FTC Chair Lina Khan breaks down the lawsuit against Amazon
ARI SHAPIRO, HOST:
A new lawsuit could fundamentally reshape one of the biggest companies in the world. The Federal Trade Commission and 17 states accuse Amazon of abusing its monopoly power. The FTC says Amazon broke the law to steer business to its own platform, hurting consumers and sellers. We'll note that Amazon is among NPR's financial supporters and pays to distribute some of our content, but we cover it like any other company. Our next guest is the chair of the FTC, Lina Khan. Thank you for joining us live on ALL THINGS CONSIDERED.
LINA KHAN: Good to be here.
SHAPIRO: Amazon has built its brand on a reputation for offering lower prices than its competitors. And in this lawsuit, you argue that they have only maintained low prices by manipulating the market in ways that ultimately result in shoppers paying higher prices than they would if there were fair competition. So can you begin by giving us one specific example of how you allege Amazon has done that and hurt shoppers?
KHAN: So there are a variety of ways that Amazon is now hurting its customers, both the sellers that rely on Amazon to reach shoppers as well as shoppers themselves. One is that Amazon has been hiking the fees that sellers have to pay, so sellers now have to pay a 50% cut to Amazon. It's a 50% Amazon tax. Sellers have to pass that along to consumers. And sellers themselves are small businesses.
We've also seen how Amazon has rolled out a pay-to-play ad scheme, which means that ads are what you see when you search on Amazon, and you often get less relevant results and are steered to higher products. And in a healthy, well-functioning, competitive market, if a company chooses to hike prices and worsen service for its customers, that creates an opening for rivals to come in. But our lawsuit alleges that Amazon has actually engaged in a set of illegal tactics to prevent that from happening and to unlawfully maintain its monopoly.
SHAPIRO: Like, just to get specific, I just bought a pet product from a website that was not Amazon. What do you allege Amazon does to make sure the website I bought the pet product from doesn't have a lower price?
KHAN: So Amazon has a policy, an anti-discounting policy, that basically punishes sellers who sell on other retail platforms at a lower price. They have a whole set of coercive and punitive outcomes for sellers who do that. You can basically disappear from Amazon's storefront if you put a lower price somewhere else. And for sellers, you know, given the significant shopper traffic on Amazon, if Amazon makes you disappear from that storefront, that can be quite fatal for your business. So this is really small businesses' survival that's on the line.
And so when Amazon says, hey, I'm going to punish you if you have lower prices elsewhere, businesses take that very seriously. And oftentimes, as a result, businesses have to set their artificially high Amazon price as a price floor across the internet. So not only are you paying more on Amazon, but our lawsuit alleges that people are actually paying more across the internet because of Amazon's illegal tactics.
SHAPIRO: We invited Amazon to provide somebody to speak with us. They declined. But the company's general counsel posted a response to the lawsuit on the website. And that response says in part, "if the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers and reduced options for small businesses, the opposite of what antitrust law is designed to do." That's a quote. How do you respond to that?
KHAN: Look, I recommend everybody to read the lawsuit. The introduction itself is quite short and readable. It's 10 pages. So I recommend people read our lawsuit and the tactics that we note, these anti-discounting schemes, this coercive tied that requires sellers to use Amazon's fulfillment service if they want to be able to access a decent amount of shoppers. These are all tactics that we allege are designed and have the effect of depriving any other actual or potential rival to Amazon from being able to get the scale needed to meaningfully compete. We allege...
SHAPIRO: But in terms of the statement saying if you win the lawsuit, there are going to be fewer products and higher prices, slower deliveries, etc. I mean, do you think that's factually true or false?
KHAN: Totally false. Our lawsuit is alleging that as a result of Amazon's illegal practices, people are paying higher prices. Consumers are paying more. Sellers are paying more. I mean, sellers are having to give over one of every $2 to Amazon. These are, many of them, small businesses with low margins. And so we absolutely believe that if we're successful, there will be honest and fair competition in the marketplace and the public will benefit. The public will benefit through lower prices, higher quality, greater selection, more innovation. And both shoppers and sellers will have more opportunity, right? I mean, if you go and read some of the seller comments, you really see how many of them live in fear of Amazon's conduct. And really, that's what our anti-monopoly laws were designed to prevent.
SHAPIRO: Many people were surprised to see that this suit does not specifically ask for a breakup of the company. You argued in a famous 2017 academic paper that the only way to restrain companies like Amazon is to break them up. Now, I know that your first step is that you need to prove in court that they broke the law. But if I were to ask you for the 10,000-foot view, do you think there is any way to get Amazon to fix all of the problems that you lay out here without breaking up the company?
KHAN: It's a good question. And as you noted, this complaint is focused on establishing liability. We do, in our prayer for relief, note that all options should be on the table, including structural relief. So that's certainly part of what's potentially contemplated here. Ultimately, any relief needs to stop the illegal tactics, prevent a recurrence and fully restore competition.
And one thing we note in the complaint is that in digital markets, the harms really aggregate. And you can have cumulative harms in ways that are greater than the sum of the individual parts. And so when you have an unlawful set of tactics over years and years and years - and as a result of those tactics, the gap and gulf between Amazon and everybody else is extremely vast - to actually fully restore competition might require significant relief. And so that's what the complaint is teed up for us to be able to argue to the judge.
SHAPIRO: There are several polls and surveys showing that Amazon is one of the most popular and trusted brands, even one of the most well-regarded institutions in the U.S. Just in our last minute, are there risks to bringing a massive lawsuit against a company that many people seem to love?
KHAN: Look, we follow the facts and the law where they take us. We believe that if you have open, fair, competitive markets, those are really what are best positioned to make sure the public is winning from competition. This is really about ensuring that the next set of Amazons are able to come into the market and fairly compete rather than be unfairly and unlawfully locked out of the market. So this is really about more competition, more types of Amazons, the next generation of Amazons being able to get a foothold in the market and compete and make life better for consumers, for sellers, for shoppers. And that's really what this lawsuit is designed to do.
SHAPIRO: Lina Khan, chair of the Federal Trade Commission, thank you so much for speaking with us.
KHAN: Thanks so much.
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