with you. So thank you so much for doing it. Congrats on the big impact of your paper and look forward to following this case and reading your work in the future. Thanks so much for doing this.
MR. SHAOUL SUSSMAN: Thank you for having me.
