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--:-- Sean Rameswaram: The United States government is suing Amazon.com. So this case is ultimately about competition and competition that has been foregone because of Amazon's unlawful tactics as the complaint lays out.
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--:-- Sean Rameswaram: It's a clash of the titans. Biden versus Bezos. Prime versus Priority Mail Express. FTC versus AMZ. Okay, truth be told, it's a lot more complicated than any of those things.
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--:-- Sean Rameswaram: What it is, is it's coming up on Today Explained. People are paying higher prices, right? Consumers are paying more than they otherwise would. Small businesses are having to pay 50% Amazon tax right now.
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--:-- Sean Rameswaram: And so ultimately, the complaint is seeking to restore the lost promise of competition. Greater competition will mean lower prices, better quality, better selection, and greater innovation.
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--:-- Sean Rameswaram: And that's ultimately what this case is about.
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--:-- Sean Rameswaram: Support for this show comes from ServiceNow. AI is only as powerful as the platform it's built into, don't you know? That's why it's no surprise that more than 85% of the Fortune 500 use the ServiceNow AI platform.
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--:-- Sean Rameswaram: Didn't know that. While other platforms duct tape tools together, ServiceNow seamlessly unifies people, data, workflows, and AI, connecting every corner of your business.
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--:-- Sean Rameswaram: Read, watch and listen to The Guardian for free at theguardian.com.
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--:-- Sean Rameswaram: Today explained Sean Rama's firm when we heard the Federal Trade Commission sued Amazon on Tuesday. We reached out to McKenna Kelly at The Verge to find out why.
--:-- McKenna Kelly: It's a really big case. And it's something that folks have been expecting for a couple of years now. If not like under the Trump administration, then definitely when our current FTC chair, Lena Kahn, was confirmed in 2021 when President Biden was first inaugurated.
--:-- Sean Rameswaram: Has anything like this ever happened before? Is this like the first time the government's gone at Amazon?
--:-- McKenna Kelly: The state governments have issued similar cases in the past, D.C. and California being like the only two that have challenged Amazon at this scale on state antitrust laws.
--:-- Sean Rameswaram: Amazon's practices prevent basic price competition. California Attorney General Rob Bonta is suing Amazon, accusing the company of engaging in unfair business practices by pushing sellers to maintain higher prices on products sold on other sites.
--:-- McKenna Kelly: But this is the first time that the FTC, a federal agency, has gone after Amazon and basically its entire business model, which is wild to think that the government is taking up, you know, such a popular company that people use every day and looking at just even the most basic ways that it operates.
--:-- Sean Rameswaram: Well, tell us what the FTC is saying. What is Amazon's sin here?
--:-- McKenna Kelly: So the lawsuit accuses Amazon of basically leveraging its market dominance to stamp out would-be competitors.
--:-- Sean Rameswaram: These are a set of tactics, but ultimately Amazon has pursued them to deprive actual and potential competitors of the ability to gain the scale and momentum needed to effectively compete online.
--:-- McKenna Kelly: There's a variety of different competitors here, others being just other online marketplaces. Assume like you're going on walmart.com to try and find a similar product, or also the third-party sellers that use Amazon's platform in the first place.
--:-- Sean Rameswaram: So in order to maintain that dominance, Amazon is accused of deploying a variety of different strategies, like burying listings that some third-party sellers are offering lower prices on other sites.
--:-- McKenna Kelly: So they'll bring those down in search results or even charging sellers these exorbitant fees to even use the platform and list their products in the first place on Amazon.
--:-- Sean Rameswaram: What did I buy last on Amazon? I bought cat food. And so when I just type in cat food, what do I see at first? I see advertisements for, you know, a variety of different, whether it's the wet food, the dry food, whatever.
--:-- McKenna Kelly: It's these different third-party sellers, whether that is, I don't know, like the Rachel Ray cat food. A great taste that your cat or cats are going to love. The Purina, whatever it is.
--:-- Sean Rameswaram: They will buy these ads in the search results in order to have their products shown higher up than everything else.
--:-- McKenna Kelly: And Amazon has power over the search listings because it runs the website, right?
--:-- Sean Rameswaram: And so in order for these third-party sellers to know that people are going to see their products, it is actually better for them to buy the ads in the first place rather than leaving it up to whatever Amazon's black box of an algorithm is.
--:-- McKenna Kelly: And so in order to even use the platform, folks kind of prefer using the ads, which then, of course, you know, puts more money in Amazon's pockets, which can even create its own competing, you know, dog food.
--:-- Sean Rameswaram: There's like an Amazon Basics like pet food or something. Then, of course, like they are in the running against the other brands and third-party sellers as well.
--:-- McKenna Kelly: Which is like plausible. They own Whole Foods. Yeah, they do. Along with a bunch of other different kinds of businesses.
--:-- Sean Rameswaram: So if Amazon wants to sell ads to boost, I don't know, like Chairman Miao's pet food into the search results a little higher up or whatever, is that technically illegal?
--:-- McKenna Kelly: That's kind of what ChairCon and the FTC is trying to test right now.
--:-- Sean Rameswaram: For however long probably since the 70s and the 80s American antitrust school of thought is basically saying that well it not anti so long as the business is reducing prices
--:-- McKenna Kelly: What Khan the FTC and even the Biden DOJ right now is testing in a variety of their antitrust cases is a different way of thought, which is looking at competition first, rather than just the prices and the short-term effects on consumers.
--:-- Sean Rameswaram: This case is about the competition that has been lost because of Amazon's monopolization and their unlawful tactics.
--:-- McKenna Kelly: And consumers should be entitled to lower prices, to more competition, to more innovation. Similarly, sellers should be entitled to greater competition.
--:-- Sean Rameswaram: And this alternative universe of greater competition, greater innovation, lower prices, better quality has been lost because of these tactics.
--:-- McKenna Kelly: And that's what we're really trying to get justice for.
--:-- Sean Rameswaram: What do they want Amazon to do about it? or what do they want Amazon to do instead?
--:-- McKenna Kelly: It called for what it said was structural remedies. And for the keen observer and reporters who read these press releases all the time, that typically means a breakup.
--:-- Sean Rameswaram: What would break off and what would happen?
--:-- McKenna Kelly: Even just earlier on Tuesday, Khan was pretty tight-lipped on what she was looking for if something was to get pulled out of Amazon.
--:-- Sean Rameswaram: But it does look like they're trying to, you know, shake down the company out of these different parts and businesses that it's accusing it of being so anti-competitive.
--:-- McKenna Kelly: Did Amazon respond?
--:-- Sean Rameswaram: Yeah. Amazon and different industry trade groups were really quick to point out that a lot of the lawsuit, which, mind you, was 172 pages, it was very long, uses the word sellers more than it uses the word consumers.
--:-- McKenna Kelly: And so essentially, they're pointing out that Amazon and, of course, these industry trade groups, these people who, you know, end up being a bit more supportive of business. These folks are basically pointing out that it sounds like the FTC wants to create more competition against Amazon rather than doing what is in the best interest of consumers.
--:-- Sean Rameswaram: Amazon, of course, not the only company getting some antitrust attention in tech. We recently covered Google on the show.
--:-- McKenna Kelly: So the Amazon case is fairly similar to the DOJ's Google antitrust case.
--:-- Sean Rameswaram: You know, the Google case going on right now, like you mentioned, is a search trial having to do with Google search engine and how it ranks its competitors in its search.
--:-- McKenna Kelly: But the government under Biden has been pursuing a ton of antitrust cases. The FTC itself has gone after Meta. Mark Zuckerberg taking the stand today in a San Jose court, and he's making the case that the FTC should allow Meta to buy the VR studio within Unlimited.
--:-- Sean Rameswaram: They make a popular fitness app called Supernatural.
--:-- McKenna Kelly: The DOJ has gone after Google several times. Lawyers for the Department of Justice arrived here this morning to present their case, alleging that Google got to its 90 percent market share by breaking the law and engaging in anti-competitive practices.
--:-- Sean Rameswaram: The search case is just the first one to really hit the courts and start taking place.
--:-- McKenna Kelly: But there has been this really big ramp up in attention in competition and antitrust in markets over the last couple of years.
--:-- Sean Rameswaram: I think that has a lot to do with like our current economic state with inflation and folks, you know, really kind of suffering to pay bills and stuff.
--:-- McKenna Kelly: And I think it also has to do with just like this change in thinking that is finally, you know, finding some support under the Biden administration after, you know, how many years?
--:-- Sean Rameswaram: What happens next? Is Amazon going to end up in an actual federal courtroom or is this just going to resolve itself peacefully?
--:-- McKenna Kelly: There is always room for there to be a settlement. But from Amazon's statement on Tuesday responding to it, I would be shocked if they reach some kind of settlement.
--:-- Sean Rameswaram: But, you know, how long did it take to prepare this case? At least, you know, three years, if not more.
--:-- McKenna Kelly: We're going to be looking at, if not five, ten more years of litigation waiting for this day at the courts.
--:-- Sean Rameswaram: Even though this Amazon case could be Lena Kahn's legacy in this role, it is going to outlive her for sure and probably even the Biden administration itself.
--:-- McKenna Kelly: You can read McKenna Kelly at TheVerge.com.
--:-- Sean Rameswaram: When we're back on Today Explained, we'll have a former FTC director weigh in on this lawsuit.
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--:-- Sean Rameswaram: Support for Today Explained comes from Chime. Nobody likes fees and complicated banking, says Chime.
--:-- McKenna Kelly: And Chime gets that, says Chime. Chime is a financial technology company that says they understand that every dollar counts.
--:-- Sean Rameswaram: So when you set up direct deposit through time, they say you get access to fee-free features such as free overdraft coverage, getting paid up to two days early with direct deposit.
--:-- McKenna Kelly: So much more.
--:-- Sean Rameswaram: Chime says with qualifying direct deposits, you can be eligible for free overdraft up to $200 on debit card purchases and cash withdrawals.
--:-- McKenna Kelly: Plus, they say you don't need to worry about monthly fees or maintenance fees.
--:-- Sean Rameswaram: You can work on your financial goals through Chime today.
--:-- McKenna Kelly: You can open an account in two minutes at Chime.com slash explained.
--:-- Sean Rameswaram: That's Chime.com slash explained.
--:-- McKenna Kelly: And Chime feels like progress. Chime is a financial technology company, not a bank.
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--:-- Sean Rameswaram: Every day, millions of customers engage with AI agents like me.
--:-- McKenna Kelly: We resolve queries fast. We work 24-7 and we're helpful, knowledgeable, and empathetic.
--:-- Sean Rameswaram: We're built to be the voice of the brands we serve.
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--:-- McKenna Kelly: Visit Sierra to learn more
--:-- Sean Rameswaram: Today Explained listeners, meet Bill. I'm Bill Baer. I'm a visiting fellow at the Brookings Institution in Washington, D.C., previously served in the Justice Department as head of antitrust enforcement, and before that as head of antitrust enforcement at the Federal Trade Commission.
--:-- Bill Baer: Okay, so you know a thing or two about the FTC, I imagine.
--:-- Sean Rameswaram: I sure hope so.
--:-- Bill Baer: Tell me about the boss over there. Tell me about FTC Chair Lina Khan.
--:-- Sean Rameswaram: I hear she and Amazon go way back.
--:-- Bill Baer: She wrote a piece as a law student that was published in the Yale Law Journal. The Amazon Antitrust Paradox by Lina Khan.
--:-- Sean Rameswaram: Unprecedented for a law student to get that kind of prominent placement in one of the preeminent legal journals.
--:-- Bill Baer: And the piece was about Amazon as a monopolist. How and why antitrust enforcers up to now and the courts have failed to adequately challenge behavior by a successful tech platform by Amazon.
--:-- Sean Rameswaram: The company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it.
--:-- Bill Baer: Elements of the firm's structure and conduct pose anti-competitive concerns, yet it has escaped antitrust scrutiny.
--:-- Sean Rameswaram: It was symbolic of a rethinking of antitrust among many progressives.
--:-- Bill Baer: The concern, one I share, is that antitrust enforcement had gotten way too conservative in the last 30 or 40 years.
--:-- Sean Rameswaram: The courts weren't applying the literal language of our antitrust statutes.
--:-- Bill Baer: They were imposing on the government a very high standard of proof to challenge monopolies, to challenge mergers that increase concentrations.
--:-- Sean Rameswaram: The current framework in antitrust, specifically its pegging competition to consumer welfare, defined as short-term price effects, is unequipped to capture the architecture of market power in the modern economy.
--:-- Bill Baer: The light bulb moment in Lina Khan's paper was that these tech platforms, including Amazon, which had been providing a new kind of service to us as consumers, were not benefiting us in many ways that competition should.
--:-- Sean Rameswaram: That these tech platforms, which claim to be providing us a free service, actually are costing us a lot.
--:-- Bill Baer: We pay not with money to go on the Amazon platform and shop or to go on the Google platform and search, but we pay with our personal data.
--:-- Sean Rameswaram: And that personal data is then sold or used by the companies to make money.
--:-- Bill Baer: And traditional antitrust thinks about consumer injury as having to pay more for a product or a service than we would in a competitive market.
--:-- Sean Rameswaram: We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output.
--:-- Bill Baer: She focused on the notion that we are paying something, but it is a cost that's hidden from us.
--:-- Sean Rameswaram: And that is a problem that requires a new look, a new approach to antitrust in order to address problematic behavior by tech platforms like Amazon.
--:-- Bill Baer: Consumer interests include not only cost, but also product quality, variety and innovation.
--:-- Sean Rameswaram: Protecting these long-term interests requires a much thicker conception of consumer welfare than what guides the current approach.
--:-- Bill Baer: Does she offer any solutions in this paper, or was it more diagnosing a problem?
--:-- Sean Rameswaram: She both diagnosed a problem and suggested we needed various restrictions on what a domino platform like Amazon can and cannot do to limit opportunities for competitors.
--:-- Bill Baer: She also raised the possibility that a company like Amazon should be broken up into various component parts.
--:-- Sean Rameswaram: So what does Lena Kahn do between writing that paper and becoming the chair of the FTC at the probably unprecedented age of 32?
--:-- Bill Baer: She came to Washington. She spent some time working on antitrust issues at the Federal Trade Commission.
--:-- Sean Rameswaram: She then joined the House Judiciary's Antitrust Subcommittee as a staffer, and she helped run a series of hearings in the fall of 2020, where the Antitrust Subcommittee brought the CEOs of these successful tech platforms to Washington for a series of hearings.
--:-- Bill Baer: How do you sustain a business model in which users don't pay for your service?
--:-- Sean Rameswaram: Senator, we run ads.
--:-- Bill Baer: I see. Interestingly, both Republicans and Democrats began to express concerns about dominance of these companies, the personal data they had on us, what they were doing with that data, and whether or not they were improperly excluding competitors from online market competition.
--:-- Sean Rameswaram: She was a principal author of an extensive report that summarized the findings and made a series of recommendations challenging tech platforms, including Amazon, under the U.S. antitrust laws.
--:-- Bill Baer: A 450-page report found Amazon, Google, Facebook, and Apple have abused their market dominance by charging excessive fees and extracting valuable data from users.
--:-- Sean Rameswaram: Recommendations include forcing the firms to divest related businesses.
--:-- Bill Baer: How surprising is it when Biden gives her the top job at the FTC?
--:-- Sean Rameswaram: It was not surprising that he appointed her as a commissioner
--:-- Bill Baer: But the day she was confirmed by the Senate the president, who has the authority to designate who will be the chair of the commission, said, and I want this person to be chair.
--:-- Sean Rameswaram: That was a surprise. But, you know, it was the president's right to make the choice he did.
--:-- Bill Baer: And she went down to the agency and got to work right away.
--:-- Sean Rameswaram: She has brought a number of cases, challenged a lot of transactions, forced companies to abandon some deals that she and her fellow commissioners thought problematic.
--:-- Bill Baer: In court, though, some of the challenges have not been successful.
--:-- Sean Rameswaram: Are you bringing cases that you expect to lose?
--:-- Bill Baer: Absolutely not.
--:-- Sean Rameswaram: OK, well, your track record seems to suggest otherwise.
--:-- Bill Baer: She challenged a meta acquisition of a company called Within that is in the virtual gaming space.
--:-- Sean Rameswaram: A federal judge shot them down summarily, even as Khan tried to argue that meta could make a similar product themselves.
--:-- Bill Baer: The FTC more recently challenged Microsoft's effort to buy Activision.
--:-- Sean Rameswaram: Activision makes some of the leading online and council games like Call of Duty.
--:-- Bill Baer: The FTC wanted to ban that transaction entirely.
--:-- Sean Rameswaram: The judge has denied that preliminary injunction, meaning Microsoft at least will likely try to go forward here in the U.S. to buy Activision for $69 billion.
--:-- Bill Baer: But this is a big loss for FTC Chair Lena Kahn.
--:-- Sean Rameswaram: I mean, she came out swinging against big tech and hasn't really delivered.
--:-- Bill Baer: She did get concessions in which Microsoft promised it would make that game available to other makers of gaming consoles.
--:-- Sean Rameswaram: So it was a loss in terms of not blocking the deal entirely, but a win in terms of making sure Microsoft did not abuse the power it would get from buying Activision and controlling access to two or three of the most popular games for gamers.
--:-- Bill Baer: I'm certainly not somebody who thinks that success is marked by 100% court record.
--:-- Sean Rameswaram: I think we need to be, as public enforcers, we have a special obligation to be bringing the hard cases.
--:-- Bill Baer: I think it's also really important to be having the institutional dialogue among the three branches.
--:-- Sean Rameswaram: So if the antitrust agencies look at the market, think that there's a law violation, think that the current law might make it difficult to reach, there's huge benefit to still trying.
--:-- Bill Baer: Because if you don't try, the message that sends out to the world is that the enforcers don't think there's a problem in the market.
--:-- Sean Rameswaram: Bill, you've worked inside these systems. You've worked on these types of cases.
--:-- Bill Baer: I wonder, you know, we've been hearing about reining in big tech for years now to the point where it's become sort of cliche and it falls on deaf ears.
--:-- Sean Rameswaram: Not much has happened. It seems like big tech is still in charge, is still calling the shots, only, you know, concedes when they themselves want to, when they see a business opportunity like Apple recently saying that, you know, we're going to be carbon neutral by 2030 or 2050 or whatever it is.
--:-- Bill Baer: Has the government had any success here?
--:-- Sean Rameswaram: And might this be the first time if she wins this suit?
--:-- Bill Baer: Well, there are a bunch of challenges pending.
--:-- Sean Rameswaram: The problem with antitrust litigation is it takes a long time.
--:-- Bill Baer: So we've got the FTC having sued Facebook in the Trump administration, the Department of Justice having sued Google, also in the Trump administration.
--:-- Sean Rameswaram: Those cases are just making their way to trial three years after they were initiated.
--:-- Bill Baer: So what happens is the government identifies a problem, brings a challenge.
--:-- Sean Rameswaram: Then things kind of appear to go quiet because discovery is going on.
--:-- Bill Baer: Documents are being exchanged. Depositions are being taken.
--:-- Sean Rameswaram: And it's only when, as is happening as of last week with Google, when the trial starts that the evidence gets presented and we begin to see progress towards an outcome, whatever that might be.
--:-- Bill Baer: So government moves slow. Antitrust moves slow. tech famously moves fast and breaks things.
--:-- Sean Rameswaram: Is government ill-equipped in this country to regulate tech?
--:-- Bill Baer: That is a concern.
--:-- Sean Rameswaram: At the same time, once a case is brought and litigated, it establishes precedent that courts, that companies rather, that want to be antitrust compliant will follow.
--:-- Bill Baer: There's more than just the one case at stake here.
--:-- Sean Rameswaram: It's providing guidance to companies and antitrust enforcers about what is illegitimate, anti-competitive behavior and how it can be challenged and stopped.
--:-- Bill Baer: You sound hopeful.
--:-- Sean Rameswaram: I am.
--:-- Bill Baer: Looking at the Amazon complaint, the allegations in there, although we can't see them all because the company has claimed confidentiality over the public version of the complaint.
--:-- Sean Rameswaram: But the allegations suggest a pattern of conduct by Amazon that is problematic.
--:-- Bill Baer: And if those facts, as alleged, are proven in court, Amazon is in a world of hurt.
--:-- Sean Rameswaram: Bill Baer, find him at Brookings.
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