Prime Day kicked off today. The two-day bonanza of deals on bedding, electronics, cookware, clothing, and more may as well be the unofficial kick-off to the holiday shopping season.
This Prime Day is unique though.
Prime Day comes amidst one of the biggest government threats to the online retailer’s business model: a Federal Trade Commission (FTC) complaint. This FTC lawsuit could, specifically, destroy the service that makes Amazon a beloved brand. More broadly, the FTC may upend the economics-based, consumer-focused approach to how businesses operate in the economy.
As we explained after the lawsuit was filed, consumers should be alarmed:
…the FTC, led by Lina Khan, signals it intends to abandon a decades-long commitment to consumer welfare to advance her own retro antitrust agenda. Randomly targeting big companies like Amazon simply because they are big players in an industry upends a philosophy that has guided the U.S. economy through decades of tremendous technological advancement.
Khan is ignoring the losses of popular services that consumers overwhelmingly value and the hardship imposed on the ecosystem of smaller businesses that depend on bigger entities for survival, to push her own agenda.
At risk is Amazon Prime, a service that transformed the retail industry by setting an expectation among consumers of free and fast delivery. To make Amazon Prime work, Amazon has “developed a jaw-dropping logistics apparatus of nationwide warehouses and fulfillment centers and transportation and delivery networks that can get packages to millions of consumers in as quickly as a few hours.”
Amazon creates a marketplace for businesses of all sizes to find customers globally and utilize Amazon’s fulfillment services to get their products to customers quickly at a far lower cost than if they shipped it themselves.
The FTC takes issue with the vertical integration of suppliers, producers, and shippers–something that businesses pursue to shore up their supply chain, reduce delivery times, and lower costs for customers.
As a writer noted in Fortune recently:
Large manufacturers like automakers often are vertically integrated so that they make some components that they also buy from suppliers. Similarly, restaurant chains may operate subsidiaries that supply their restaurants, and perhaps other restaurants, while also buying supplies from companies that compete with their upstream supplier operations. Creative use of vertical integration has many benefits that are passed on to consumers, including increased synergy, creative problem-solving, and better product development.
By targeting Amazon’s logistics, the FTC would unfairly break the model that allows the company to deliver so much value to customers and opportunities to small and medium-sized businesses.
If the FTC does this to one company, which has been in the crosshairs of Lina Khan since her school days, what’s to stop the FTC from targeting other companies? Similarly, why target this company when bigger companies in retail engage in the same alleged “anticompetitive” practices?
The FTC is pursuing a subjective model to determine breaches of antitrust law and is being weaponized against this Big Tech company. However, no company is safe under such an arbitrary use of government power.
There is a sinister big-government ethos driving this effort. As my colleague Carrie Sheffield explained in the Washington Exmainer:
It’s also important to put this move by Khan and Co. in the broader context of economy-killing Bidenomics. The FTC issued 42 letters of investigation in 2021, almost twice the amount in 2020. Khan was grilled by Rep. Jim Jordan (R-OH) this summer before the House Judiciary Committee, with even Politico reporting that she had just “lost a critical court case in the agency’s bid to block Microsoft’s takeover of video game giant Activision Blizzard. That follows a loss earlier this year in its case against Meta’s purchase of a virtual reality app.”
Khan is a well-known progressive ideologue who’s throwing everything against the wall, hoping that anything will stick to hurt consumers. But she’s part of the broader Biden team that is doing the same thing at the Environmental Protection Agency, the Food and Drug Administration, and the entire alphabet soup of regulatory agencies.
An Obsession with the Customer
Amazon has been obsessed with customer satisfaction from day one. Ever notice that the company’s logo is a smile?
If only the FTC was just as obsessed with customer satisfaction. For decades it had been primarily concerned with consumer welfare and other economic priorities such as efficiency until recently. As Mercatus scholar Alden Abbott explained:
The fall of the Berlin Wall and the subsequent demise of communist regimes in Europe led the U.S. government to engage in a new form of international economic diplomacy during the 1990s. U.S. officials sought to promote the adoption of market-based commercial-law and public-law systems in emerging newly democratic regimes and in developing countries around the world. A key part of these efforts involved support for the enactment of competition laws, which were viewed as bulwarks of successful market-based economies.
By the mid-1990s, the DOJ and FTC had reached a bipartisan consensus in support of applying a consumer welfare standard in American antitrust enforcement. DOJ and FTC leadership also consistently advocated this standard to their foreign counterparts during both Democratic and Republican administrations.
…
The year 2021 marked a sea change, however, in FTC and DOJ involvement with the [International Competition Network]. The FTC and DOJ renounced the consumer welfare standard as their enforcement policy lodestar and failed to reappoint market-oriented pro-consumer welfare NGAs. (In their stead, the U.S. agencies appointed a new slate of individuals with relatively little private sector or ICN-related experience.) Without strong U.S. backing, ICN support for a primary focus on consumer-welfare discussions is likely to fade.
The European Commission—the other major competition jurisdiction—is likewise moving in an increasingly interventionist direction (see here, for example), particularly with regard to unilateral conduct.
Bottom Line
Destroying Amazon Prime will be devastating for small businesses and increase costs for consumers. However, the FTC’s new crusade to shift the focus away from consumer welfare to prioritize other interests will leave the government more empowered to unfairly target businesses in ways that leave many Americans and small businesses worse off.