Punishing Big Tech for its successes

The American Booksellers Association, Open Markets Institute and the Authors Guild sent an open letter to the Federal Trade Commission (FTC) and Justice Department asking the agencies to investigate Amazon for dominating the book market. The letter attempts to reframe Amazon’s success story as anticompetitive, But it is a perfect example for why abandoning the consumer welfare standard results in the FTC being used to protect select competitors rather than consumers.

This letter comes in the context of a broader change in antitrust regulation. From the 1970s to the beginning of the Biden administration, antitrust enforcement was guided by the consumer welfare standard. That standard sets an objective criterion for antitrust action when industry conduct is shown to harm consumers by restricting services or raising prices.

Since the appointment of Lina Khan to head the FTC, the commission has led the way in attempting to expand antitrust law beyond consumer welfare. This change has not succeeded in court thus far and the FTC has suffered a series of losses with no sign of reevaluating its approach.

The letter focuses on the impact on bookstores and authors trying to compete and reframed the impact on prices as a negative one, stating “to publishers and authors, however, it represented a ruthless effort to drive down the value of books in readers’ minds and undercut the viability of the entire industry.”

The open letter to regulators argues that Amazon cornered the market for book sales by setting prices too low, thereby driving physical bookstores out of business. Many of their complaints, including offering significant discounts on books and publishers, boil down to Amazon offering prices and services that traditional bookstores just can’t match.

While this letter is merely a request to investigate the issue rather than a request for a formal lawsuit, the letter illustrates what happens when antitrust is used to protect competitors rather than consumers. The letter itself acknowledges that Amazon’s negotiation tactics with publishers are not necessarily illegal but rather bad for Amazon’s competitors.

Amazon is a success story in book sales and online commerce in general, because it offers efficient services, often at lower prices than many brick-and-mortar stores. Punishing Amazon for lowering the prices of books and therefore making them more affordable and widely available to readers denies consumer benefits and undermines consumer welfare.

If the FTC and Justice Department proceed with this investigation and ultimately file a lawsuit against Amazon for the alleged issues, it will most likely waste more public resources in a losing legal battle. If it succeeds, however, consumers will be paying more for the same product for the benefit of companies that could not compete any other way.

The open letter is the latest in a growing trend of using antitrust law to protect competitors rather than consumers. By abandoning the consumer welfare standard, regulators would have a free hand to pick winners and losers in an otherwise free market.

Giving consumers lower prices is not a reason for FTC action. The attempt to reframe lower prices and more efficient services as anticompetitive would amount to regulatory malpractice.

Steve Pociask and Trey Price are with the American Consumer Institute, a nonprofit education and research organization. Follow us on Twitter @ConsumerPal.