Last year, District of Columbia Attorney General Karl Racine filed an antitrust lawsuit against Amazon over its third-party seller program. On Friday, a judge dismissed it. When it was first filed, my colleague Jessica Melugin and I argued that the lawsuit stood on shaky legal ground and would harm consumers if it succeeded.
One reason for the case’s weakness is the amount of competition that Amazon faces in convincing third-party sellers to use its platform:
Other retailers such as Walmart now have their own third-party seller programs that compete with Amazon’s. This is on top of existing online options small sellers can use, such as eBay, Etsy, and Shopify, as well as numerous niche markets, such as Reverb for musical equipment and Newegg for computer products.
Every other state attorney general in the country must have agreed with us, because none of them joined Racine’s lawsuit. That fact that it was a solo act was itself telling about the case’s prospects, as I told Law360.
Despite the dismissal, this isn’t over yet. Reuters reports that Racine’s office is “considering its legal options.” Amazon will likely face other antitrust cases at both the state and federal level. These too will have a tough time in court, but a mix of political ambition and populist ideology means that regulators will likely continue to try.
There are two common legal tests for determining if a company is harming consumers. Can it: a) raise prices or b) restrict supply? Amazon is capable of neither, in part because it commands just 9.2 percent of the total retail market (both brick-and-mortar and online), compared to 9.5 percent for Walmart.
Even in the narrower online commerce market definition, where estimates of Amazon’s market share mostly range from 40 to 50 percent, Walmart and Target are both beefing up their online presence. Most traditional grocery stores now offer online ordering, pickup, and delivery. Smaller local shops are can offer online ordering and delivery through Instacart, Uber, and other platforms. And many producers give customers the option of foregoing retailers altogether by selling direct.
In order to argue that Amazon has a monopoly of any kind, prosecutors would almost certainly have to commit the relevant market fallacy. This is a language game, played by defining a company’s market so narrowly that it appears more dominant on paper than it is in real life. Any market is a monopoly if you define it narrowly enough; the challenge is doing it with a straight face. That is why the original Facebook antitrust complaint was dismissed, and why the revised complaint will also have a tough time in court.
Another tactic is to try to change the rules of the game, as five-year olds often do when they get frustrated. The American Innovation and Choice Online Act, for example, would end the need for prosecutors to define relevant markets at all. There is also a larger push from conservative and progressive populists to end the consumer welfare standard, which holds that big isn’t automatically bad; big must behave badly before it can be punished. If populists get their way, they could win cases in which the defendants have not harmed anyone.
Attorney General Racine’s legal defeat was expected; the only surprise was that it took so long. But this was a minor skirmish in a much larger battle that goes far beyond the big tech bogeymen of the moment.
For more about what is at stake, see Wayne Crews’s and my paper, “The Case against Antitrust Law.”