Lina M. Khan in Yale Law Journal: ‘Amazon’s Antitrust Paradox’

An almost book-length (seriously, over 25,000 words) analysis of Amazon’s end-run around antitrust regulation. It’s quite readable though. My summary would be that U.S. antitrust enforcement in recent decades is focused almost exclusively on consumer prices. If a monopoly isn’t price gouging customers, it’s not a problem. Khan makes a strong case that that mindset might make sense in the brick and mortar world, but it doesn’t make sense if the world of competitive online platforms.

And yes, the e-book price-fixing case against Apple is a perfect example. Khan writes:

In 2012, the DOJ sued the publishers and Apple for colluding to raise e-book prices. In response to claims that the DOJ was going after the wrong actor — given that it was Amazon’s predatory tactics that drove the publishers and Apple to join forces — the DOJ investigated Amazon’s pricing strategies and found “persuasive evidence lacking” to show that the company had engaged in predatory practices. According to the government, “from the time of its launch, Amazon’s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.”

Judge Cote, who presided over the district court trial, refrained from affirming the government’s conclusion. Still, the government’s argument illustrates the dominant framework that courts and enforcers use to analyze predation — and how it falls short. Specifically, the government erred by analyzing the profitability of Amazon’s e-book business in the aggregate and by characterizing the conduct as “loss leading” rather than potentially predatory pricing. These missteps suggest a failure to appreciate two critical aspects of Amazon’s practices: (1) how steep discounting by a firm on a platform-based product creates a higher risk that the firm will generate monopoly power than discounting on non-platform goods and (2) the multiple ways Amazon could recoup losses in ways other than raising the price of the same e-books that it discounted.

On the first point, the government argued that Amazon was not engaging in predation because in the aggregate,Amazon’s e-books business was profitable. This perspective overlooks how heavy losses on particular lines of e-books (bestsellers, for example, or new releases) may have thwarted competition, even if the e-books business as a whole was profitable.

(Via Philip Elmer-DeWitt, who has his own summary of Khan’s thesis.)

★ Monday, 6 February 2017