LINA M. KHAN

Amazon’s Antitrust Paradox
abstract . Amazon is the titan of twenty-ﬁrst century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit
lender, an auction house, a major book publisher, a producer of television and ﬁlms, a fashion
designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon
has clocked staggering growth, it generates meager proﬁts, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of ecommerce and now serves as essential infrastructure for a host of other businesses that depend
upon it. Elements of the ﬁrm’s structure and conduct pose anticompetitive concerns—yet it hasescaped antitrust scrutiny.
This Note argues that 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. We cannot cognize the potential harms tocompetition posed by Amazon’s dominance if we measure competition primarily through priceand output. Speciﬁcally, current doctrine underappreciates the risk of predatory pricing and how
integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets
create incentives for a company to pursue growth over proﬁts, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing
doctrine treats it as irrational and therefore implausible. Second, because online platforms serveas critical intermediaries, integrating across business lines positions these platforms to control
the essential infrastructure on which their rivals depend. This dual role also enables a platform to
exploit information collected on companies using its services to undermine them as competitors.
This Note maps out facets of Amazon’s dominance. Doing so enables us to make sense of its
business strategy, illuminates anticompetitive aspects of Amazon’s structure and conduct, andunderscores deﬁciencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon’s power: restoring traditional antitrust and competition policy
principles or applying common carrier obligations and duties.

author . I am deeply grateful to David Singh Grewal for encouraging me to pursue this project and to Barry C. Lynn for introducing me to these issues in the ﬁrst place. For thoughtful
feedback at various stages of this project, I am also grateful to Christopher R. Leslie, DanielMarkovits, Stacy Mitchell, Frank Pasquale, George Priest, Maurice Stucke, and Sandeep Vaheesan. Lastly, many thanks to Juliana Brint, Urja Mittal, and the Yale Law Journal staff for insightful comments and careful editing. All errors are my own.

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note contents
introduction

712

i. the chicago school revolution: the shift away fromcompetitive process and market structure

717

A. Predatory Pricing
B. Vertical Integration

722
731

ii. why competitive process and structure matter
A. Price and Output Effects Do Not Cover the Full Range of Threats toConsumer Welfare
B. Antitrust Laws Promote Competition To Serve a Variety of Interests

737
739

iii. amazon’s business strategy
A. Willingness To Forego Proﬁts To Establish Dominance
B. Expansion into Multiple Business Lines

746
747
754

iv. establishing structural dominance

755

737

A. Below-Cost Pricing of Bestseller E-Books and the Limits of Modern
Recoupment Analysis
B. Acquisition of Quidsi and Flawed Assumptions About Entry and Exit
Barriers
C. Amazon Delivery and Leveraging Dominance Across Sectors
D. Amazon Marketplace and Exploiting Data

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774
780

v. how platform economics and capital markets may facilitate
anticompetitive conduct and structures

784

vi. two models for addressing platform power

790

A. Governing Online Platform Markets Through Competition
1. Predatory Pricing
2. Vertical Integration
B. Governing Dominant Platforms as Monopolies Through Regulation
conclusion

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790
791
792
797
802

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126:7102017“Even as Amazon became one of the largest retailers in the country, it neverseemed interested in charging enough to make a proﬁt. Customers celebrated
and the competition languished.”—THE NEW YORK TIMES1“[O]ne of Mr. Rockefeller’s most impressive characteristics is patience.”—IDA TARBELL, A HISTORY OF THE STANDARD OIL COMPANY2
introduction
In Amazon’s early years, a running joke among Wall Street analysts wasthat CEO Jeff Bezos was building a house of cards. Entering its sixth year in
2000, the company had yet to crack a proﬁt and was mounting millions of dollars in continuous losses, each quarter’s larger than the last. Nevertheless, asegment of shareholders believed that by dumping money into advertising andsteep discounts, Amazon was making a sound investment that would yield returns once e-commerce took off. Each quarter the company would report losses, and its stock price would rise. One news site captured the split sentiment by
asking, “Amazon: Ponzi Scheme or Wal-Mart of the Web?”3
Sixteen years on, nobody seriously doubts that Amazon is anything but thetitan of twenty-ﬁrst century commerce. In 2015, it earned $107 billion in revenue,4 and, as of 2013, it sold more than its next twelve online competitors combined.5 By some estimates, Amazon now captures 46% of online shopping,

1.

2.
3.

4.

5.

712

David Streitfeld, As Competition Wanes, Amazon Cuts Back Discounts, N.Y. TIMES (July4, 2013), http://www.nytimes.com/2013/07/05/business/as-competition-wanes-amazon-cuts-back-its-discounts.html [http://perma.cc/J48L-8CPZ].
Ida Tarbell, John D. Rockefeller: A Character Study, 25 MCCLURE’S MAG. 227, 245 (1905).
Amazon: Ponzi Scheme or Wal-Mart of the Web?, SLATE: MONEYBOX (Feb. 8, 2000, 5:52
PM), http://www.slate.com/articles/business/moneybox/2000/02/amazon_ponzi_scheme_or_walmart_of_the_web.html [http://perma.cc/XQ22-YR9K].
Allison Enright, Amazon Sales Climb 22% in Q4 and 20% in 2015, INTERNET RETAILER (Jan.
28, 2016, 4:06 PM), http://www.internetretailer.com/2016/01/28/amazon-sales-climb-22-q4-and-20-2015 [http://perma.cc/N6S3-XTSB].
Shelly Banjo & Paul Ziobro, After Decades of Toil, Web Services Remain Small for
Many Retailers, WALL ST. J. (Aug. 27, 2013, 8:31 PM), http://www.wsj.com/articles/SB10001424127887324906304579039101568397122 [http://perma.cc/C8Q J-JYRN].

amazon's antitrust paradox

with its share growing faster than the sector as a whole.6 In addition to being a
retailer, it is a marketing platform, a delivery and logistics network, a payment
service, a credit lender, an auction house, a major book publisher, a producer of
television and ﬁlms, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power. Although Amazon
has clocked staggering growth—reporting double-digit increases in net sales
yearly—it reports meager proﬁts, choosing to invest aggressively instead. The
company listed consistent losses for the ﬁrst seven years it was in business,with debts of $2 billion.7 While it exits the red more regularly now,8 negative
returns are still common. The company reported losses in two of the last ﬁve
years, for example, and its highest yearly net income was still less than 1% of its
net sales.9
Despite the company’s history of thin returns, investors have zealously
backed it: Amazon’s shares trade at over 900 times diluted earnings, making it
the most expensive stock in the Standard & Poor’s 500.10 As one reporter marveled, “The company barely ekes out a proﬁt, spends a fortune on expansion
and free shipping and is famously opaque about its business operations. Yet in-

6.

Olivia LaVecchia & Stacy Mitchell, Amazon’s Stranglehold: How the Company’s Tightening Grip
Is Stiﬂing Competition, Eroding Jobs, and Threatening Communities, INST. FOR LOC. SELFRELIANCE 10 (Nov. 2016), http://ilsr.org/wp-content/uploads/2016/11/ILSR_Amazon
Report_ﬁnal.pdf [http://perma.cc/A4ND-2NDJ].
7.
Amazon Posts a Proﬁt, CNN MONEY (Jan. 22, 2002, 3:39 PM), http://money.cnn.com/2002/01/22/technology/amazon [http://perma.cc/SMF3-2UCK].
8. Partly due to the success of Amazon Web Services, Amazon has recently begun reporting
consistent proﬁts. See Nick Wingﬁeld, Amazon’s Cloud Business Lifts Its Proﬁt to a Record,
N.Y. TIMES (Apr. 28, 2016), http://www.nytimes.com/2016/04/29/technology/amazon-q1-earnings.html [http://perma.cc/ZHL6-JEZU]. Though this trend departs from the history on which I focus, my analysis stands given that I am interested in (1) the losses Amazon
formerly undertook to establish dominant positions in certain sectors, (2) the investor backing and enthusiasm that Amazon consistently maintained despite these losses, and (3)whether these facts challenge the assumption—embedded in current doctrine—that losing
money is only desirable (and hence rational) if followed by recoupment. See id. (“Amazon
often ﬂip-ﬂops between showing proﬁts and losses, depending on how aggressively it decides to plow money into big new business bets. Investors have granted the company muchwider leeway to do so than other technology companies of its size often receive, because of
its history of delivering outsize growth.”); see also infra Part III.
9. Amazon.com, Inc., Annual Report (Form 10-K) 17 (Jan. 29, 2016), http://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn-20151231x10k.htm [http://
perma.cc/GB6A-YWZT].
10. Matt Krantz, Amazon Breaks Barrier: Now Most Costly Stock, USA TODAY (Nov. 11, 2015,
5:16 PM), http://www.usatoday.com/story/money/markets/2015/11/11/amazon-pe-ratio-valuation-price/75519460 [http://perma.cc/P5BA-5REB].

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126:7102017vestors . . . pour into the stock.”11 Another commented that Amazon is in “aclass of its own when it comes to valuation.”12
Reporters and ﬁnancial analysts continue to speculate about when and how
Amazon’s deep investments and steep losses will pay off.13 Customers, meanwhile, universally seem to love the company. Close to half of all online buyers
go directly to Amazon ﬁrst to search for products,14 and in 2016, the Reputation Institute named the ﬁrm the “most reputable company in America” for thethird year running.15 In recent years, journalists have exposed the aggressive
business tactics Amazon employs. For instance Amazon named one campaign“The Gazelle Project,” a strategy whereby Amazon would approach small publishers “the way a cheetah would a sickly gazelle.”16 This, as well as other re-

11.

12.

13.

14.

15.

16.

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Meagan Clark & Angelo Young, Amazon: Nearly 20 Years in Business and It Still Doesn’t Make
Money, but Investors Don’t Seem To Care, INT’L BUS. TIMES (Dec. 18, 2013, 10:37 AM), http://
www.ibtimes.com/amazon-nearly-20-years-business-it-still-doesnt-make-money-investors-dont-seem-care-1513368 [http://perma.cc/6NMH-HNC4].
Krantz, supra note 10 (“Amazon’s [price/earnings ratio] isn’t just high relative to the market—but the stock is richly valued even if the company achieves the high expectations investors have. Amazon’s [price/earnings ratio] is now 14 times higher than the astounding 67%
annual growth analysts expect long term from the company. That’s an off-the-charts valuation using traditional rules of thumb. Investors start to think a stock is pricey when its[price/earnings ratio] is just 2 times its expected growth rate.”).
See, e.g., Farhad Manjoo, How Amazon’s Long Game Yielded a Retail Juggernaut, N.Y.
TIMES (Nov. 18, 2015), http://www.nytimes.com/2015/11/19/technology/how-amazons-long-game-yielded-a-retail-juggernaut.html [http://perma.cc/62WG-KQ67] (“For years,
observers have wondered if Amazon’s shopping business—you know, its main business—
could ever really work. Investors gave Mr. Bezos enormous leeway to spend billions buildingout a distribution-center infrastructure, but it remained a semi-open question if the scale
and pace of investments would ever pay off. Could this company ever make a whole lot ofmoney selling so much for so little?”).
Sam Moore, Amazon Commands Nearly Half of Consumers’ First Product Search, BLOOMREACH (Oct. 6, 2015), http://bloomreach.com/2015/10/amazon-commands-nearly-half-of-consumers-ﬁrst-product-search [http://perma.cc/LVD9-F6W9].
Karsten Strauss, America’s Most Reputable Companies, 2016: Amazon Tops the List, FORBES(Mar. 29, 2016, 12:00 PM), http://www.forbes.com/sites/karstenstrauss/2016/03/29/americas-most-reputable-companies-2016-amazon-tops-the-list [http://perma.cc/MN74-K3NB]; see also Melissa Hoffmann, Amazon Has the Best Consumer Perception of Any Brand,
ADWEEK (July 16, 2014), http://www.adweek.com/news/advertising-branding/amazon-has-best-consumer-perception-any-brand-158945 [http://perma.cc/FG7W-YD7N] (observing that Amazon continues to be the best-perceived brand despite negative news reports).
David Streitfeld, A New Book Portrays Amazon as Bully, N.Y. TIMES: BITS BLOG (Oct. 22,
2013, 6:00 AM), http://bits.blogs.nytimes.com/2013/10/22/a-new-book-portrays-amazon-as-bully [http://perma.cc/E893-5EEN].

amazon's antitrust paradox

porting,17 drew widespread attention,18 perhaps because it offered a glimpse at
the potential social costs of Amazon’s dominance. The ﬁrm’s highly public dispute with Hachette in 2014—in which Amazon delisted the publisher’s books
from its website during business negotiations—similarly generated extensive
press scrutiny and dialogue.19 More generally, there is growing public awareness that Amazon has established itself as an essential part of the internet economy,20 and a gnawing sense that its dominance—its sheer scale and breadth—
may pose hazards.21 But when pressed on why, critics often fumble to explain

17.

18.
19.

20.

21.

An article on Amazon’s treatment of workers in its warehouses, see Spencer Soper, Inside
Amazon’s Warehouse, MORNING CALL (Aug. 17, 2015, 12:13 PM), http://www.mcall.com/news/local/amazon/mc-allentown-amazon-complaints-20110917-story.html[http://perma.cc/6BXK-RPCX], was a ﬁnalist for the prestigious Loeb Award, see Morning Call’s Watchdog
Journalism Recognized, MORNING CALL (June 2, 2012), http://articles.mcall.com/2012-06-02/news/mc-morning-call-keystones-20120602_1_amazon-warehouse-gas-explosion-key
stone-press-awards [http://perma.cc/9F3E-EBZS]. A New York Times piece on Amazon’s
white-collar workplace generated more than ﬁve million page views, ranking among theTimes’s most-read pieces of 2015. See Nick Wingﬁeld & Ravi Somaiya, Amazon Spars with theTimes over Investigative Article, N.Y. TIMES (Oct. 19, 2015), http://www.nytimes.com/2015/10/20/business/amazon-spars-with-the-times-over-investigative-article.html [http://perma.cc/VDG6-WZZQ].
David Streitfeld, supra note 16.
See Paul Krugman, Amazon’s Monopsony Is Not O.K., N.Y. TIMES (Oct. 19, 2014), http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html[http://perma.cc/KJ2E-8ZPX] (“Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”).
See Farhad Manjoo, Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future, N.Y.
TIMES (Jan. 20, 2016), http://www.nytimes.com/2016/01/21/technology/techs-frightful-5-will-dominate-digital-life-for-foreseeable-future.html [http://perma.cc/YH6N-KG6J](“By just about every measure worth collecting, these ﬁve American consumer technology
companies [Amazon, Apple, Facebook, Google, and Microsoft] are getting larger, more entrenched in their own sectors, more powerful in new sectors and better insulated against
surprising competition from upstarts. Though competition between the ﬁve remains
ﬁerce—and each year, a few of them seem up and a few down—it’s becoming harder to picture how any one of them, let alone two or three, may cede their growing clout in every aspect of American business and society.”); Brooke Masters, Hooked on a Feeling that Amazon Is
Too Addictive by Far, FIN. TIMES (Mar. 11, 2016), http://www.ft.com/intl/cms/s/0/d2d2e376-e768-11e5-bc31-138df2ae9ee6.html [http://perma.cc/X25D-6NTS].
At a recent hearing held by the Senate Judiciary Committee’s Subcommittee on Antitrust,Competition Policy, and Consumer Rights, both Republican and Democratic senators interrogated Assistant Attorney General for Antitrust Bill Baer and Federal Trade Commission(FTC) Chair Edith Ramirez about their treatment of online platforms, and urged the Department of Justice (DOJ) and FTC to study closely the anticompetitive hazards these dominant ﬁrms may pose. See Oversight of the Enforcement of the Antitrust Laws: Hearing Before theSubcomm. on Antitrust, Competition Policy & Consumer Rights of the S. Comm. on the Judiciary,
114th Cong. (2016); see also Oversight of the Antitrust Enforcement Agencies: Hearing Before the

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how a company that has so clearly delivered enormous beneﬁts to consumers—
not to mention revolutionized e-commerce in general—could, at the end of theday, threaten our markets. Trying to make sense of the contradiction, one journalist noted that the critics’ argument seems to be that “even though Amazon’s
activities tend to reduce book prices, which is considered good for consumers,
they ultimately hurt consumers.”22
In some ways, the story of Amazon’s sustained and growing dominance isalso the story of changes in our antitrust laws. Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition
largely with an eye to the short-term interests of consumers, not producers or
the health of the market as a whole; antitrust doctrine views low consumer
prices, alone, to be evidence of sound competition. By this measure, Amazon
has excelled; it has evaded government scrutiny in part through fervently devoting its business strategy and rhetoric to reducing prices for consumers. Amazon’s closest encounter with antitrust authorities was when the Justice Department sued other companies for teaming up against Amazon.23 It is as if
Bezos charted the company’s growth by ﬁrst drawing a map of antitrust laws,
and then devising routes to smoothly bypass them. With its missionary zeal for
consumers, Amazon has marched toward monopoly by singing the tune ofcontemporary antitrust.
This Note maps out facets of Amazon’s power. In particular, it traces thesources of Amazon’s growth and analyzes the potential effects of its dominance.
Doing so enables us to make sense of the company’s business strategy and illuminates anticompetitive aspects of its structure and conduct. This analysis
reveals that the current framework in antitrust—speciﬁcally its equating competition with “consumer welfare,” typically measured through short-term
effects on price and output24—fails to capture the architecture of market powerin the twenty-ﬁrst century marketplace. In other words, the potential harms tocompetition posed by Amazon’s dominance are not cognizable if we assess

Subcomm. on Regulatory Reform, Commercial & Antitrust Law of the H. Comm. on the Judiciary,
114th Cong. (2015).
22. Vauhini Vara, Is Amazon Creating a Cultural Monopoly?, NEW YORKER (Aug. 23,
2015), http://www.newyorker.com/business/currency/is-amazon-creating-a-cultural-mono
poly [http://perma.cc/VZ84-8UX8].
23. See United States v. Apple Inc., 952 F. Supp. 2d 638, 650 (S.D.N.Y. 2013).
24. See, e.g., Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 10708 (1984) (“‘Congress designed the Sherman Act as a ‘consumer welfare prescription.’ . . .
Restrictions on price and output are the paradigmatic examples of restraints of trade that theSherman Act was intended to prohibit.” (quoting Reiter v. Sonotone Corp., 442 U.S. 330,
343 (1979))); see also infra Part I.

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competition primarily through price and output. Focusing on these metrics instead blinds us to the potential hazards.
My argument is that gauging real competition in the twenty-ﬁrst century
marketplace—especially in the case of online platforms—requires analyzing theunderlying structure and dynamics of markets. Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive
process itself. Animating this framework is the idea that a company’s power
and the potential anticompetitive nature of that power cannot be fully understood without looking to the structure of a business and the structural role itplays in markets. Applying this idea involves, for example, assessing whether acompany’s structure creates certain anticompetitive conﬂicts of interest; whether it can cross-leverage market advantages across distinct lines of business; andwhether the structure of the market incentivizes and permits predatory conduct.
This is the approach I adopt in this Note. I begin by exploring—and challenging—modern antitrust law’s treatment of market structure. Part I gives an
overview of the shift in antitrust away from economic structuralism in favor of
price theory and identiﬁes how this departure has played out in two areas ofenforcement: predatory pricing and vertical integration. Part II questions thisnarrow focus on consumer welfare as largely measured by prices, arguing thatassessing structure is vital to protect important antitrust values. The Note thenuses the lens of market structure to reveal anticompetitive aspects of Amazon’s
strategy and conduct. Part III documents Amazon’s history of aggressive investing and loss leading, its company strategy, and its integration across many linesof business. Part IV identiﬁes two instances in which Amazon has built elements of its business through sustained losses, crippling its rivals, and two instances in which Amazon’s activity across multiple business lines poses anticompetitive threats in ways that the current framework fails to register. The
Note then assesses how antitrust law can address the challenges raised byonline platforms like Amazon. Part V considers what capital markets suggest
about the economics of Amazon and other internet platforms. Part VI offers
two approaches for addressing the power of dominant platforms: (1) limiting
their dominance through restoring traditional antitrust and competition policy
principles and (2) regulating their dominance by applying common carrier obligations and duties.
i. the chicago school revolution: the shift away fromcompetitive process and market structure
One of the most signiﬁcant changes in antitrust law and interpretation overthe last century has been the move away from economic structuralism. In this717

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Part, I trace this history by sketching out how a structure-based view of competition has been replaced by price theory and exploring how this shift has playedout through changes in doctrine and enforcement.
Broadly, economic structuralism rests on the idea that concentrated market
structures promote anticompetitive forms of conduct.25 This view holds that amarket dominated by a very small number of large companies is likely to beless competitive than a market populated with many small- and medium-sizedcompanies. This is because: (1) monopolistic and oligopolistic market structures enable dominant actors to coordinate with greater ease and subtlety, facilitating conduct like price-ﬁxing, market division, and tacit collusion; (2) monopolistic and oligopolistic ﬁrms can use their existing dominance to block
new entrants; and (3) monopolistic and oligopolistic ﬁrms have greater bargaining power against consumers, suppliers, and workers, which enables themto hike prices and degrade service and quality while maintaining proﬁts.
This market structure-based understanding of competition was a foundation of antitrust thought and policy through the 1960s. Subscribing to thisview, courts blocked mergers that they determined would lead to anticompetitive market structures. In some instances, this meant halting horizontal deals—
mergers combining two direct competitors operating in the same market or
product line—that would have handed the new entity a large share of the market.26 In others, it involved rejecting vertical mergers—deals joining companies
that operated in different tiers of the same supply or production chain—that
would “foreclose competition.”27 Centrally, this approach involved policing notjust for size but also for conﬂicts of interest—like whether allowing a dominantshoe manufacturer to extend into shoe retailing would create an incentive forthe manufacturer to disadvantage or discriminate against competing retailers.28
The Chicago School approach to antitrust, which gained mainstream
prominence and credibility in the 1970s and 1980s, rejected this structuralist

25.

See, e.g., JOE S. BAIN, INDUSTRIAL ORGANIZATION (2d ed. 1968); DONALD F. TURNER & CARLKAYSEN, ANTITRUST POLICY: AN ECONOMIC AND LEGAL ANALYSIS (1959); Joe S. Bain, Workable Competition in Oligopoly: Theoretical Considerations and Some Empirical Evidence, 40 AM.
ECON. REV. 35, 36-38 (1950). The institutionalists—scholars who emphasized the importance of social rules and organizations in producing economic outcomes—were also inﬂuential in this vein. See, e.g., JOHN R. COMMONS, LEGAL FOUNDATIONS OF CAPITALISM(1924).
26. See, e.g., United States v. Phila. Nat’l Bank, 374 U.S. 321, 364-65 (1963).
27. See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 328-34 (1962).
28. See id.

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view.29 In the words of Richard Posner, the essence of the Chicago School position is that “the proper lens for viewing antitrust problems is price theory.”30
Foundational to this view is a faith in the efficiency of markets, propelled by
proﬁt-maximizing actors. The Chicago School approach bases its vision of industrial organization on a simple theoretical premise: “[R]ational economic actors working within the conﬁnes of the market seek to maximize proﬁts bycombining inputs in the most efficient manner. A failure to act in this fashion
will be punished by the competitive forces of the market.”31
While economic structuralists believe that industrial structure predisposes
ﬁrms toward certain forms of behavior that then steer market outcomes, theChicago School presumes that market outcomes—including ﬁrm size, industry
structure, and concentration levels—reﬂect the interplay of standalone market
forces and the technical demands of production.32 In other words, economic
structuralists take industry structure as an entryway for understanding market
dynamics, while the Chicago School holds that industry structure merely reﬂects such dynamics. For the Chicago School, “[w]hat exists is ultimately thebest guide to what should exist.”33
Practically, the shift from structuralism to price theory had two major ramiﬁcations for antitrust analysis. First, it led to a signiﬁcant narrowing of theconcept of entry barriers. An entry barrier is a cost that must be borne by a ﬁrm
seeking to enter an industry but is not carried by ﬁrms already in the industry.34 According to the Chicago School, advantages that incumbents enjoy from
economies of scale, capital requirements, and product differentiation do not

29.

30.

31.
32.
33.
34.

I use “The Chicago School” to refer to the group of legal scholars and economists, primarily
based at the University of Chicago, who developed neoclassical law and economics in the
mid-twentieth century. But it is worth noting that a new group of scholars at the Universityof Chicago—such as Luigi Zingales and Guy Rolnik—have departed from the neoclassicalapproach and are studying market competition with an eye to power. See, e.g., RAGHURAM
RAJAN & LUIGI ZINGALES, SAVING CAPITALISM FROM THE CAPITALISTS (2003). See generally
PROMARKET, http://promarket.org/about-this-blog [http://perma.cc/G3CD-45K2] (“Thisis the goal of the ‘ProMarket blog’: to educate the public about the many ways special interests subvert competition in order to make the market system work better.”).
Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV. 925, 932(1979). The key assumptions of price theory are “that demand curves slope downward, thatan increase in the price of a product will reduce the demand for its complement, [and] that
resources gravitate to areas where they will earn the highest return.” Id. at 928.
MARC ALLEN EISNER, ANTITRUST AND THE TRIUMPH OF ECONOMICS: INSTITUTIONS, EXPERTISE, AND POLICY CHANGE 107 (1991).
See ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF (1978).
EISNER, supra note 31, at 104.
GEORGE J. STIGLER, THE ORGANIZATION OF INDUSTRY 67 (1968).

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constitute entry barriers, as these factors are considered to reﬂect no more thanthe “objective technical demands of production and distribution.”35 With somany “entry barriers . . . discounted, all ﬁrms are subject to the threat of potential competition . . . regardless of the number of ﬁrms or levels of concentration.”36 On this view, market power is always ﬂeeting—and hence antitrust enforcement rarely needed.
The second consequence of the shift away from structuralism was that consumer prices became the dominant metric for assessing competition. In hishighly inﬂuential work, The Antitrust Paradox, Robert Bork asserted that thesole normative objective of antitrust should be to maximize consumer welfare,best pursued through promoting economic efficiency.37 Although Bork used“consumer welfare” to mean “allocative efficiency,”38 courts and antitrust authorities have largely measured it through effects on consumer prices. In 1979,
the Supreme Court followed Bork’s work and declared that “Congress designed

35.

EISNER, supra note 31, at 105.
Id.
37. BORK, supra note 32, at 7 (“[T]he only legitimate goal of antitrust is the maximization of
consumer welfare.”); id. at 405 (“The only goal that should guide interpretation of the antitrust laws is the welfare of consumers . . . . In judging consumer welfare, productive efficiency, the single most important factor contributing to that welfare, must be given due weight
along with allocative efficiency.”); see also Daniel A. Crane, The Tempting of Antitrust: Robert
Bork and the Goals of Antitrust Policy, 79 ANTITRUST L.J. 835, 847 (2014) (“Bork’s big move[was] his rejection of alternatives to efficiency or consumer welfare-oriented theories of antitrust enforcement . . . .”).
38. As has been widely noted, Bork deﬁnes consumer welfare not as consumer surplus but as
total welfare. As a result, for Bork, outcomes that might otherwise be understood to harm
consumers are not thought to reduce consumer welfare. For example, Bork concludes that
wealth transfers from consumers to monopolist producers would not harm consumer welfare. See BORK, supra note 32, at 110 (“Those who continue to buy after a monopoly isformed pay more for the same output, and that shifts income from them to the monopoly
and its owners, who are also consumers. This is not dead-weight loss due to restriction of
output but merely a shift in income between two classes of consumers. The consumer welfare model, which views consumers as a collectivity, does not take this income effect into account.”). For critiques of Bork’s conﬂation of consumer welfare and allocative efficiency, seeJohn J. Flynn, The Reagan Administration’s Antitrust Policy, “Original Intent” and the Legislative
History of the Sherman Act, 33 ANTITRUST BULL. 259 (1988); Eleanor M. Fox, The Modernization of Antitrust: A New Equilibrium, 66 CORNELL L. REV. 1140 (1981); Herbert Hovenkamp,
Antitrust’s Protected Classes, 88 MICH. L. REV. 1 (1989); Robert H. Lande, A Traditional andTextualist Analysis of the Goals of Antitrust: Efficiency, Preventing Theft from Consumers, andConsumer Choice, 81 FORDHAM L. REV. 2349 (2013) [hereinafter Lande, A Traditional and Textualist Analysis]; Robert H. Lande, Wealth Transfers as the Original and Primary Concern of
Antitrust: The Efficiency Interpretation Challenged, 34 HASTINGS L.J. 65 (1982) [hereinafter
Lande, Wealth Transfers]; and Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C. L.
REV. 551 (2012).
36.

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the Sherman Act as a ‘consumer welfare prescription’”39—a statement that is
widely viewed as erroneous.40 Still, this philosophy wound its way into policy
and doctrine. The 1982 merger guidelines issued by the Reagan Administration—a radical departure from the previous guidelines, written in 1968—
reﬂected this newfound focus. While the 1968 guidelines had established thatthe “primary role” of merger enforcement was “to preserve and promote market structures conducive to competition,”41 the 1982 guidelines said mergers“should not be permitted to create or enhance ‘market power,’” deﬁned as the“ability of one or more ﬁrms proﬁtably to maintain prices above competitive
levels.”42 Today, showing antitrust injury requires showing harm to consumer
welfare, generally in the form of price increases and output restrictions.43
It is true that antitrust authorities do not ignore non-price effects entirely.
The 2010 Horizontal Merger Guidelines, for example, acknowledge that enhanced market power can manifest as non-price harms, including in the formof reduced product quality, reduced product variety, reduced service, or diminished innovation.44 Notably, the Obama Administration’s opposition to one of
the largest mergers proposed on its watch—Comcast/TimeWarner—stemmed
from a concern about market access, not prices.45 And by some measures, the

39.
40.
41.

42.
43.

44.

45.

Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (quoting Bork, supra note 32, at 66).
See Barak Orbach, Foreword: Antitrust’s Pursuit of Purpose, 81 FORDHAM L. REV. 2151, 2152
(2013).
1968 Merger Guidelines, U.S. DEP’T JUST. 1 (1968), http://www.justice.gov/sites/default/ﬁles/atr/legacy/2007/07/11/11247.pdf [http://perma.cc/884H-BGUH]. The guidelines continue, “Market structure is the focus of the Department’s merger policy chieﬂy because theconduct of the individual ﬁrms in a market tends to be controlled by the structure of thatmarket.” Id.
1982 Merger Guidelines, U.S. DEP’T JUST. 2 (1982), http://www.justice.gov/sites/default/ﬁles/atr/legacy/2007/07/11/11248.pdf [http://perma.cc/7J32-ZQLY].
See, e.g., Ginzburg v. Mem’l Healthcare Sys., Inc., 993 F. Supp. 998, 1015 (S.D. Tex. 1997)(“[B]ecause ‘the purpose of antitrust law is the promotion of consumer welfare,’ the court
must analyze the antitrust injury question from the perspective of the consumer . . . . Thus,in order to show that he suffered an antitrust injury, ‘an antitrust plaintiff must prove thatthe challenged conduct affected the prices, quantity or quality of goods or services and notjust his own welfare.’” (quoting Reazin v. Blue Cross & Blue Shield of Kan., 899 F.2d 951,
960 (10th Cir. 1990); Angelico v. Lehigh Valley Hosp., Inc., 984 F. Supp. 308, 312 (E.D. Pa.
1997))).
Horizontal Merger Guidelines, U.S. DEP’T JUST. & FTC (Aug. 19, 2010), http://www.ftc.gov/sites/default/ﬁles/attachments/merger-review/100819hmg.pdf [http://perma.cc/SQ8HAB7P].
See Emily Steel, Under Regulators’ Scrutiny, Comcast and Time Warner Cable End Deal,
N.Y. TIMES (Apr. 24, 2015), http://www.nytimes.com/2015/04/25/business/media/comcast-time-warner-cable-deal.html [http://perma.cc/H4XS-9LMY].

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Federal Trade Commission (FTC) has alleged potential harm to innovation inroughly one-third of merger enforcement actions in the last decade.46 Still, it isfair to say that a concern for innovation or non-price effects rarely animates ordrives investigations or enforcement actions—especially outside of the merger
context.47 Economic factors that are easier to measure—such as impacts on
price, output, or productive efficiency in narrowly deﬁned markets—have become “disproportionately important.”48
Two areas of enforcement that this reorientation has affected dramaticallyare predatory pricing and vertical integration. The Chicago School claims that
“predatory pricing, vertical integration, and tying arrangements never or almost never reduce consumer welfare.”49 Both predatory pricing and vertical integration are highly relevant to analyzing Amazon’s path to dominance and thesource of its power. Below, I offer a brief overview of how the Chicago School’s
inﬂuence has shaped predatory pricing doctrine and enforcers’ views of vertical
integration.
A. Predatory Pricing
Through the mid-twentieth century, Congress repeatedly enacted legislation targeting predatory pricing. Congress, as well as state legislatures, viewed
predatory pricing as a tactic used by highly capitalized ﬁrms to bankrupt rivals
and destroy competition—in other words, as a tool to concentrate control.
Laws prohibiting predatory pricing were part of a larger arrangement of pricing laws that sought to distribute power and opportunity. However, a controversial Supreme Court decision in the 1960s created an opening for critics toattack the regime. This intellectual backlash wound its way into Supreme
Court doctrine by the early 1990s in the form of the restrictive “recoupment
test.”

46.

Edith Ramirez, Chairwoman, FTC, Keynote Remarks at 10th Annual Global Antitrust Enforcement Symposium (Sept. 20, 2016) (citing Richard J. Gilbert & Hillary Greene,
Merging Innovation into Antitrust Agency Enforcement of the Clayton Act, 83 GEO. WASH. L.
REV. 1919, 1933 (2015)), http://www.ftc.gov/public-statements/2016/09/keynote-remarks-ftc-chairwoman-edith-ramirez [http://perma.cc/FNS8-6FL9].
47. And even merger review has “migrated towards assessing what is measurable—namely
short-term pricing effects, primarily understood under their unilateral effects theory, andshort-term productive efficiencies.” MAURICE E. STUCKE & ALLEN P. GRUNES, BIG DATA AND
COMPETITION POLICY 107 (2016). “Price has become the common denominator in merger review.” Id. at 109.
48. Id. at 108.
49. Crane, supra note 37, at 852.

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The earliest predatory pricing case in America was the government’s antitrust suit against Standard Oil, which reached the Supreme Court in 1911.50 As
detailed in Ida Tarbell’s exposé, A History of the Standard Oil Company, Standard
Oil routinely slashed prices in order to drive rivals from the market.51 Moreover, it cross-subsidized: Standard Oil charged monopoly prices52 in markets
where it faced no competitors; in markets where rivals checked the company’s
dominance, it drastically lowered prices in an effort to push them out. In its antitrust case against the company, the government argued that a suite of practices by Standard Oil—including predatory pricing—violated section 2 of theSherman Act. The Supreme Court ruled for the government and ordered thebreak-up of the company.53 Subsequent courts cited the decision for establishing that in the quest for monopoly power, “price cutting became perhaps themost effective weapon of the larger corporation.”54
Recognizing the threat of predatory pricing executed by Standard Oil,
Congress passed a series of laws prohibiting such conduct. In 1914 Congressenacted the Clayton Act55 to strengthen the Sherman Act and included a provision to curb price discrimination and predatory pricing.56 The House Reportstated that section 2 of the Clayton Act was expressly designed to prohibit large
corporations from slashing prices below the cost of production “with the intent
to destroy and make unproﬁtable the business of their competitors” and withthe aim of “acquiring a monopoly in the particular locality or section in which
the discriminating price is made.”57

50.
51.
52.
53.
54.
55.
56.

57.

See Christopher R. Leslie, Revisiting the Revisionist History of Standard Oil, 85 S. CAL. L. REV.
573, 575 (2012).
See IDA TARBELL, A HISTORY OF THE STANDARD OIL COMPANY 6-7 (1904).
Monopoly price refers to the price proﬁtably above cost that a ﬁrm with monopoly power
can charge.
Standard Oil Co. v. United States, 22 U.S. 1 (1911).
Leslie, supra note 50, at 576 (quoting United States v. A. Schrader’s Son, 264 F. 175, 181 (D.
Ohio 1919), rev’d, 252 U.S. 85 (1920)).
Ch. 323, 38 Stat. 730 (1914) (codiﬁed as amended at 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53(2012)).
This legislative history makes plain that section 2 of the Clayton Act “was born of a desire by
Congress to curb the use by ﬁnancially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers.” FTC v. Anheuser–
Busch, Inc., 363 U.S. 536, 543 (1959).
H.R. REP. NO. 63-627, at 8 (1914). Section 2 of the Clayton Act made it “unlawful for a ﬁrm
to charge a low price in a targeted community while selling similar goods at a higher priceelsewhere.” Herbert J. Hovenkamp, United States Competition Policy in Crisis: 1890-1955, 94
MINN. L. REV. 311, 363 (2009).

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Congress also acted to protect state “fair trade” laws that further safeguarded against predatory pricing. Fair trade legislation granted producers the rightto set the ﬁnal retail price of their goods, limiting the ability of chain stores todiscount.58 When the Supreme Court targeted these “resale price maintenance”
efforts, Congress stepped up to defend them. After the Supreme Court in 1911
struck down the form of resale price maintenance enabled by fair trade laws,59
Congress in 1937 carved out an exception for state fair trade laws through theMiller-Tydings Act.60 When the Supreme Court in 1951 ruled that producers
could enforce minimum prices only against those retailers that had signed contracts agreeing to do so,61 Congress responded with a law making minimum
prices enforceable against nonsigners too.62
Another byproduct of the “fair trade” movement was the Robinson-Patman
Act of 1936. This Act prohibited price discrimination by retailers among producers and by producers among retailers.63 Its aim was to prevent conglomerates and large companies from using their buyer power to extract crippling discounts from smaller entities, and to keep large manufacturers and retailers
from teaming up against rivals.64 Like laws banning predatory pricing, theprohibition against price discrimination effectively curbed the power of size.
Section 3 of the Act addressed predatory pricing directly by making it a crime
to sell goods at “unreasonably low prices for the purpose of destroying competition or eliminating a competitor.”65 While predatory price cutting gave rise tocivil liability and remedies under the Clayton Act, the Robinson-Patman Act
attached criminal penalties as well.66
This series of antitrust laws demonstrates that Congress saw predatory
pricing as a serious threat to competitive markets. By the mid-twentieth century, the Supreme Court recognized and gave effect to this congressional intent.

58.

Lawrence Shepard, The Economic Effects of Repealing Fair Trade Laws, 12 J. CONSUMER AFF.
220, 221 (1978) (“Fair trade marketing or ‘resale price maintenance’ enabled manufacturers
to require retailers to charge producer-speciﬁed prices on certain goods.”).
59. See Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).
60. Pub. L. No. 75-314, 50 Stat. 693 (1937).
61. Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951).
62. McGuire Act, Pub. L. No. 82-542, 66 Stat. 632 (1952).
63. Pub. L. No. 74-692, 49 Stat. 1526 (codiﬁed as amended at 15 U.S.C. §§ 13, 21 (2012)).
64. See FTC v. Henry Broch & Co., 363 U.S. 166, 168 (1960) (“The Robinson-Patman Act wasenacted in 1936 to curb and prohibit all devices by which large buyers gained discriminatory
preferences over smaller ones by virtue of their greater purchasing power.”).
65. 15 U.S.C. § 13(a) (2012).
66. § 3, 49 Stat. at 1528.

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The Court upheld the Robinson-Patman Act numerous times, holding that therelevant factors were whether a retailer intended to destroy competition
through its pricing practices and whether its conduct furthered that purpose.67
However, not all instances of below-cost pricing were illegitimate. Liquidatingexcess or perishable goods, for example, was considered fair game.68 Only“sales made below cost without legitimate commercial objective and with speciﬁc intent to destroy competition” would clearly violate section 3.69 In othercases, the Court distinguished between competitive advantages drawn fromsuperior skill and production, and those drawn from the brute power of sizeand capital.70 The latter, the Court ruled, were illegitimate.71
In Utah Pie Co. v. Continental Baking Co., the Court further reinforced theillegitimacy of predatory pricing.72 Utah Pie and Continental Baking werecompeting manufacturers of frozen dessert pies. A locational advantage gave
Utah Pie cheaper access to the Salt Lake City market, which it used to pricegoods below those sold by competitors. Other frozen pie manufacturers, including Continental, began selling at below-cost prices in the Salt Lake City
market, while keeping prices in other regions at or above cost. Utah Piebrought a predatory pricing case against Continental. The Supreme Court
ruled for Utah Pie, noting that the pricing strategies of its competitors had diverted business from Utah Pie and compelled the company to further lower its
prices, leading to a “declining price structure” overall.73 Additionally, Continental had admitted to sending an industrial spy to Utah Pie’s plant to gain infor-

67.

See United States v. Nat’l Dairy Prods. Corp., 372 U.S. 29, 35 (1963) (“[I]n prohibiting sales
at unreasonably low prices for the purpose of destroying competition, [the Act] listed as elements of the illegal conduct not only the intent to achieve a result—destruction of competition—but also the act—selling at unreasonably low prices—done in furtherance of that design or purpose.”).
68. See id. at 37.
69. Id.
70. See, e.g., Moore v. Mead’s Fine Bread Co., 348 U.S. 115, 119 (1954).
71. Id. This basis for distinguishing legitimate from illegitimate price-cutting echoed other decisions. See FTC v. Morton Salt Co., 334 U.S. 37, 43 (1948) (“The legislative history of theRobinson-Patman Act makes it abundantly clear that Congress considered it to be an evilthat a large buyer could secure a competitive advantage over a small buyer solely because of
the large buyer’s quantity purchasing ability. The Robinson-Patman Act was passed to deprive a large buyer of such advantages . . . .”); United States v. N.Y. Great Atl. & Pac. Tea
Co., 173 F.2d 79 (7th Cir. 1949).
72. 386 U.S. 685 (1967).
73. Id. at 703.

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mation to sabotage Utah’s business relations with retailers, a fact the Court
used to establish “intent to injure.”74
The decision was controversial. Continental’s conduct had loosened thegrip of a quasi-monopolist. Prior to the alleged predation, Utah Pie had controlled 66.5% of the Salt Lake City market, but following Continental’s practices, its share dropped to 45.3%.75 Penalizing conduct that had made a market
more competitive as predatory seemed perverse. As Justice Stewart noted in thedissent, “I cannot hold that Utah Pie’s monopolistic position was protected by
the federal antitrust laws from effective price competition . . . .”76
The case presented an opportunity for critics of predatory pricing laws to
attack the doctrine as misguided. In an article labeling Utah Pie “the most anticompetitive antitrust decision of the decade,” Ward Bowman, an economist at
Yale Law School, argued that the premise of predatory pricing laws waswrong.77 He wrote, “The Robinson-Patman Act rests upon a presumption thatprice discrimination can or might be used as a monopolizing technique. This,as more recent economic literature conﬁrms, is at best a highly dubious presumption.”78 Bork, meanwhile, said of the decision, “There is no economic theory worthy of the name that could ﬁnd an injury to competition on the facts ofthe case. Defendants were convicted not of injuring competition but, quite
simply, of competing.”79 He described predatory pricing generally as “a phenomenon that probably does not exist” and the Robinson-Patman Act as “themisshapen progeny of intolerable draftsmanship coupled to wholly mistaken
economic theory.”80 Other scholars, particularly those from the rising Chicago
School, also weighed in to criticize Utah Pie.81
As the writings of Bowman and Bork suggest, the Chicago School critiqueof predatory pricing doctrine rests on the idea that below-cost pricing is irra-74.

Id. at 696-97.
75. Id. at 689.
76. Id. at 706 (Stewart, J., dissenting).
77. Ward S. Bowman, Restraint of Trade by the Supreme Court: The Utah Pie Case, 77 YALE L.J.
70, 86 (1967).
78. Id. at 70.
79. BORK, supra note 32, at 387.
80. Id. at 154, 382.
81. See 3 PHILLIP AREEDA & DONALD F. TURNER, ANTITRUST LAW: AN ANALYSIS OF ANTITRUSTPRINCIPLES AND THEIR APPLICATION 189-90 (1978); HERBERT HOVENKAMP, ECONOMICS AND
FEDERAL ANTITRUST LAW 188-89 (1985); RICHARD A. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE 193-94 (1976).

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tional and hence rarely occurs.82 For one, the critics argue, there was no guarantee that reducing prices below cost would either drive a competitor out orotherwise induce the rival to stop competing. Second, even if a competitor
were to drop out, the predator would need to sustain monopoly pricing forlong enough to recoup the initial losses and successfully thwart entry by potential competitors, who would be lured by the monopoly pricing. The uncertainty
of its success, coupled with its guarantee of costs, made predatory pricing an
unappealing—and therefore highly unlikely—strategy.83
As the inﬂuence and credibility of these scholars grew, their thinking
shaped government enforcement. During the 1970s, for example, the numberof Robinson-Patman Act cases that the FTC brought dropped dramatically, reﬂecting the belief that these cases were of little economic concern.84 Under the
Reagan Administration, the FTC all but entirely abandoned Robinson-Patman
Act cases.85 Bork’s appointment as Solicitor General, meanwhile, gave him aprime platform to inﬂuence the Supreme Court on antitrust issues and enabledhim “to train and inﬂuence many of the attorneys who would argue before theSupreme Court for the next generation.”86
The Chicago School critique came to shape Supreme Court doctrine on
predatory pricing. The depth and degree of this inﬂuence became apparent in
Matsushita Electric Industrial Co. v. Zenith Radio Corp.87 Zenith, an American
manufacturer of consumer electronics, brought a Sherman Act section 1 caseaccusing Japanese ﬁrms of conspiring to charge predatorily low prices in the
U.S. market in order to drive American companies out of business.88 The Su82.

See Jonathan B. Baker, Predatory Pricing After Brooke Group: An Economic Perspective, 62 ANTITRUST L.J. 585, 586 (1994) (“The Chicago School view of predatory pricing was perhaps
best captured by a 1987 dispute between two FTC Commissioners over the aptness of a metaphor: the animal that best represents price predation. For one Commissioner, predatory
pricing was a ‘white tiger,’ an extremely rare creature. For the other Commissioner, pricepredation more closely resembled a ‘unicorn,’ a complete myth. The narrow spectrum ofviews between a white tiger and a unicorn fairly reﬂects the Chicago School view that predatory pricing is almost always irrational, and so is unlikely actually to occur.” (citations omitted)).
83. See BORK, supra note 32, at 149-55.
84. See D. Daniel Sokol, The Transformation of Vertical Restraints: Per Se Illegality, the Rule of Reason, and Per Se Legality, 79 ANTITRUST L.J. 1003, 1014-15 (2014).
85. Id.
86. Id. at 1008.
87. 475 U.S. 574 (1986). The government argued in the case as amicus curiae in support of
Matsushita. Brief for the United States as Amicus Curiae Supporting Petitioners, Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (No. 83-2004), 1985 WL 669667.
88. Matsushita, 475 U.S. at 577-78.

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126:7102017preme Court granted certiorari to review whether the Third Circuit had applied
the correct standard in reversing the district court’s grant of summary judgment to Matsushita—an inquiry that led the Court to assess the reasonablenessof assuming the alleged predation.89
Citing to Bork’s The Antitrust Paradox, the Court concluded that predatory
pricing schemes were implausible and therefore could not justify a reasonableassumption in favor of Zenith. “As [Bork’s work] shows, the success of such
schemes is inherently uncertain: the short-run loss is deﬁnite, but the long-run
gain depends on successfully neutralizing the competition,” the Court wrote.90“For this reason, there is a consensus among commentators that predatory
pricing schemes are rarely tried, and even more rarely successful.”91
In addition to adopting Bork’s cost-beneﬁt framing, the Court echoed hisconcern that price competition could be mistaken for predation. In The Antitrust Paradox, Bork wrote, “The real danger for the law is less that predation
will be missed than that normal competitive behavior will be wrongly classiﬁed
as predatory and suppressed.”92 Justice Powell, writing for the 5-4 majority in
Matsushita, echoed Bork: “[C]utting prices in order to increase business often
is the very essence of competition. Thus mistaken inferences in cases such as
this one are especially costly, because they chill the very conduct the antitrust
laws are designed to protect.”93
Although Matsushita focused on a narrow issue—the summary judgment
standard for claims brought under Section 1 of the Sherman Act, which targets
coordination among parties94—it has been widely inﬂuential in monopolization
cases, which fall under Section 2. In other words, reasoning that originated in
one context has wound up in jurisprudence applying to totally distinct circumstances, even as the underlying violations differ vastly.95 Subsequent courts applied Matsushita’s predatory pricing analysis to cases involving monopolization
and unilateral anticompetitive conduct, shaping the jurisprudence of Section 2

89.

Id. at 580, 588-92.
90. Id. at 589.
91. Id.
92. BORK, supra note 32, at 157.
93. Matsushita, 475 U.S. at 594; see also Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 116(1986) (ﬁnding that a meat-packing company’s price-cutting practices constituted vigorouscompetition rather than an antitrust violation).
94. Christopher R. Leslie, Predatory Pricing and Recoupment, 113 COLUM. L. REV. 1695, 1702(2013).
95. Id.

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amazon's antitrust paradoxof the Sherman Act.96 The lower courts seized on Matsushita’s central point: theidea that “predatory pricing schemes are rarely tried, and even more rarely successful.”97 The phrase became a talisman against the existence of predatory
pricing, routinely invoked by courts in favor of defendants.
In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,98 the Supreme
Court formalized this premise into a doctrinal test. The case involved cigarettemanufacturing, an industry dominated by six ﬁrms.99 Liggett, one of the six,
introduced a line of generic cigarettes, which it sold for about 30% less than theprice of branded cigarettes.100 Liggett alleged that when it became clear that its
generics were diverting business from branded cigarettes, Brown & Williamson, a competing manufacturer, began selling its own generics at a loss.101 Liggett sued, claiming that Brown & Williamson’s tactic was designed to pressure
Liggett to raise prices on its generics, thus enabling Brown & Williamson tomaintain high proﬁts on branded cigarettes. A jury returned a verdict in favorof Liggett, but the district court judge decided that Brown & Williamson wasentitled to judgment as a matter of law.102
Importantly, Liggett’s accusation was that Brown & Williamson would recoup its losses through raising prices on branded cigarettes, not the generics
cigarettes it was steeply discounting. Building on the analysis introduced in
Matsushita, the Court held that Liggett had failed to show that Brown & Williamson would be able to execute the scheme successfully by recouping its losses through supracompetitive pricing. “Evidence of below-cost pricing is notalone sufficient to permit an inference of probable recoupment and injury tocompetition,” Justice Kennedy wrote for the majority.103 Instead, the plaintiff“must demonstrate that there is a likelihood that the predatory scheme alleged
would cause a rise in prices above a competitive level that would be sufficient tocompensate for the amounts expended on the predation, including the timevalue of the money invested in it”104—a requirement now known as the “recoupment test.”

96.

See, e.g., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989).
97. Matsushita, 475 U.S. at 589.
98. 509 U.S. 209 (1993).
99. Id. at 213.
100. Id. at 214.
101. Id. at 216.
102. Id. at 218.
103. Id. at 226.
104. Id.

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In placing recoupment at the center of predatory pricing analysis, the Court
presumed that direct proﬁt maximization is the singular goal of predatory pricing.105 Furthermore, by establishing that harm occurs only when predatory
pricing results in higher prices, the Court collapsed the rich set of concerns that
had animated earlier critics of predation, including an aversion to large ﬁrms
that exploit their size and a desire to preserve local control. Instead, the Court
adopted the Chicago School’s narrow conception of what constitutes this harm(higher prices) and how this harm comes about—namely, through the allegedpredator raising prices on the previously discounted good.106
Today, succeeding on a predatory pricing claim requires a plaintiff to meetthe Brooke Group recoupment test by showing that the defendant would be able
to recoup its losses through sustaining supracompetitive prices. Since the
Court introduced this recoupment requirement, the number of cases brought
and won by plaintiffs has dropped dramatically.107 Despite the Court’s contention—that “predatory pricing schemes are rarely tried and even more rarely
successful”—a host of research shows that predatory pricing can be “an attractive anticompetitive strategy” and has been used by dominant ﬁrms across sectors to squash or deter competition.108

105. See id. at 224 (“Recoupment is the ultimate object of an unlawful predatory pricing scheme;

it is the means by which a predator proﬁts from predation. Without it, predatory pricing
produces lower aggregate prices in the market, and consumer welfare is enhanced.”).
106. As some commentators have noted, the Court’s reliance on scholarship advocating a retrenchment of enforcement against predatory pricing schemes did not reﬂect a dearth of opposing views. See, e.g., F.M. Scherer, Conservative Economics and Antitrust: A Variety of Inﬂuences, in HOW THE CHICAGO SCHOOL OVERSHOT THE MARK 30, 33 (Robert Pitofsky ed.,2008) (“Already by the time of the Matsushita decision, there was a substantial scholarly literature documenting what should have passed for predation by any reasonable deﬁnitionand showing the rationality of sharp price-cutting by a dominant ﬁrm to discourage new entrants. Since there was a diversity of scholarly views at the time key Supreme Court pronouncements were rendered on predation, the fault for ignoring one side of the scholarshipmust be attributed to the Court’s myopia or (without the obiter dictum) compelling facts,
and not to economists’ contributions.” (citation omitted)); id. at 34 (“If there was favoritism, it was not in the economic literature evaluated, but in the weighing of alternative perspectives.”).
107. Sokol, supra note 84, at 1013 (“The recoupment prong eviscerated the Utah Pie standard andmade it nearly impossible in practice for plaintiffs to win a primary line Robinson-Patmanclaim going forward.”). The only recent case in which plaintiffs survived a motion for summary judgment is Spirit Airlines, Inc. v. Northwest Airlines, Inc., 431 F.3d 917 (6th Cir. 2005),
where the court denied summary judgment on the grounds that a reasonable trier of fact
could ﬁnd sufficient evidence of predatory pricing.
108. Sandeep Vaheesan, Reconsidering Brooke Group: Predatory Pricing in Light of the Empirical
Learning, 12 BERKELEY BUS. L.J. 81, 82 (2015); see also Richard O. Zerbe, Jr. & Michael T.
Mumford, Does Predatory Pricing Exist? Economic Theory and the Courts After Brooke Group,730

amazon's antitrust paradox

B. Vertical Integration
Analysis of vertical integration has similarly moved away from structuralconcerns. Vertical integration arises when “two or more successive stages of
production and/or distribution of a product are combined under the same control.”109 For most of the last century, enforcers reviewed vertical integration under the same standards as horizontal mergers, as set out in the Sherman Act,
the Clayton Act, and the Federal Trade Commission Act. Vertical integration
was banned whenever it threatened to “substantially lessen competition”110 orconstituted a “restraint of trade”111 or an “unfair method[] of competition.”112
However, the Chicago School’s view that vertical mergers are generally procompetitive has led enforcement in this area to signiﬁcantly drop.
Serious concern about vertical integration took hold in the wake of theGreat Depression, when both the law and economic theory became sharply
critical of the phenomenon.113 Thurman Arnold, the Assistant Attorney General in the 1930s, targeted vertical ownership achieved through both mergers
and contractual provisions, and by the 1950s courts and antitrust authorities
generally viewed vertical integration as anticompetitive. Partly because it believed that the Supreme Court had failed to use existing law to block vertical
integration through acquisitions, Congress in 1950 amended section 7 of the
Clayton Act to make it applicable to vertical mergers.114
Critics of vertical integration primarily focused on two theories of potential
harm: leverage and foreclosure. Leverage reﬂects the idea that a ﬁrm can use its
dominance in one line of business to establish dominance in another. Because“horizontal power in one market or stage of production creates ‘leverage’ forthe extension of the power to bar entry at another level,” vertical integration

41 ANTITRUST BULL. 949, 957-64 (1996) (discussing the empirical research that companies
engage in predatory pricing).
109. Robert H. Cole, General Discussion of Vertical Integration, in VERTICAL INTEGRATION IN MARKETING 9, 9 (Nugent Wedding ed., 1952).
110. Clayton Act, ch. 323, § 7, 38 Stat. 730, 731 (1914) (codiﬁed as amended at 15 U.S.C. § 18
(2012)).
111. Sherman Act, ch. 647, §§ 1, 3, 26 Stat. 209, 209 (1890) (codiﬁed as amended at 15 U.S.C. § 1(2012)).
112. Federal Trade Commission Act, ch. 311, § 5, 38 Stat. 717, 719 (1914) (codiﬁed as amended at
15 U.S.C. § 45(a)(1) (2012)).
113. See Herbert Hovenkamp, Robert Bork and Vertical Integration: Leverage, Foreclosure, and Efficiency, 79 ANTITRUST L.J. 983, 988-92 (2014).
114. Clayton Act, ch. 1184, § 7, 64 Stat. 1125, 1125-26 (1950) (codiﬁed as amended at 15 U.S.C.
§ 18 (2012)); see Hovenkamp, supra note 113, at 985.

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combined with horizontal market power “can impair competition to a greater
extent than could the exercise of horizontal power alone.”115 Foreclosure,meanwhile, occurs when a ﬁrm uses one line of business to disadvantage rivals
in another line. A ﬂourmill that also owned a bakery could hike prices or degrade quality when selling to rival bakers—or refuse to do business with thementirely. In this view, even if an integrated ﬁrm did not directly resort to exclusionary tactics, the arrangement would still increase barriers to entry by requiring would-be entrants to compete at two levels.
When seeking to block vertical combinations or arrangements, the government frequently built its case on one of these theories—and, through the
1960s, courts largely accepted them.116 In Brown Shoe v. United States, for example, the government sought to block a merger between a leading manufacturer and a leading retailer of shoes on the grounds that the tie-up would “foreclos[e] competition” and “enhanc[e] Brown’s competitive advantage over otherproducers, distributors and sellers of shoes.”117 The Court acknowledged that
the Clayton Act did not “render unlawful all . . . vertical arrangements,” butheld that this merger would undermine competition by “foreclos[ing] . . . independent manufacturers from markets otherwise open tothem.”118 In other words, the concern was that—once merged—the combined
entity would forbid its retailing arm from stocking shoes made by competing
independent manufacturers. Calling this form of foreclosure “the primary viceof a vertical merger,”119 the Court noted it was also largely inevitable: “Everyextended vertical arrangement by its very nature, for at least a time, denies tocompetitors of the supplier the opportunity to compete for part or all of the
trade of the customer-party to the vertical arrangement.”120 In his partial concurrence, Justice Harlan observed that the deal would enable Brown to “turn an
independent purchaser into a captive market for its shoes,” thereby “dimin-

115.

Friedrich Kessler & Richard H. Stern, Competition, Contract, and Vertical Integration, 69 YALE
L.J. 1, 16 (1959).
116. See, e.g., FTC v. Consol. Foods Corp., 380 U.S. 592, 594-95 (1965); United States v. Yellow
Cab Co., 332 U.S. 218, 226-27 (1947); Miss. River Corp. v. FTC, 454 F.2d 1083, 1091 (8th Cir.
1972); see also Anchor Serum Co. v. FTC, 217 F.2d 867, 873 (7th Cir. 1954) (“It would requirea naive mind to conclude, as petitioner would have us do, that the arrangements under consideration could result in other than an adverse effect upon competition.”). But see UnitedStates v. Columbia Steel Co., 334 U.S. 495, 507-08 (1948) (ﬁnding that a vertical combination did not violate antitrust law).
117. 370 U.S. 294, 297 (1962).
118. Id. at 324, 332.
119. Id. at 323.
120. Id. at 324.

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ish[ing] the available market for which shoe manufacturers compete.”121 The
Court enjoined the merger.122
Another reason courts cited for blocking these arrangements was that vertical deals eliminated potential rivals—a recognition of how a merger would reshape industry structure. Upholding the FTC’s challenge of Ford purchasing anequipment manufacturer, the Court noted that before the acquisition, Ford had
helped check the power of the manufacturers and had a “soothing inﬂuence”
over prices.123 An outside ﬁrm “may someday go in and set the stage for noticeable deconcentration,” the Court wrote.124 “While it merely stays near the edge,
it is a deterrent to current competitors.”125 In other words, the threat of potential entry by Ford—the fact that, pre-merger, it could have internally expanded
into equipment manufacturing—had played an important disciplining role. Relatedly, the Court observed that when a company in a competitive market integrates with a ﬁrm in an oligopolistic one, the merger can have “the result oftransmitting the rigidity of the oligopolistic structure” of one industry to theother, “thus reducing the chances of future deconcentration” of the market.126
The Court required Ford to divest the manufacturer.127
In the 1950s—while Congress, enforcement agencies, and the courts recognized potential threats posed by vertical arrangements—Chicago School scholars began to cast doubt on the idea that vertical integration has anticompetitiveeffects.128 By replacing market transactions with administrative decisions within the ﬁrm, they argued, vertical arrangements generated efficiencies that antitrust law should promote. And if integration failed to yield efficiencies, thenthe integrated ﬁrm would have no cost advantages over unintegrated rivals,
therefore posing no risk of impeding entry. They further argued that verticaldeals would not affect a ﬁrm’s pricing and output policies, the primary metrics
121.

Id. at 372 (Harlan, J., concurring in part and dissenting in part).
Id. at 294 (majority opinion).
123. Ford Motor Co. v. United States, 405 U.S. 562, 567 (1972) (quoting United States v. Ford
Motor Co., 286 F. Supp. 407, 441 (E.D. Mich. 1968)).
124. Id. (quoting Ford Motor Co., 286 F. Supp. at 441).
125. Id. (quoting Ford Motor Co., 286 F. Supp. at 441).
126. Id. at 568.
127. Id. at 575.
128. In an inﬂuential 1954 essay that presaged his later arguments in The Antitrust Paradox, Bork
defended vertical integration as nearly always procompetitive. Robert Bork, Vertical Integration and the Sherman Act: The Legal History of an Economic Misconception, 22 U. CHI. L. REV.
157, 194-201 (1954); see also Ward S. Bowman, Jr., Tying Arrangements and the Leverage Problem, 67 YALE L.J. 19 (1957) (arguing that tying arrangements—a form of vertical control—
cannot be used to leverage monopoly power from one market to another).
122.

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in their analysis. Under this framework, only horizontal mergers affect competition, as “[h]orizontal mergers increase market share, but vertical mergers donot.”129
Chicago School theory holds that concerns about both leverage and foreclosure are misguided. Under the “single monopoly proﬁt theorem,” theamount of proﬁt that a ﬁrm can extract from one market is ﬁxed and cannot be
expanded through extending into an adjacent market if the two products areused in ﬁxed proportions.130 Under this premise, not only does monopoly leveraging not pose any competitive concern, but—since it can only be motivatedby efficiencies, not proﬁts—it is actually procompetitive when it does occur.
The traditional worries about foreclosure, Bork claimed, were unfounded,as “[p]redation through vertical merger is extremely unlikely.”131 A manufacturer would not favor its retail subsidiary over others unless it was cheaper todo so—in which case, Bork argued, discriminating would yield efficiencies thatthe ﬁrm would pass on to consumers. Additionally, any manufacturer thatsought to privilege its own retailer would face “entrants who would arrive insky-darkening swarms for the proﬁtable alternatives.”132 In other words, Bork’s
take was that vertical integration generally would not create forms of market
power that ﬁrms could use to hike prices or constrain output. In the rare casethat vertical integration did create this form of market power, he believed that it
would be disciplined by actual or potential entry by competitors.133 In light of129. BORK, supra note 32, at 231.
130. See, e.g., id. at 372-75, 380-81; Posner, supra note 30, at 925, 927 (“[I]t makes no sense for amonopoly producer to take over distribution in order to earn monopoly proﬁts at the distribution as well as the manufacturing level. The product and its distribution are complements, and an increase in the price of distribution will reduce the demand for the product.
Assuming that the product and its distribution are sold in ﬁxed proportions . . . the conclusion is reached that vertical integration must be motivated by a desire for efficiency rather
than for monopoly.”); id. at 929 (“If the [service] is already being priced at the optimal monopoly level, an increase in the price of [one component] above the competitive level willraise the total price of the service to the consumer above the optimal monopoly level and will
thereby reduce the monopolist’s proﬁts.”).
131. BORK, supra note 32, at 232.
132. Id. at 234.
133. Bork later modiﬁed his position on entry barriers when he consulted for Netscape in the Antitrust Division’s challenge to Microsoft’s exclusionary practices, which the company had
employed primarily against Netscape. Although Bork had been a ﬁerce critic of “leveragetheory,” he described Microsoft’s attempt to tie its operating system to its software as a way“to leverage the [Windows] asset to make people use [Internet Explorer] instead of[Netscape] Navigator.” Hovenkamp, supra note 113, at 996-97 (citing Robert Bork, HighStakes Antitrust: The Last Hurrah?, in HIGH-STAKES ANTITRUST: THE LAST HURRAH? 45, 50(Robert W. Hahn ed., 2003)). But in an article later commissioned by Google, Bork re-734

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this, antitrust law’s aversion to vertical arrangements was, Bork argued, irrational. “The law against vertical mergers is merely a law against the creation ofefficiency.”134
With the election of President Reagan, this view of vertical integration became national policy. In 1982 and 1984, the Department of Justice (DOJ) andthe FTC issued new merger guidelines outlining the framework that officials
would use when reviewing horizontal deals.135 The 1984 version included
guidelines speciﬁc to vertical deals.136 Part of a sweeping effort to overhaul antitrust enforcement, the new guidelines narrowed the circumstances in which
the agencies would challenge vertical mergers.137 Although the guidelines
acknowledged that vertical mergers could sometimes give rise to competitive
concerns, in practice the change constituted a de facto approval of verticaldeals. The DOJ and FTC did not challenge even one vertical merger during
President Reagan’s tenure.138
Although subsequent administrations have continued reviewing verticalmergers, the Chicago School’s view that these deals generally do not posethreats to competition has remained dominant.139 Rejection of vertical tieturned to a critique of leverage theory, deriding the idea that Google could leverage its position in the general search market to gain additional proﬁts in downstream markets. See
Robert H. Bork & J. Gregory Sidak, What Does the Chicago School Teach About Internet Searchand the Antitrust Treatment of Google, 8 J. COMPETITION L. & ECON. 663, 675–77 (2012).
134. BORK, supra note 32, at 234.
135. 1982 Merger Guidelines, supra note 42; 1984 Merger Guidelines, U.S. DEP’T JUST.
(1984), http://www.justice.gov/sites/default/ﬁles/atr/legacy/2007/07/11/11249.pdf [http://
perma.cc/Y5JL-5PQS].
136. 1984 Merger Guidelines, supra note 135, at 24-32.
137. Id.
138. William E. Kovacic, Built To Last? The Antitrust Legacy of the Reagan Administration, 35 FED.
B. NEWS & J. 244, 245 (1988) (“Since 1981, the government antitrust agencies have issued nocomplaints or consent agreements in Robinson-Patman matters that originated after the arrival of Reagan appointees to head the FTC and the Justice Department. Reagan FTC leadership has said the Commission has not abandoned Robinson-Patman enforcement, but the
government’s failure to initiate new enforcement actions during the Reagan Administrationsuggests that ﬁrms are virtually immune from federal prosecution for conduct the statuteproscribes.”); Joseph Guinto, Antitrust Targets Vertical Deals, INV.’S BUS. DAILY, June 17, 1999,
at A01.
139. For example, Democrat-appointed antitrust leaders have also adopted the Chicago School
view that most vertical mergers are benign. As then-FTC Commissioner Christine Varney(who would later go on to be assistant attorney general for antitrust in the Obama Administration) observed in a speech, “[M]ost vertical arrangements raise few competitive concerns.” Christine A. Varney, Comm’r, FTC, Vertical Merger Enforcement Challenges at
the FTC (July 17, 1995), http://www.ftc.gov/public-statements/1995/07/vertical-merger-enforcement-challenges-ftc [http://perma.cc/JDQ8-H5KB].

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ups—standard through the 1960s and 1970s—is extremely rare today;140 in instances where agencies spot potential harm, they tend to impose conduct remedies or require divestitures rather than block the deal outright.141 The Obama
Administration took this approach with two of the largest vertical deals of thelast decade: Comcast/NBC and Ticketmaster/LiveNation. In each case, consumer advocates opposed the deal142 and warned that the tie-up would concentrate signiﬁcant power in the hands of a single company,143 which it could use
to engage in exclusionary practices, hike prices for consumers, and dock payments to content producers, such as TV screenwriters and musicians. Nonetheless, the DOJ attached certain behavioral conditions and required a minor divestiture, ultimately approving both deals.144 The district court held theconsent decrees to be in the public interest.

140. James B. Stewart, Why a Media Merger that Should Go Through Might Not, N.Y. TIMES(Oct. 25, 2016), http://www.nytimes.com/2016/10/26/business/economy/why-a-media-merger-that-should-go-through-might-not.html [http://perma.cc/NTN7-LB9N] (“‘Over
the last 40 to 50 years, antitrust law has evolved to be almost completely indifferent to vertical mergers,’ said Tim Wu, an antitrust and internet expert at Columbia Law School . . . .”).
141. By imposing conduct remedies, the antitrust agencies set out behavioral conditions that themerging parties must comply with, subject to agency oversight. By requiring divestitures,the antitrust agencies ask the merging parties to sell off a part of their business to anotherentity.
142. Martin H. Bosworth, Consumer Groups Oppose Comcast-NBC Merger, CONSUMER AFF., (Dec.
3, 2009), http://www.consumeraffairs.com/news04/2009/12/comcast_nbc.html [http://
perma.cc/N347-MTKQ]; David Segal, Calling Almost Everyone’s Tune, N.Y. TIMES (Apr.
24, 2010), http://www.nytimes.com/2010/04/25/business/25ticket.html [http://perma.cc/3TT3-FHYA] (“To say this new conglomerate has inspired fear in the live-concert businessdoesn’t capture the extent of the quaking.”); Ethan Smith & Thomas Catan, Concert
Deal Wins Antitrust Approval, WALL ST. J. (Jan. 26, 2010, 12:01 AM), http://www.wsj.com/articles/SB10001424052748704762904575025332380117008 [http://perma.cc/FWR9-WUSR].
143. As Bork pointed out, the vertical deals would not increase the market share of either company. See BORK, supra note 32, at 231. In Ticketmaster/LiveNation’s case, the deal instead “creates one company that will have a hand in just about every corner of the music business,”
Smith & Catan, supra note 142, while in Comcast/NBC’s case, the merger created “a $30 billion media behemoth that controls not just how television shows and movies are made but
how they are delivered to people’s homes,” Yinka Adegoke & Dan Levine, Comcast Completes
NBC Universal Merger, REUTERS (Jan. 29, 2011, 11:50 AM), http://www.reuters.com/article/us-comcast-nbc-idUSTRE70S2WZ20110129 [http://perma.cc/EXC3-4PAU].
144. Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Allows Comcast-NBCU Joint Venture To Proceed with Conditions (Jan. 18, 2011), http://www.justice.gov/opa/pr/justice-department-allows-comcast-nbcu-joint-venture-proceed-conditions[http://perma.cc/8FHZ-AL4W]; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice,
Justice Department Requires Ticketmaster Entertainment Inc. To Make Signiﬁcant Changes
to Its Merger with Live Nation Inc. (Jan. 25, 2010), http://www.justice.gov/opa/pr/justice736

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ii. why competitive process and structure matter
The current framework in antitrust fails to register certain forms of anticompetitive harm and therefore is unequipped to promote real competition—ashortcoming that is illuminated and ampliﬁed in the context of online platforms and data-driven markets. This failure stems both from assumptions embedded in the Chicago School framework and from the way this framework assesses competition.
Notably, the present approach fails even if one believes that antitrust
should promote only consumer interests. Critically, consumer interests include
not only cost but also product quality, variety, and innovation. Protecting theselong-term interests requires a much thicker conception of “consumer welfare”
than what guides the current approach. But more importantly, the undue focus
on consumer welfare is misguided. It betrays legislative history, which reveals
that Congress passed antitrust laws to promote a host of political economic
ends—including our interests as workers, producers, entrepreneurs, and citizens. It also mistakenly supplants a concern about process and structure (i.e.,
whether power is sufficiently distributed to keep markets competitive) with acalculation regarding outcome (i.e., whether consumers are materially betteroff ).
Antitrust law and competition policy should promote not welfare but competitive markets. By refocusing attention back on process and structure, thisapproach would be faithful to the legislative history of major antitrust laws. It
would also promote actual competition—unlike the present framework, whichis overseeing concentrations of power that risk precluding real competition.
A. Price and Output Effects Do Not Cover the Full Range of Threats toConsumer Welfare
As discussed in Part I, modern doctrine assumes that advancing consumer
welfare is the sole purpose of antitrust. But the consumer welfare approach toantitrust is unduly narrow and betrays congressional intent, as evident from-department-requires-ticketmaster-entertainment-inc-make-signiﬁcant-changes-its [http://
perma.cc/PZ2E-X2FL]; see also Jeremy Pelofsky & Yinka Adegoke, LiveNation, Ticketmaster
Merge; Agree to U.S. Terms, REUTERS (Jan. 25. 2010, 8:13 PM), http://www.reuters.com/article/us-ticketmaster-livenation-idUSTRE60O4E520100126[http://perma.cc/QT7K-LPHA] (“‘The conditions seem to be relatively benign,’ said Tuna Amobi, equity analyst atStandard & Poor’s. ‘There are no major divestitures required. I don’t know that is going tocreate the kind of even, competitive ﬁeld that was intended.’”); Smith & Catan, supra note
142.

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legislative history and as documented by a vast body of scholarship. I argue inthis Note that the rise of dominant internet platforms freshly reveals the shortcomings of the consumer welfare framework and that it should be abandoned.
Strikingly, the current approach fails even if one believes that consumer interests should remain paramount. Focusing primarily on price and output undermines effective antitrust enforcement by delaying intervention until market
power is being actively exercised, and largely ignoring whether and how it isbeing acquired. In other words, pegging anticompetitive harm to high prices
and/or lower output—while disregarding the market structure and competitive
process that give rise to this market power—restricts intervention to the moment when a company has already acquired sufficient dominance to distortcompetition.
This approach is misguided because it is much easier to promote competition at the point when a market risks becoming less competitive than it is at the
point when a market is no longer competitive. The antitrust laws reﬂect thisrecognition, requiring that enforcers arrest potential restraints to competition“in their incipiency.”145 But the Chicago School’s hostility to false positives—and insistence that market power and high concentration both reﬂect and generate efficiency146—has undermined this incipiency standard and enfeebled enforcement as a whole. Indeed, enforcers have largely abandoned section 2 monopolization claims,147 which—by virtue of assessing how a single company
amasses and exercises its power—traditionally involved an inquiry into structure. By instead relying primarily on price and output effects as metrics ofcompetition, enforcers risk overlooking the structural weakening of competi-

145. Clayton Act, ch. 323, 38 Stat. 730 (1914) (codiﬁed as amended at 15 U.S.C. §§ 12-27, 29

U.S.C. §§ 52-53 (2012)). Former Assistant Attorney General for Antitrust Bill Baer described
the incipiency standard as seeking to “prevent competitive conditions from deterioratingeven when competition was not clearly problematic at the time of the lawsuit.” He continued, “Second, in order to arrest potential restraints ‘in their incipiency,’ the Act banned thesepractices where their effect ‘may be to substantially lessen competition.’ The intent was toconsider likely future effect—not just palpable impact—in determining whether these practices were illegal.” Bill Baer, Assistant Att’y Gen., Antitrust Div., Dep’t of Justice, Remarks at
the American Bar Association Clayton Act 100th Anniversary Symposium (Dec. 4, 2014).
146. See Hovenkamp, supra note 57, at 359.
147. Daniel A. Crane, Has the Obama Justice Department Reinvigorated Antitrust Enforcement?,
STAN. L. REV. ONLINE (July 18, 2012), http://www.stanfordlawreview.org/online/has-the-obama-justice-department-reinvigorated-antitrust-enforcement [http://perma.cc/56J4-NNSP] (“The ﬁnal category is monopolization cases. Over the eight years of the Bush
Administration, the Justice Department ﬁled no monopolization cases. To date, the Obama
Administration has ﬁled only one case, hardly evidencing a major shift in tactics.”).

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tion until it becomes difficult to address effectively, an approach that undermines consumer welfare.
Indeed, growing evidence shows that the consumer welfare frame has led
to higher prices and few efficiencies, failing by its own metrics.148 It arguably
has further contributed to a decline in new business growth, resulting in reduced opportunities for entrepreneurs and a stagnant economy.149 The longterm interests of consumers include product quality, variety, and innovation—
factors best promoted through both a robust competitive process and open
markets. By contrast, allowing a highly concentrated market structure to persist
endangers these long-term interests, since ﬁrms in uncompetitive markets neednot compete to improve old products or tinker to create news ones. Even if we
accept consumer welfare as the touchstone of antitrust, ensuring a competitive
process—by looking, in part, to how a market is structured—ought to be key.
Empirical studies revealing that the consumer welfare frame has resulted inhigher prices—failing even by its own terms—support the need for a different
approach.
B. Antitrust Laws Promote Competition To Serve a Variety of Interests
Legislative history reveals that the idea that “Congress designed the Sherman Act as a ‘consumer welfare prescription’”150 is wrong.151 Congress enacted
antitrust laws to rein in the power of industrial trusts, the large business organizations that had emerged in the late nineteenth century. Responding to a fear
148. A growing body of work shows that the consumer welfare frame has failed even on its own
terms—namely, by leading to higher prices without any clear efficiency gains. See JOHNKWOKA, MERGERS, MERGER CONTROL, AND REMEDIES: A RETROSPECTIVE ANALYSIS OF U.S.
POLICY (2015); Beneﬁts of Competition and Indicators of Market Power, COUNCIL ECON.
ADVISERS (Apr. 2016), http://www.whitehouse.gov/sites/default/ﬁles/page/ﬁles/20160414_cea_competition_issue_brief.pdf [http://perma.cc/9NMS-4U9L]; Divs. of Research &Statistics & Monetary Affairs, Evidence for the Effects of Mergers on Market Power andEfficiency, FED. RES. (2016), http://www.federalreserve.gov/econresdata/feds/2016/ﬁles/2016082pap.pdf [http://perma.cc/CY4Y-DGB2].
149. See Barry C. Lynn & Lina Khan, The Slow Motion Collapse of American Entrepreneurship, WASH. MONTHLY (July/Aug. 2012), http://washingtonmonthly.com/magazine/julyaugust-2012/the-slow-motion-collapse-of-american-entrepreneurship [http://perma.cc/P9VM-9FM5]; see also Ian Hathaway & Robert E. Litan, What’s Driving the Decline in the
Firm Formation Rate? A Partial Explanation, BROOKINGS INST. (Nov. 2014) (document-ing business consolidation as a contributing factor in the declining formationof new ﬁrms), http://www.brookings.edu/wp-content/uploads/2016/06/driving_decline_ﬁrm_formation_rate_hathaway_litan.pdf [http://perma.cc/QA9M-ZGAT].
150. Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979).
151. Heaps of scholarship delve into this legislative history. See, e.g., sources cited supra note 38.

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126:7102017of concentrated power, antitrust sought to distribute it. In this sense, antitrust
was “guided by principles.”152 The law was “for diversity and access to markets;
it was against high concentration and abuses of power.”153
More relevant than any single goal was this general vision. When Congress
passed the Sherman Act in 1890, Senator John Sherman called it “a bill ofrights, a charter of liberty,” and stressed its importance in political terms.154 On
the ﬂoor of the Senate he declared,
If we will not endure a king as a political power, we should not endure aking over the production, transportation, and sale of any of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade, with power to prevent competition and toﬁx the price of any commodity.”155
In other words, what was at stake in keeping markets open—and keeping them
free from industrial monarchs—was freedom.
Animating this vision was the understanding that concentration of economic power also consolidates political power, “breed[ing] antidemocratic political pressures.”156 This would occur through enabling a small minority toamass outsized wealth, which they could then use to inﬂuence government.
But it would also occur by permitting “private discretion by a few in the economic sphere” to “control[] the welfare of all,” undermining individual andbusiness freedom.157 In the lead up to the passage of the Sherman Act, Senator
George Hoar warned that monopolies were “a menace to republican institutions themselves.”158
This vision encompassed a variety of ends. For one, competition policy
would prevent large ﬁrms from extracting wealth from producers and consumers in the form of monopoly proﬁts.159 Senator Sherman, for example, described overcharges by monopolists as “extortion which makes the people
poor,”160 while Senator Richard Coke referred to them as “robbery.”161 Repre-

152.

Eleanor Fox, Against Goals, 81 FORDHAM L. REV. 2158, 2158 (2013).
153. Id.
154. 21 CONG. REC. 2461 (1890) (statement of Sen. Sherman).
155. Id. at 2457 (statement of Sen. Sherman).
156. Robert Pitofsky, The Political Content of Antitrust, 127 U. PA. L. REV. 1051, 1051 (1979).
157. Id.
158. 21 CONG. REC. 3146 (1890) (statement of Sen. Hoar).
159. Lande, Wealth Transfers, supra note 38, at 96-97.
160. 21 CONG. REC. 2461 (1890) (statement of Sen. Sherman, quoting Sen. George).

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sentative John Heard announced that trusts had “stolen millions from the people,”162 and Congressman Ezra Taylor noted that the beef trust “robs the farmer
on the one hand and the consumer on the other.”163 In the words of SenatorJames George, “[t]hey aggregate to themselves great enormous wealth by extortion which makes the people poor.”164
Notably, this focus on wealth transfers was not solely economic. Leading up
to the passage of the Sherman Act, price levels in the United States were stableor slowly decreasing.165 If the exclusive concern had been higher prices, thenCongress could have focused on those industries where prices were, indeed,high or still rising. The fact that Congress chose to denounce unjust redistribution suggests that something else was at play—namely, that the public was “angered less by the reduction in their wealth than by the way in which the wealthwas extracted.”166 In other words, though the harm was being registeredthrough an economic effect—a wealth transfer—the underlying source of thegrievance was also political.167
Another distinct goal was to preserve open markets, in order to ensure thatnew businesses and entrepreneurs had a fair shot at entry. Several Congressmen advocated for the Federal Trade Commission Act because it would help
promote small business. Senator James Reed expressly noted that Congress’s
aim in passing the law was to keep markets open to independent ﬁrms.168
When discussing the Sherman Act, Senator George lamented that if large-scale

161.

Id. at 2614 (statement of Sen. Coke).
162. Id. at 4101 (statement of Rep. Heard).
163. Id. at 4098 (statement of Rep. Taylor).
164. Id. at 2461 (statement of Sen. Sherman, quoting Sen. George).
165. Lande, Wealth Transfers, supra note 38, at 96-97.
166. Id. at 98.
167. For a seminal discussion of why antitrust laws must take political values into account, see
Pitofsky, supra note 156, at 1051 (“It is bad history, bad policy, and bad law to exclude certain
political values in interpreting the antitrust laws. By ‘political values,’ I mean, ﬁrst, a fearthat excessive concentration of economic power will breed antidemocratic political pressures,and second, a desire to enhance individual and business freedom by reducing the range
within which private discretion by a few in the economic sphere controls the welfare of all. A
third and overriding political concern is that if the free-market sector of the economy is allowed to develop under antitrust rules that are blind to all but economic concerns, the likely
result will be an economy so dominated by a few corporate giants that it will be impossible
for the state not to play a more intrusive role in economic affairs.”).
168. 51 CONG. REC. 13,231 (1914) (statement of Sen. Reed).

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126:7102017industry were allowed to grow unchecked, it would “crush out all small men,
all small capitalists, all small enterprises.”169
Through the 1950s, courts and enforcers applied antitrust laws to promote
this variety of aims. While the vigor and tenor of enforcement varied, there wasan overarching understanding that antitrust served to protect what Justice Louis Brandeis called “industrial liberty.”170 Key to this vision was the recognition
that excessive concentrations of private power posed a public threat, empowering the interests of a few to steer collective outcomes. “Power that controls the
economy should be in the hands of elected representatives of the people, not in
the hands of an industrial oligarchy,” Justice William O. Douglas wrote.171 Decentralizing this power would ensure that “the fortunes of the people will not
be dependent on the whim or caprice, the political prejudice, the emotional
stability of a few self-appointed men.”172
As described in Part I, Chicago School scholars upended this traditional
approach, concluding that the only legitimate goal of antitrust is consumer
welfare, best promoted through enhancing economic efficiency. Notably, someprominent liberals—including John Kenneth Galbraith—ratiﬁed this idea,
championing centralization.173 In the wake of high inﬂation in the 1970s,
Ralph Nader and other consumer advocates also came to support an antitrust
regime centered on lower prices, according with the Chicago School’s view.174
By orienting antitrust toward material rather than political ends, both the neoclassical school and its critics effectively embraced concentration over competition.175

169. 21 CONG. REC. 2598 (1890) (statement of Sen. George).
170. LOUIS D. BRANDEIS, THE CURSE OF BIGNESS 38 (Osmond K. Fraenkel ed., 1934).
171.

United States v. Columbia Steel Co., 334 U.S. 495, 536 (1948) (Douglas, J., dissenting).
Id.
173. In Economics and the Public Purpose, Galbraith concluded that centralized planning, rather
than open markets, was the best way to stabilize industries and boost prosperity. JOHNKENNETH GALBRAITH, ECONOMICS AND THE PUBLIC PURPOSE 55 (1973).
174. See MICHAEL SANDEL, DEMOCRACY’S DISCONTENT 246 (1996) (“Although Nader and his followers did not disparage, as did Bork, the civic tradition of antitrust, they too rested theirarguments on considerations of consumer welfare . . . . According to Nader, the ‘modern relevance’ of traditional antitrust wisdom lay in its consequences for ‘the prices people pay for
their bread, gasoline, auto parts, prescription drugs, and houses.’”).
175. See Lina Khan, New Tools To Promote Competition, DEMOCRACY (Fall 2016), http://democracyjournal.org/magazine/42/new-tools-to-promote-competition [http://perma.cc/VZ4N-CZBN].
172.

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Focusing antitrust exclusively on consumer welfare is a mistake.176 For one,it betrays legislative intent, which makes clear that Congress passed antitrust
laws to safeguard against excessive concentrations of economic power. This vision promotes a variety of aims, including the preservation of open markets,
the protection of producers and consumers from monopoly abuse, and the dispersion of political177 and economic control.178 Secondly, focusing on consumer
welfare disregards the host of other ways that excessive concentration can harm
us—enabling ﬁrms to squeeze suppliers and producers, endangering systemstability (for instance, by allowing companies to become too big to fail),179 orundermining media diversity,180 to name a few. Protecting this range of inter-

176. I am by no means alone in arguing this. See, e.g., BARRY C. LYNN, CORNERED: THE NEWMONOPOLY CAPITALISM AND THE ECONOMICS OF DESTRUCTION (2010); Fox, supra note 38, at
1153-54; Maurice E. Stucke, Better Competition Advocacy, 82 ST. JOHN’S L. REV. 951, 993(2008); Stucke, supra note 38, at 564.
177. For a more recent argument in favor of rebalancing antitrust away from technocracy andtoward democracy, see Harry First & Spencer Weber Waller, Antitrust’s Democracy Deﬁcit, 81
FORDHAM L. REV. 2543, 2544 (2013) (“[A]ntitrust is also public law designed to serve public
ends. Today’s unbalanced system puts too much control in the hands of technical experts,
moving antitrust enforcement too far away from its democratic roots.”).
178. See Fox, supra note 38, at 1153-54 (“Rather than standing for efficiency, the American antitrust laws stand against private power. Distrust of power is the one central and common
ground that over time has uniﬁed support for antitrust statutes. Interests of consumers havebeen a recurrent concern because consumers have been perceived as victims of the abuse of
too much power. Interests of entrepreneurs and small business have been a recurrent concern because independent entrepreneurs have been seen as the heart and lifeblood of American free enterprise, and freedom of economic activity and opportunity has been thought
central to the preservation of the American free enterprise system. One overarching idea has
uniﬁed these three concerns (distrust of power, concern for consumers, and commitment toopportunity of entrepreneurs): competition as process. The competition process is the preferred governor of markets. If the impersonal forces of competition, rather than public or
private power, determine market behavior and outcomes, power is by deﬁnition dispersed,
opportunities and incentives for ﬁrms without market power are increased, and the results
are acceptable and fair.” (citations omitted)).
179. For more on this connection, see SIMON JOHNSON & JAMES KWAK, 13 BANKERS: THE WALL
STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN (2011); and LYNN, supra note 176.
180. The Justice Department recently cited the importance of media diversity whensuing to block a merger between two newspapers. See Michaela Ross, Even for Ailing
Newspapers, U.S. Says a Monopoly Is a Monopoly, BLOOMBERG (Mar. 22, 2016), http://
www.bloomberg.com/news/articles/2016-03-21/tribune-loses-out-on-local-newspaper-deal-over-antitrust-issues [http://perma.cc/U2E5-ZHM9]. For why competition policy is important for promoting media diversity, see Maurice E. Stucke & Allen P. Grunes, Toward a
Better Competition Policy for the Media: The Challenge of Developing Antitrust Policies that Support the Media Sector’s Unique Role in Our Democracy, 42 CONN. L. REV. 101 (2009).

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ests requires an approach to antitrust that focuses on the neutrality of the competitive process and the openness of market structures.
C. Promoting Competition Requires Analysis of Process and Structure
The Chicago School’s embrace of consumer welfare as the sole goal of antitrust is problematic for at least two reasons. First, as described in Section II.B,
this idea contravenes legislative history, which shows that Congress passed antitrust laws to safeguard against excessive concentrations of private power. It
recognized, in turn, that this vision would protect a host of interests, which thesole focus on “consumer welfare” disregards. Second, by adopting this newgoal, the Chicago School shifted the analytical emphasis away from process—theconditions necessary for competition—and toward an outcome—namely, consumer welfare.181 In other words, a concern about structure (is power sufficiently distributed to keep markets competitive?) was replaced by a calculation(did prices rise?).182 This approach is inadequate to promote real competition,a failure that is ampliﬁed in the case of dominant online platforms.
Antitrust doctrine has evolved to reﬂect this redeﬁnition. The recoupment
requirement in predatory pricing, for example, reﬂects the idea that competition is harmed only if the predator can ultimately charge consumers supracompetitive prices.183 This logic is agnostic about process and structure; itmeasures the health of competition primarily through effects on price and output. The same is true in the case of vertical integration. The modern view ofintegration largely assumes away barriers to entry, an element of structure, presuming that any advantages enjoyed by the integrated ﬁrm trace back to efficiencies.184
More generally, modern doctrine assumes that market power is not inherently harmful and instead may result from and generate efficiencies. In practice,
this presumes that market power is benign unless it leads to higher prices or re181.

See Fox, supra note 152.

182. For one perspective on how the Chicago School’s philosophy has shaped antitrust, see generally HOW THE CHICAGO SCHOOL OVERSHOT THE MARK: THE EFFECT OF CONSERVATIVEECONOMIC ANALYSIS ON U.S. ANTITRUST supra note 106. In his essay within this collection,

Richard Schmalensee states, “Competition . . . generally means now, consumer or total welfare.” Richard Schmalensee, Thoughts on the Chicago Legacy in U.S. Antitrust, in HOW THE
CHICAGO SCHOOL OVERSHOT THE MARK: THE EFFECT OF CONSERVATIVE ECONOMIC ANALYSIS
ON U.S. ANTITRUST supra note 106, at 17.
183. See supra Section I.A.
184. See BORK, supra note 32, at 278 (“Absent the power to restrict output, the decision to eliminate rivalry can only be made in order to achieve efficiency.”); see supra Section I.B.

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duced output—again glossing over questions about the competitive process infavor of narrow calculations.185 In other words, this approach equates harm entirely with whether a ﬁrm chooses to exercise its market power through pricebased levers, while disregarding whether a ﬁrm has developed this power, distorting the competitive process in some other way.186 But allowing ﬁrms toamass market power makes it more difficult to meaningfully check that power
when it is eventually exercised. Companies may exploit their market power in ahost of competition-distorting ways that do not directly lead to short-term
price and output effects.
I propose that a better way to understand competition is by focusing oncompetitive process and market structure.187 By arguing for a focus on market
structure, I am not advocating a strict return to the structure-conductperformance paradigm. Instead, I claim that seeking to assess competition
without acknowledging the role of structure is misguided. This is because thebest guardian of competition is a competitive process, and whether a market iscompetitive is inextricably linked to—even if not solely determined by—howthat market is structured. In other words, an analysis of the competitive process
and market structure will offer better insight into the state of competition than
do measures of welfare.
Moreover, this approach would better protect the range of interests that
Congress sought to promote through preserving competitive markets, as described in Section II.B. Foundational to these interests is the distribution ofownership and control—inescapably a question of structure. Promoting a competitive process also minimizes the need for regulatory involvement. A focus on
185. See Hovenkamp, supra note 57, at 359 (“[T]he guiding principle of the Chicago School cri-tique of the S-C-P paradigm was that market power is not inherently a bad thing. Indeed,
often market power as well as high concentration result from efficiency.”).
186. One line of argument holds that the concentration of private control—and the power it
hands to a few over our economy—is itself problematic, and if and how those wielding thispower choose to exercise it is beside the point. See, e.g., United States v. Columbia Steel Co.,
334 U.S. 495, 536 (1948) (Douglas, J., dissenting) (“In ﬁnal analysis, size in steel is themeasure of the power of a handful of men over our economy. That power can be utilizedwith lightning speed. It can be benign or it can be dangerous. The philosophy of the Sherman Act is that it should not exist.”).
187. I am not the ﬁrst to argue that preserving a competitive process is vital to promoting competition. See, e.g., Fox, supra note 38, at 1152-54. Instead, my contribution here is in (1) identifying how a consumer welfare-based approach is failing to detect and deter anticompetitive
harms in the context of internet platforms, thereby (2) highlighting the need for a processbased approach as applied to internet platforms, and (3) detailing that this process-based
approach would pay particular attention to entry barriers, conﬂicts of interest, the emergence of gatekeepers and bottlenecks, the use of and control over data, and dynamics of bargaining power.

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process assigns government the task of creating background conditions, rather
than intervening to manufacture or interfere with outcomes.188
In practice, adopting this approach would involve assessing a range of factors that give insight into the neutrality of the competitive process and theopenness of the market. These factors include: (1) entry barriers, (2) conﬂicts
of interest, (3) the emergence of gatekeepers or bottlenecks, (4) the use of andcontrol over data, and (5) the dynamics of bargaining power. An approach thattook these factors seriously would involve an assessment of how a market isstructured and whether a single ﬁrm had acquired sufficient power to distortcompetitive outcomes.189 Key questions involving these factors would be:
What lines of business is a ﬁrm involved in and how do these lines of businessinteract? Does the structure of the market create or reﬂect dependencies? Has adominant player emerged as a gatekeeper so as to risk distorting competition?
Attention to structural concerns and the competitive process are especially
important in the context of online platforms, where price-based measures ofcompetition are inadequate to capture market dynamics, particularly given therole and use of data.190 As internet platforms mediate a growing share of bothcommunications and commercial activity, ensuring that our framework ﬁts
how competition actually works in these markets is vital. Below I document
facets of Amazon’s power, trace the source of its growth, and analyze the effects
of its dominance. Doing so through the lens of structure and process enables us
to make sense of the company’s strategy and illuminates anticompetitive aspects of its business.
iii. amazon’s business strategy
Amazon has established dominance as an online platform thanks to two elements of its business strategy: a willingness to sustain losses and invest ag188. This is one line of argument President Franklin Roosevelt offered in favor of robust anti-

trust. In a 1938 speech to Congress he said, “The enforcement of free competition is the least
regulation business can expect.” Franklin D. Roosevelt, Message to Congress on Curbing Monopolies, AM. PRESIDENCY PROJECT http://www.presidency.ucsb.edu/ws/?pid=15637 [http://
perma.cc/WP9P-83RF].
189. By “distorting,” I mean that a single player has enough control to dictate outcomes. This is
the deﬁnition offered by Milton Friedman, a ﬁgure popular with the neoclassical school. See
MILTON FRIEDMAN, CAPITALISM AND FREEDOM 119-20 (2002) (“Monopoly exists when a speciﬁc individual or enterprise has sufficient control over a particular product or service to determine signiﬁcantly the terms on which other individuals shall have access to it.”). The Chicago School accepts this deﬁnition with regard to price and output, but ignores othermetrics of control.
190. See STUCKE & GRUNES, supra note 47, at 107-09.

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gressively at the expense of proﬁts, and integration across multiple businesslines.191 These facets of its strategy are independently signiﬁcant and closelyinterlinked—indeed, one way it has been able to expand into so many areas isthrough foregoing returns. This strategy—pursuing market share at the expense of short-term returns—deﬁes the Chicago School’s assumption of rational, proﬁt-seeking market actors. More signiﬁcantly, Amazon’s choice to pursue
heavy losses while also integrating across sectors suggests that in order to fully
understand the company and the structural power it is amassing, we must view
it as an integrated entity. Seeking to gauge the ﬁrm’s market role by isolating aparticular line of business and assessing prices in that segment fails to capture
both (1) the true shape of the company’s dominance and (2) the ways in which
it is able to leverage advantages gained in one sector to boost its business in another.
A. Willingness To Forego Proﬁts To Establish Dominance
Recently, Amazon has started reporting consistent proﬁts, largely due tothe success of Amazon Web Services, its cloud computing business.192 Its
North America retail business runs on much thinner margins, and its international retail business still runs at a loss.193 But for the vast majority of its twenty years in business, losses—not proﬁts—were the norm. Through 2013, Amazon had generated a positive net income in just over half of its ﬁnancial
reporting quarters. Even in quarters in which it did enter the black, its margins
were razor-thin, despite astounding growth. The graph below captures thegeneral trend.

191.

I am using “dominance” to connote that the company controls a signiﬁcant share of market
activity in a sector. I do not mean to attach the legal signiﬁcance that sometimes attends“dominance.”
192. See Greg Bensinger, Cloud Unit Pushes Amazon To Record Proﬁt, WALL ST. J. (Apr. 28, 2016,
7:31
PM),
http://www.wsj.com/articles/amazon-reports-surge-in-proﬁt-1461874333[http://perma.cc/L4QS-RJ26] (“The cloud division’s sales rose 64% to $2.57 billion. Whilethat is less than one-tenth of Amazon’s overall revenue, [Amazon Web Services] generated
67% of the company’s operating income in the quarter.”).
193. Id.

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2017

FIGURE 1.
AMAZON’S PRICES194
120,000
100,000
80,00060,00040,00020,000-20,000

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

0

Revenue (millions of $)Profit (millions of $)Just as striking as Amazon’s lack of interest in generating proﬁt has been
investors’ willingness to back the company.195 With the exception of a few
quarters in 2014, Amazon’s shareholders have poured money in despite thecompany’s penchant for losses. On a regular basis, Amazon would report losses, and its share price would soar.196 As one analyst told the New York Times,

194. Amazon’s Proﬁts, BEN-EVANS (Aug. 2013), http://ben-evans.com/benedictevans/2013/8/8/amazons-proﬁts [http://perma.cc/G5JC-7XBL]; Amazon.com Inc., MARKETWATCH,

http://www.marketwatch.com/investing/stock/amzn/historical[http://perma.cc/JW97-A624].
195. See Streitfeld, supra note 1 (“In its 16 years as a public company, Amazon has received uniquepermission from Wall Street to concentrate on expanding its infrastructure, increasing revenue at the expense of proﬁt. Stockholders have pushed Amazon shares up to a record level,
even though the company makes only pocket change. Proﬁts were always promised tomorrow.”).
196. See, e.g., Justin Dini, Amazon Losses Widen but Shares Rise After-Hours, THESTREET (Feb,
2, 2000, 7:01 PM), http://www.thestreet.com/story/875924/1/amazon-losses-widen-but-shares-rise-after-hours.html [http://perma.cc/P6HJ-3VDG]; Quick Pen, What’s Driving
the Amazon Stock Up Despite 188% Full Year Income Drop?, GURUFOCUS (Feb.
8, 2015), http://www.gurufocus.com/news/315124/whats-driving-the-amazon-stock-up-despite-188-full-year-income-drop [http://perma.cc/K6FJ-JWNA].

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amazon's antitrust paradox“Amazon’s stock price doesn’t seem to be correlated to its actual experience inany way.”197
Analysts and reporters have spilled substantial ink seeking to understandthe phenomenon. As one commentator joked in a widely circulated post, “Amazon, as best I can tell, is a charitable organization being run by elements of theinvestment community for the beneﬁt of consumers.”198
In some ways, the puzzlement is for naught: Amazon’s trajectory reﬂects
the business philosophy that Bezos outlined from the start. In his ﬁrst letter toshareholders, Bezos wrote:
We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership
position . . . . We ﬁrst measure ourselves in terms of the metrics mostindicative of our market leadership: customer and revenue growth, thedegree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and willcontinue to invest aggressively to expand and leverage our customer
base, brand, and infrastructure as we move to establish an enduring
franchise.199
In other words, the premise of Amazon’s business model was to establish
scale. To achieve scale, the company prioritized growth. Under this approach,aggressive investing would be key, even if that involved slashing prices orspending billions on expanding capacity, in order to become consumers’ onestop-shop. This approach meant that Amazon “may make decisions and weightradeoffs differently than some companies,” Bezos warned.200 “At this stage, we

197. David Streitfeld, Amazon Reports Unexpected Proﬁt, and Stock Soars, N.Y. TIMES (July 23,2015), http://www.nytimes.com/2015/07/24/technology/amazon-earnings-q2.html [http://
perma.cc/WJX9-CYG7]; see also Philip Elmer-DeWitt, This Is What Drives Apple Investors
Nuts About Amazon, FORTUNE (July 24, 2015, 2:58 PM), http://fortune.com/2015/07/24/apple-amazon-proﬁts [http://perma.cc/56U5-Z2E3] (noting the same).
198. Matthew Yglesias, Amazon Proﬁts Fall 45 Percent, Still the Most Amazing Company in theWorld, SLATE: MONEYBOX (Jan. 29, 2013, 4:23 PM), http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_proﬁts_fall_45 _percent.html [http://perma.cc/J8AZ-R9S6].
199. Jeffrey P. Bezos, Letter to Shareholders, AMAZON.COM, INC. (Mar. 30, 1998), http://
media.corporate-ir.net/media_ﬁles/irol/97/97664/reports/Shareholderletter97.pdf [http://
perma.cc/793G-YML7].
200. Id. at 2.

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126:7102017choose to prioritize growth because we believe that scale is central to achieving
the potential of our business model.”201
The insistent emphasis on “market leadership” (Bezos relies on the term six
times in the short letter)202 signaled that Amazon intended to dominate. And,by many measures, Amazon has succeeded. Its year-on-year revenue growth far
outpaces that of other online retailers.203 Despite efforts by big-box competitors like Walmart, Sears, and Macy’s to boost their online operations, no rival
has succeeded in winning back market share.204
One of the primary ways Amazon has built a huge edge is through Amazon
Prime, the company’s loyalty program, in which Amazon has invested aggressively. Initiated in 2005, Amazon Prime began by offering consumers unlimited
two-day shipping for $79.205 In the years since, Amazon has bundled in otherdeals and perks, like renting e-books and streaming music and video, as well as
one-hour or same-day delivery. The program has arguably been the retailer’s
single biggest driver of growth.206 Amazon does not disclose the exact number

201. Id.
202. Id. at 1-2.
203. Tonya Garcia, Amazon Accounted for
MARKETWATCH, (May 3, 2016, 3:17

60% of U.S. Online Sales Growth in 2015,PM), http://www.marketwatch.com/story/ama
zon-accounted-for-60-of-online-sales-growth-in-2015-2016-05-03 [http://perma.cc/8C5W-8NYW] (“Amazon makes up a larger percentage of e-commerce in the U.S. than any
other player, and its retail growth has outpaced overall online retail.”); see also The
Everything Shipper: Amazon and the New Age of Delivery, BI INTELLIGENCE (June5, 2016), http://www.businessinsider.com/the-everything-shipper-amazon-and-the-new-age-of-delivery-2016-6 [http://perma.cc/2SGJ-5ADY].
204. See Phil Wahba, This Chart Shows Just How Dominant Amazon Is, FORTUNE (Nov. 6, 2015,
11:48 AM), http://fortune.com/2015/11/06/amazon-retailers-ecommerce [http://perma.cc/9YPV-SKM5]. The fact that Amazon was exempt from sales taxes for the ﬁrst ﬁfteen years
of its existence gave it an 8-10% price advantage over brick-and-mortar stores. Its pricing
lead over both traditional and online retailers, however, has been and still continues to be far
greater than 8-10%. A review of a new price comparison tool stated: “And, as expected, it reported that Amazon indeed had the best prices for nearly everything we searched.” Zach Epstein, Amazon Isn’t Always the Cheapest Option—Here’s How To Find the Best Prices, BGR(July 17, 2014, 12:55 PM), http://bgr.com/2014/07/17/amazon-price-comparison-tool-lowest-price [http://perma.cc/J7P3-BBY5].
205. Dawn Kawamoto, Amazon Unveils Flat-Fee Shipping, CNET (Feb. 2, 2005), http://www.cnet.com/news/amazon-unveils-ﬂat-fee-shipping [http://perma.cc/Q8FS-7SQ7].
206. It has also been a key force driving up Amazon’s stock price. “Analysts describe Prime as oneof the main factors driving Amazon’s stock price—up 296 percent in the last two years—andthe main reason Amazon’s sales grew 30 percent during the recession while other retailers
ﬂailed.” Brad Stone, What’s in Amazon’s Box? Instant Gratiﬁcation, BLOOMBERG BUSINESSWEEK (Nov. 24, 2010, 5:00 PM), http://www.bloomberg.com/news/articles/2010-11-24/whats-in-amazons-box-instant-gratiﬁcation [http://perma.cc/Q7VL-95DQ]; see also

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amazon's antitrust paradoxof Prime subscribers, but analysts believe the number of users has reached 63
million—19 million more than in 2015.207 Membership doubled between 2011
and 2013; analysts expect it to “easily double again by 2017.”208 By 2020, it is estimated that half of U.S. households may be enrolled.209
As with its other ventures, Amazon lost money on Prime to gain buy-in. In
2011 it was estimated that each Prime subscriber cost Amazon at least $90 ayear—$55 in shipping, $35 in digital video—and that the company therefore
took an $11 loss annually for each customer.210 One Amazon expert tallies that
Amazon has been losing $1 billion to $2 billion a year on Prime memberships.211 The full cost of Amazon Prime is steeper yet, given that the company
has been investing heavily in warehouses, delivery facilities, and trucks, as partof its plan to speed up delivery for Prime customers—expenditures that regularly push it into the red.212
Despite these losses—or perhaps because of them—Prime is consideredcrucial to Amazon’s growth as an online retailer. According to analysts, customTom DiChristopher, Prime Will Grow Amazon Revenue Longer than You Think: Analyst,
CNBC (Sept. 11, 2015, 11:01 AM), http://www.cnbc.com/2015/09/11/prime-will-grow-amazon-revenue-longer-than-you-think-analyst.html[http://perma.cc/QG8H-Z4A6](“During Amazon’s second quarter conference call, management said growing Prime adoption was one factor behind acceleration in domestic and international revenue growth.”).
207. Devin Leonard, Will Amazon Kill FedEx?, BLOOMBERG (Aug. 31, 2016), http://www.bloomberg.com/features/2016-amazon-delivery [http://perma.cc/GE8F-D3BE].
208. Brad Tuttle, Amazon Prime: Bigger, More Powerful, More Proﬁtable than Anyone Imagined,
TIME (Mar. 18, 2013), http://business.time.com/2013/03/18/amazon-prime-bigger-more-powerful-more-proﬁtable-than-anyone-imagined [http://perma.cc/WNL5-MC29].
209. Dan Frommer, Half of US Households Could Have Amazon Prime by 2020, QUARTZ (Feb.
26, 2015), http://qz.com/351726/half-of-us-households-could-have-amazon-prime-by-2020[http://perma.cc/ZW4Z-47UY].
210. Stu Woo, Amazon ‘Primes’ Pump for Loyalty, WALL ST. J. (Nov. 14, 2011), http://www.wsj.com/articles/SB10001424052970203503204577036102353359784 [http://perma.cc/87WW-TVNW].
211. Deepa Seetharaman & Nathan Layne, Free Delivery Creates Holiday Boon for U.S. Consumers
at High Cost, REUTERS (Jan. 2, 2015, 12:22 PM), http://www.reuters.com/article/us-retail-shipping-holidays-analysis-idUSKBN0KB0P720150102 [http://perma.cc/CPH8-932W].
212. See Elizabeth Weise, Amazon Prime Is Big, but How Big?, USA TODAY (Feb. 3. 2015,
1:31 PM), http://www.usatoday.com/story/tech/2015/02/03/amazon-prime-10-years-old-anniversary/22755509 [http://perma.cc/5K2A-M3HA]. Amazon’s ﬁlings with the SEC showthat its shipping costs have grown as a percentage of sales each year since 2009. See Amazon.com, Inc., supra note 9, at 26; Amazon.com, Inc., Annual Report (Form 10-K) 25 (Jan.
30, 2013), http://www.sec.gov/Archives/edgar/data/1018724/000119312513028520/d445434d
10k.htm [http://perma.cc/RX85-5RJ3]; Amazon.com, Inc., Annual Report (Form 10-K) 27(Jan. 29, 2010), http://www.sec.gov/Archives/edgar/data/1018724/000119312510016098/d10k.htm [http://perma.cc/L27R-CHUY].

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ers increase their purchases from Amazon by about 150% after they become
Prime members.213 Prime members comprise 47% of Amazon’s U.S. shoppers.214 Amazon Prime members also spend more on the company’s website—
an average of $1,500 annually, compared to $625 spent annually by non-Primemembers.215 Business experts note that by making shipping free, Prime “successfully strips out paying for . . . the leading consumer burden of online shopping.”216 Moreover, the annual fee drives customers to increase their Amazon
purchases in order to maximize the return on their investment.217
As a result, Amazon Prime users are both more likely to buy on its platform
and less likely to shop elsewhere. “[Sixty-three percent] of Amazon Primemembers carry out a paid transaction on the site in the same visit,” compared to
13% of non-Prime members.218 For Walmart and Target, those ﬁgures are 5%
and 2% respectively.219 One study found that less than 1% of Amazon Primemembers are likely to consider competitor retail sites in the same shopping session. Non-Prime members, meanwhile, are eight times more likely than Primemembers to shop between both Amazon and Target in the same session.220 In
the words of one former Amazon employee who worked on the Prime team, “It
was never about the $79. It was really about changing people’s mentality so

213.

Stone, supra note 206.

214. Brad Tuttle, How Amazon Prime Is Crushing the Competition, TIME (Jan. 25, 2016), http://

time.com/money/4192528/amazon-prime-subscribers-spending[http://perma.cc/Y9VT-VHD5].
215. Chad Rubin, The Evolution of Amazon Prime and Their Followed Success, SKUBANA (Mar. 31,
2016), http://www.skubana.com/e-commerce-trends/evolution-of-amazon-prime [http://
perma.cc/T9ET-C6V8].
216. Ben Fox Rubin, As Amazon Marks 20 Years, Prime Grows to 44 Million Members in US, CNET
(July 15, 2015, 4:26 AM), http://www.cnet.com/news/amazon-prime-grows-to-estimated-44-million-members-in-us [http://perma.cc/CEQ8-G996].
217. See Brad Tuttle, How Amazon Gets You To Stop Shopping Anywhere Else, TIME (Dec. 1,2010), http://business.time.com/2010/12/01/how-amazon-gets-you-to-stop-shopping-any
where-else [http://perma.cc/GLQ2-65AT].
218. Clare O’Connor, Walmart and Target Being Crowded Out Online by Amazon Prime,
FORBES (Apr. 6, 2015, 12:59 PM), http://www.forbes.com/sites/clareoconnor/2015/04/06/walmart-and-target-being-crowded-out-online-by-amazon-prime [http://perma.cc/CM2E-GPER].
219. Id.
220. Id.

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they wouldn’t shop anywhere else.”221 In that regard, Amazon Prime seems tohave proven successful.222
In 2014, Amazon hiked its Prime membership fee to $99.223 The move
prompted some consumer ire, but 95% of Prime members surveyed said theywould either deﬁnitely or probably renew their membership regardless,224 suggesting that Amazon has created signiﬁcant buy-in and that no competitor iscurrently offering a comparably valuable service at a lower price. It may, however, also reveal the general stickiness of online shopping patterns. Althoughcompetition for online services may seem to be “just one click away,” researchdrawing on behavioral tendencies shows that the “switching cost” of changing
web services can, in fact, be quite high.225
No doubt, Amazon’s dominance stems in part from its ﬁrst-mover advantage as a pioneer of large-scale online commerce. But in several key ways,
Amazon has achieved its position through deeply cutting prices and investingheavily in growing its operations—both at the expense of proﬁts. The fact that
Amazon has been willing to forego proﬁts for growth undercuts a central
premise of contemporary predatory pricing doctrine, which assumes that predation is irrational precisely because ﬁrms prioritize proﬁts over growth.226 In
this way, Amazon’s strategy has enabled it to use predatory pricing tactics without triggering the scrutiny of predatory pricing laws.

221.

Stone, supra note 206.
222. See Tuttle, supra note 217 (“What this program has done is something that’s normally very
difficult to accomplish: It’s changed consumer habits, and, perhaps even more remarkably,
it’s changed them in ways that solely favor Amazon. The service is better than any freebie
promotion, which even if it’s good at driving traffic to the website, is short-lived. Instead,the Prime membership program gets consumers in the regular habit of at least checking
with Amazon before making any online purchase.”).
223. Greg Bensinger, Amazon Raises Prime Subscription Price to $99 a Year, WALL ST. J. (Mar. 13,
2014, 7:22 PM), http://www.wsj.com/articles/SB100014240527023035462045794369033094
11092 [http://perma.cc/33TK-76GS].
224. Lance Whitney, Amazon Prime Members Will Renew Despite Price Hike, Survey Finds, CNET
(July 23, 2014), http://www.cnet.com/news/amazon-prime-members-will-almost-all-renew-despite-price-increase [http://perma.cc/Z585-YU8P].
225. See Adam Candeub, Behavioral Economics, Internet Search, and Antitrust, 9 I/S 407, 409(2014) (“[O]nline market behavior may differ from the brick and mortar world . . . . In particular, behavioral tendencies related to habit and information costs may disrupt conventional economic assumptions.”).
226. As Justice White wrote in his dissent in Matsushita, “The Court, in discussing the unlikelihood of a predatory conspiracy, also consistently assumes that petitioners valued proﬁtmaximization over growth.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
604 (1986) (White, J., dissenting).

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2017

B. Expansion into Multiple Business Lines
Another key element of Amazon’s strategy—and one partly enabled by its
capacity to thrive despite posting losses—has been to expand aggressively into
multiple business lines.227 In addition to being a retailer, Amazon is a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and ﬁlms,
a fashion designer, a hardware manufacturer, and a leading provider of cloudserver space and computing power.228 For the most part, Amazon has expanded
into these areas by acquiring existing ﬁrms.229
Involvement in multiple, related business lines means that, in many instances, Amazon’s rivals are also its customers. The retailers that compete withit to sell goods may also use its delivery services, for example, and the media
companies that compete with it to produce or market content may also use its
platform or cloud infrastructure. At a basic level this arrangement creates conﬂicts of interest, given that Amazon is positioned to favor its own products overthose of its competitors.
Critically, not only has Amazon integrated across select lines of business,but it has also emerged as central infrastructure for the internet economy. Reports suggest this was part of Bezos’s vision from the start. According to early

227. Indeed, to get a sense of Amazon’s breadth, it is helpful to see the range of actors Amazon

lists among its “current and potential competitors”:(1) online, offline, and multichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products we offer and sell to consumers and businesses;(2) publishers, producers, and distributors of physical, digital, and interactive media of
all types and all distribution channels; (3) web search engines, comparison shopping
websites, social networks, web portals, and other online and app-based means of discovering, using, or acquiring goods and services, either directly or in collaboration withother retailers; (4) companies that provide e-commerce services, including website development, advertising, fulﬁllment, customer service, and payment processing;(5) companies that provide fulﬁllment and logistics services for themselves or for third
parties, whether online or offline; (6) companies that provide information technology
services or products, including on-premises or cloud-based infrastructure and otherservices; and (7) companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.
Amazon.com, Inc., Annual Report (Form 10-K) 4 (Apr. 6, 2016), http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjI4NTg0fENoaWxkSUQ9MzI5NTMwfFR
5cGU9MQ==&t=1 [http://perma.cc/96HQ-TZDT].
228. See generally id. (describing Amazon’s businesses).
229. As of 2012, Amazon had acquired or invested in over seventy companies. See SUCHARITA
MULPURU & BRIAN K. WALKER, FORRESTER, WHY AMAZON MATTERS NOW MORE THAN EVER 5 (2012).

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Amazon employees, when the CEO founded the business, “his underlying
goals were not to build an online bookstore or an online retailer, but rather a‘utility’ that would become essential to commerce.”230 In other words, Bezos’s
target customer was not only end-consumers but also other businesses.
Amazon controls key critical infrastructure for the Internet economy—inways that are difficult for new entrants to replicate or compete against. This
gives the company a key advantage over its rivals: Amazon’s competitors havecome to depend on it. Like its willingness to sustain losses, this feature of Amazon’s power largely confounds contemporary antitrust analysis, which assumes
that rational ﬁrms seek to drive their rivals out of business. Amazon’s game ismore sophisticated. By making itself indispensable to e-commerce, Amazon enjoys receiving business from its rivals, even as it competes with them. Moreover, Amazon gleans information from these competitors as a service provider
that it may use to gain a further advantage over them as rivals—enabling it tofurther entrench its dominant position.
iv. establishing structural dominanceAmazon now controls 46% of all e-commerce in the United States.231 Not
only is it the fastest-growing major retailer, but it is also growing faster than ecommerce as a whole.232 In 2010, it employed 33,700 workers; by June 2016, it
had 268,900.233 It is enjoying rapid success even in sectors that it only recently
entered. For example, the company “is expected to triple its share of the U.S.
apparel market over the next ﬁve years.”234 Its clothing sales recently rose by

230. Id. at 17.
231.

See LaVecchia & Mitchell, supra note 6, at 1.
232. Tiernan Ray, Amazon: All Retail’s SKUs Are Belong to Them, Goldman Tells CNBC, BARRONS:TECH TRADER DAILY (June 16, 2016, 11:40 AM), http://blogs.barrons.com/techtrader
daily/2016/06/16/amazon-all-retails-skus-are-belong-to-them-goldman-tells-cnbc [http://
perma.cc/Z95R-JYGR] (quoting a Goldman Sachs analyst as saying, “[p]rojected ecommerce growth of 22% this year is largely thanks to Amazon,” and “Amazon ‘is going tooutgrow that,’ with perhaps ‘mid to high 20s growth,’ . . . given ‘Amazon is taking share, andseeing acceleration in their international business’”). See generally Leonard, supra note 207(“Amazon’s growth has been preposterous . . . . The company is the ﬁfth-most valuable in
the world: Its market capitalization is about $366 billion, which is roughly equal to the
combined worth of Walmart, FedEx, and Boeing.”).
233. Leonard, supra note 207.
234. Shelly Banjo, Amazon Eats the Department Store, BLOOMBERG: GADFLY (Sept. 20, 2016,
9:27 AM), http://www.bloomberg.com/gadﬂy/articles/2016-09-20/amazon-clothing-sales-could-soon-top-macy-s [http://perma.cc/63UJ-5Y67].

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126:7102017$1.1 billion—even as online sales at the six largest U.S. department stores fellby over $500 million.235
These ﬁgures alone are daunting, but they do not capture the full extent of
Amazon’s role and power. Amazon’s willingness to sustain losses and invest aggressively at the expense of proﬁts, coupled with its integration across sectors,
has enabled it to establish a dominant structural role in the market.
In the Sections that follow, I describe several examples of Amazon’s conductthat illustrate how the ﬁrm has established structural dominance.236 These examples—its handling of e-books and its battle with an independent online retailer—focus on predatory pricing practices. These cases suggest ways in which
Amazon may beneﬁt from predatory pricing even if the company does not raise
the price of the goods on which it lost money. The other examples, Fulﬁllmentby-Amazon and Amazon Marketplace, demonstrate how Amazon has become
an infrastructure company, both for physical delivery and e-commerce, andhow this vertical integration implicates market competition. These cases highlight how Amazon can use its role as an infrastructure provider to beneﬁt its
other lines of business. These examples also demonstrate how high barriers toentry may make it difficult for potential competitors to enter these spheres,locking in Amazon’s dominance for the foreseeable future. All four of these accounts raise concerns about contemporary antitrust’s ability to register and address the anticompetitive threat posed by Amazon and other dominant online
platforms.
A. Below-Cost Pricing of Bestseller E-Books and the Limits of Modern
Recoupment Analysis
Amazon entered the e-book market by pricing bestsellers below cost. Although this strategic pricing helped Amazon to establish dominance in the ebook market, the government perceived Amazon’s cost cutting as benign, focusing on the proﬁtability of e-books in the aggregate and characterizing thecompany’s pricing of bestsellers as “loss leading” rather than predatory pricing.
This failure to recognize Amazon’s conduct as anticompetitive stems from amisunderstanding of online markets generally and of Amazon’s strategy speciﬁcally. Additionally, analyzing the issues raised in this case suggests that Amazon

235. Its clothing sales are greater than the combined online sales of its ﬁve largest online apparelcompetitors: Macy’s, Nordstrom, Kohl’s, Gap, and Victoria’s Secret’s parent. Id.
236. In some contexts, “dominance” connotes a legal deﬁnition. I am not using it in this way. See
supra note 191.

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could recoup its losses through means not captured by current antitrust analysis.
In late 2007, Amazon rolled out the Kindle, its e-reading device, andlaunched a new e-book library.237 Before introducing the device, CEO Jeff Bezos had decided to price bestseller e-books at $9.99,238 signiﬁcantly below the$12 to $30 that a new hardback typically costs.239 Critically, the wholesale priceat which Amazon was buying books from publishers had not dropped; it wasinstead choosing to price e-books below cost.240 Analysts estimate that Amazon
sold the Kindle device below manufacturing cost too.241 Bezos’s plan was todominate the e-book selling business in the way that Apple had become the goto platform for digital music.242 The strategy worked: through 2009, Amazon
dominated the e-book retail market, selling around 90% of all e-books.243

237. See Caroline McCarthy, Amazon Debuts Kindle E-Book Reader, CNET (Nov. 19, 2007, 10:33

AM), http://www.cnet.com/news/amazon-debuts-kindle-e-book-reader [http://perma.cc/VF4Z-2V77].
238. See id.
239. See BRAD STONE, THE EVERYTHING STORE (2013); George Packer, Cheap Words, NEW YORKER (Feb. 17, 2014), http://www.newyorker.com/magazine/2014/02/17/cheap-words [http://
perma.cc/42AN-Y6UT].
240. Prior to 2009, many publishers set a wholesale price for e-books at a 20% discount from theequivalent physical book, at which point Amazon’s $9.99 price point roughly matched thewholesale price of many of its e-books. In 2009, publishers eliminated the wholesale discount, yet Amazon continued to price e-books at $9.99. This is the point at which it clearlysold e-books below cost. See United States v. Apple, Inc., 952 F. Supp. 2d 638, 649-50(S.D.N.Y. 2013); see also Packer, supra note 239 (“The price was below wholesale in somecases, and so low that it represented a serious threat to the market in twenty-six-dollar hardcovers.”); Jeffrey A. Trachtenberg, E-Book Sales Fall After New Amazon Contracts, WALL ST.
J. (Sept. 3, 2015), http://www.wsj.com/article_email/e-book-sales-weaken-amid-higher-prices-1441307826-lMyQjAxMTE1MzAxNDUwMjQ2Wj [http://perma.cc/LVZ9-DK9Y](“Amazon was willing to buy a title for $14.99 and sell it for $9.99, taking a loss to grab
market share and encourage adoption of its Kindle e-reader.”).
241. See Eric Savitz, Amazon Selling Kindle Fire Below Cost, Analyst Contends, FORBES (Sept. 30,
2011, 5:40 PM), http://www.forbes.com/sites/ericsavitz/2011/09/30/amazon-selling-kindle-ﬁre-below-cost-analyst-contends [http://perma.cc/3AQ8-X9LZ]; Woo, supra note 210(“Mr. Munster estimated that Amazon sells each Kindle model at a loss of $10 to $15.”).
242. See Packer, supra note 239 (“In the mid-aughts, Bezos, having watched Apple take over themusic-selling business with iTunes and the iPod, became determined not to let the samething happen with books. In 2004, he set up a lab in Silicon Valley that would build Amazon’s ﬁrst piece of consumer hardware: a device for reading digital books. According to
Stone’s book, Bezos told the executive running the project, ‘Proceed as if your goal is to put
everyone selling physical books out of a job.’”).
243. Apple, 952 F. Supp. 2d at 649.

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Publishers, fearing that Amazon’s $9.99 price point for e-books would
permanently drive down the price that consumers were willing to pay for all
books, sought to wrest back some control. When the opportunity came topartner with Apple to sell e-books through the iBookstore store, ﬁve of the“Big Six” publishers introduced agency pricing, whereby publishers would set
the ﬁnal retail price and Apple would get a 30% cut.244 After securing this deal,
MacMillan, one of the “Big Six,” demanded that Amazon, too, adopt this pricing model.245 Though it initially refused and delisted MacMillan’s books,246
Amazon ultimately relented, explaining to readers that “we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly overtheir own titles.”247 Other publishers followed suit, halting Amazon’s ability to
price e-books at $9.99.248
In 2012, the DOJ sued the publishers and Apple for colluding to raise ebook prices.249 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 andfound “persuasive evidence lacking” to show that the company had engaged in
predatory practices.250 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.”251
Judge Cote, who presided over the district court trial, refrained fromaffirming the government’s conclusion.252 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
244. Id. at 658-61.
245. Id. at 672.
246. Id. at 679.
247. Announcement:

Macmillan E-Books, AMAZON (Jan. 31, 2010, 2:22 PM), http://www.amazon.com/forum/kindle/Tx2MEGQWTNGIMHV [http://perma.cc/K64A-RF2C]; seealso Apple, 952 F. Supp. 2d at 680-81 (describing the struggle between the publishing houses
and Amazon leading up to Amazon’s capitulation).
248. Apple, 952 F. Supp. 2d at 681.
249. Id. at 645.
250. Response of Plaintiff United States to Public Comments on the Proposed Final Judgment at
21, Apple, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC).
251. Id. at 21-22 (quoting Complaint at 9, Apple, 952 F. Supp. 2d 638 (No. 12-CV-2826-DLC)).
252. Apple, 952 F. Supp. 2d at 708 (“This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair tradepractice or in any other way a violation of law.”).

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the proﬁtability of Amazon’s e-book business in the aggregate and by characterizing the conduct as “loss leading” rather than potentially predatory pricing.253 These missteps suggest a failure to appreciate two critical aspects ofAmazon’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. That the DOJ chose todeﬁne the relevant market as e-books—rather than as speciﬁc lines, like bestseller e-books—reﬂects a deeper mistake: the failure to recognize how the economics of platform-based products differ in crucial ways from non-platform
goods. 254 As a result, the DOJ analyzed the e-book market as it would the market for physical books.
One indication of this failure to appreciate the difference between physicalbooks and e-books is that the government and Judge Cote treated Amazon’s below-cost pricing as loss leading,255 rather than as predatory pricing.256 The
difference between loss leading and predatory pricing is not spelled out in law,
but the distinction turns on the nature of the below-cost pricing, speciﬁcally its
intensity and the intent motivating it. Judge Cote’s use of “loss leading” revealed a view that “Amazon’s below-cost pricing was (a) selective rather thanpervasive, and (b) not intended to generate monopoly power.”257 On this view,
253. See id. at 650 (noting that Amazon “continued to sell many NYT Bestsellers as loss lead-ers”); Complaint, supra note 251, at 9 (“From the time of its launch, Amazon’s e-book distribution business has been consistently proﬁtable, even when substantially discounting somenewly released and bestselling titles.”); Response of Plaintiff United States to Public Comments on the Proposed Final Judgment, supra note 250, at 21-22.
254. See generally Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1
J. EUR. ECON. ASS’N 990 (2003) (explaining the dynamics of competition in two-sided markets).
255. Traditionally, a retailer loss-leads when it prices one good below cost in order to sell more ofanother good, assuming that discounts on one good will attract and retain consumers.
Walmart choosing to price t-shirts below cost to sell more shorts would be an example ofloss leading.
256. John B. Kirkwood, Collusion To Control a Powerful Customer: Amazon, E-Books, and Antitrust
Policy, 69 U. MIAMI L. REV. 1, 38-39 (2014).
257. Id. at 39.

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Amazon’s aim was to trigger additional sales of other products sold by Amazon,
rather than to drive out competing e-book sellers and acquire the power to increase e-book prices.258 In other words, because Amazon’s alleged short-term
aim was to sell more e-readers and e-books—rather than to harm its rivals andraise prices—its conduct is considered loss leading rather than predatory pricing. What both the DOJ and the district court missed, however, is the way inwhich below-cost pricing in this instance entrenched and reinforced Amazon’s
dominance in ways that loss leading by physical retailers does not.
Unlike with online shopping, each trip to a brick-and-mortar store is discrete. If, on Monday, Walmart heavily discounts the price of socks and you arelooking to buy socks, you might visit, buy socks, and—because you are alreadythere—also buy milk. On Thursday, the fact that Walmart had discounted
socks on Monday does not necessarily exert any tug; you may return toWalmart because you now know that Walmart often has good bargains, but
the fact that you purchased socks from Walmart on Monday is not, in itself, areason to return.
Internet retail is different. Say on Monday, Amazon steeply discounts the ebook version of Harper Lee’s Go Set a Watchman, and you purchase both a Kindle and the e-book. On Thursday, you would be inclined to revisit Amazon—and not simply because you know it has good bargains. Several factors extend
the tug. For one, Amazon, like other e-book sellers, has used a scheme known
as “digital rights management” (DRM), which limits the types of devices thatcan read certain e-book formats.259 Compelling readers to purchase a Kindle
through cheap e-books locks them into future e-book purchases from Amazon.260 Moreover, buying—or even browsing—e-books on Amazon’s platform
258. See id.
259. See Cory Doctorow, Why the Death of DRM Would Be Good News for Readers, Writers
and Publishers, GUARDIAN (May 3, 2012, 10:25 AM), http://www.theguardian.com/technology/2012/may/03/death-of-drm-good-news [http://perma.cc/H77L-7KZ8] (“IfTor sells you one of my books for the Kindle locked with Amazon’s DRM, neither I, nor Tor,
can authorise you to remove that DRM. If Amazon demands a deeper discount (something
Amazon has been doing with many publishers as their initial ebook distribution deals comeup for renegotiation) and Tor wants to shift its preferred ebook retail to a competitor like
Waterstone’s, it will have to bank on its readers being willing to buy their books all overagain.”).
260. See Ana Carolina Bittar, Unlocking the Gates of Alexandria: DRM, Competition and Accessto E-Books 1 (July 25, 2014) (unpublished manuscript), http://ssrn.com/abstract=2620354[http://perma.cc/6RHH-6QM4] (“[S]ince each bookseller uses a different proprietary
DRM scheme on their e-books, compatible with a limited number of reading platforms,
consumers face problems with interoperability. For example, a Kindle owner cannot buy
books from Barnes & Noble, and a Nook owner cannot buy books from Apple. This lack ofinteroperability can increase barriers to entry, switching costs, and network effects. Conse-760

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hands the company information about your reading habits and preferences, data the company uses to tailor recommendations and future deals.261 Replicatedacross a few more purchases, Amazon’s lock-in becomes strong. It becomes unlikely that a reader will then purchase a Nook and switch to buying e-books
through Barnes & Noble, even if that company is slashing prices.
Put differently, loss leading pays higher returns with platform-based ecommerce—and speciﬁcally with digital products like e-books—than it doeswith brick-and-mortar stores. The marginal value of the ﬁrst sale and earlysales in general is much higher for e-books than for print books because there
are lock-in effects at play, due both to technical design and the possibilities forand value of personalization.
By treating e-commerce and digital goods the same as physical stores andgoods, both the government and Judge Cote missed the anticompetitive implications of Amazon’s below-cost pricing. Though the immediate effect of Amazon’s pricing of bestseller e-books may have been to sell more e-books generally, that tactic has also positioned Amazon to dominate the market in a way thatsets it up to raise future prices. In this context, the traditional distinction between loss leading and predatory pricing is strained.
Instead of recognizing that the economics of platforms meant that belowcost pricing on a platform-hosted good would tend to facilitate long-term
dominance, the government took comfort that the industry was “dynamic andevolving” and concluded that the “presence and continued investment by technology giants, multinational book publishers, and national retailers in e-books
businesses” rendered an Amazon-dominated market unlikely.262 Yet Amazon’s
early lead has, in fact, translated to long-term dominance. It controls around
65% of the e-book market today,263 while its share of the e-reader market hov-quently, consumers are often locked into an e-book ecosystem, which permits booksellers to
act as gatekeepers of the e-book market.”).
261. See Alexandra Alter, Your E-Book Is Reading You, WALL ST. J. (July 19, 2012, 3:24 PM),
http://www.wsj.com/articles/SB10001424052702304870304577490950051438304 [http://
perma.cc/6LQW-BCKJ] (“The major new players in e-book publishing—Amazon, Appleand Google—can easily track how far readers are getting in books, how long they spend
reading them and which search terms they use to ﬁnd books. Book apps for tablets like theiPad, Kindle Fire and Nook record how many times readers open the app and how muchtime they spend reading. Retailers and some publishers are beginning to sift through the data, gaining unprecedented insight into how people engage with books.”).
262. Response of Plaintiff United States to Public Comments on the Proposed Final Judgment,
supra note 250, at 22.
263. October 2015 – Apple, B&N, Kobo, and Google: A Look at the Rest of the Ebook Market, AUTHOREARNINGS (Oct. 2015), http://authorearnings.com/report/october-2015-apple-bn-kobo-and761

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ers around 74%.264 Players that appeared up-and-coming even a few years ago
are now retreating from the market. Sony closed its U.S. Reader store and is nolonger introducing new e-readers to the U.S. market.265 Barnes & Noble,
meanwhile, has slashed funding for the Nook by 74%.266 The only real e-books
competitor left standing is Apple.267
Because the government deﬂected predatory pricing claims by looking at
aggregate proﬁtability, neither the government nor the court reached the question of recoupment. Given that—under current doctrine—whether below-cost
pricing is predatory or not turns on whether a ﬁrm recoups its losses, weshould examine how Amazon could use its dominance to recoup its losses inways that are more sophisticated than what courts generally consider or areable to assess.
Most obviously, Amazon could earn back the losses it generated on bestseller e-books by raising prices of either particular lines of e-books or e-books as awhole. This intra-product market form of recoupment is what courts look for.
However, it remains unclear whether Amazon has hiked e-book prices because,as the New York Times noted, “[i]t is difficult to comprehensively track the
movement of prices on Amazon,” which means that any evidence of pricetrends is “anecdotal and fragmentary.”268 As Amazon customers can attest, Amazon’s prices ﬂuctuate rapidly and with no explanation.269
This underscores a basic challenge of conducting recoupment analysis with
Amazon: it may not be apparent when and by how much Amazon raises prices.
Online commerce enables Amazon to obscure price hikes in at least two ways:-google-a-look-at-the-rest-of-the-ebook-market [http://perma.cc/GKN4-SA43] (notingthat Amazon also sells 85% of indie e-books).
264. Statistics and Facts About Amazon, STATISTA (2016), http://www.statista.com/topics/846/amazon [http://perma.cc/YR3Q-D7YE].
265. Sony Gives Up on Selling E-Readers, BBC (Aug. 5, 2014), http://www.bbc.com/news/technology-28663878 [http://perma.cc/D29U-W7NZ].
266. Jim Milliot, B&N Cut Nook Investment by 74% in Third Quarter, PUBLISHERS WEEKLY(Mar. 7, 2014), http://www.publishersweekly.com/pw/by-topic/industry-news/booksell
ing/article/61331-b-n-cut-nook-investment-by-74-in-third-quarter.html [http://perma.cc/846M-28HZ].
267. Nor is the decline of Amazon competitors unique to e-books. “Now, with Borders dead,
Barnes & Noble struggling and independent booksellers greatly diminished, for many consumers there is simply no other way to get many books than through Amazon.” Streitfeld,
supra note 1.
268. Id.
269. See id.

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rapid, constant price ﬂuctuations and personalized pricing.270 Constant priceﬂuctuations diminish our ability to discern pricing trends. By one account,
Amazon changes prices more than 2.5 million times each day.271 Amazon is alsoable to tailor prices to individual consumers, known as ﬁrst-degree price discrimination. There is no public evidence that Amazon is currently engaging inpersonalized pricing,272 but online retailers generally are devoting signiﬁcantresources to analyzing how to implement it.273 A major topic of discussion at
the 2014 National Retail Federation annual convention, for example, was how
to introduce discriminatory pricing without triggering consumer backlash.274
One mechanism discussed was highly personalized coupons sent at the point ofsale, which would avoid the need to show consumers different prices but
would still achieve discriminatory pricing.275
If retailers—including Amazon—implement discriminatory pricing on awide scale, each individual would be subject to his or her own personal pricetrajectory, eliminating the notion of a single pricing trend. It is not clear how
we would measure price hikes for the purpose of recoupment analysis in that
scenario. There would be no obvious conclusions if some consumers faced
higher prices while others enjoyed lower ones. But given the magnitude and270. Several journalists have tracked instances of price discrimination in e-commerce. See, e.g.,

Julia Angwin et al., The Tiger Mom Tax: Asians Are Nearly Twice as Likely To Get a Higher
Price from Princeton Review, PROPUBLICA (Sept. 1, 2015), http://www.propublica.org/article/asians-nearly-twice-as-likely-to-get-higher-price-from-princeton-review [http://perma.cc/L96N-SZKR]; Jennifer Valentino-Devries et al., Websites Vary Prices, Deals Basedon User Information, WALL ST. J. (Dec. 24, 2012), http://www.wsj.com/articles/SB10001424127887323777204578189391813881534 [http://perma.cc/BF3S-ZX3C].
271. Roberto A. Ferdman, Amazon Changes Its Prices More than 2.5 Million Times a Day, QUARTZ(Dec. 14, 2013), http://qz.com/157828/amazon-changes-its-prices-more-than-2-5-million-times-a-day [http://perma.cc/W25A-EUNP].
272. But recent reporting does suggest that Amazon manipulates how it presents pricing
in order to favor its own products. See Julia Angwin & Surya Mattu, Amazon Says
It Puts Customers First. But Its Pricing Algorithm Doesn’t, PROPUBLICA (Sept.
20, 2016), http://www.propublica.org/article/amazon-says-it-puts-customers-ﬁrst-but-its-pricing-algorithm-doesnt [http://perma.cc/RR6C-FTS4] (“[T]he company appears to beusing its market power and proprietary algorithm to advantage itself at the expense of
sellers and many customers.”).
273. See Lina Khan, Why You Might Pay More than Your Neighbor for the Same Bottle of Salad Dressing, QUARTZ (Jan. 19, 2014), http://qz.com/168314/why-you-might-pay-more-than-your-neighbor-for-the-same-bottle-of-salad-dressing [http://perma.cc/KVL3-QCBC].
274. Id.
275. Id. (“‘Coupons will be the doorway in to differential pricing,’ said Scott Anderson, principal
consultant at FICO, which provides data analytics and decision-making services. In otherwords, we could all end up paying signiﬁcantly different amounts for the same items, even if
we see the same prices while browsing.”).

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accuracy of data that Amazon has collected on millions of users, tailored pricing
is not simply a hypothetical power.276 Discerning whether and by how muchAmazon raises book prices will be more difficult than the Matsushita or Brooke
Group Courts could have imagined.277
It is true that brick-and-mortar stores also collect data on customer purchasing habits and send personalized coupons. But the types of consumer behavior that internet ﬁrms can access—how long you hover your mouse on aparticular item, how many days an item sits in your shopping basket before
you purchase it, or the fashion blogs you visit before looking for those same
items through a search engine—is uncharted ground. The degree to which aﬁrm can tailor and personalize an online shopping experience is different inkind from the methods available to a brick-and-mortar store—precisely because the type of behavior that online ﬁrms can track is far more detailed andnuanced. And unlike brick-and-mortar stores—where everyone at least sees acommon price (even if they go on to receive discounts)—internet retail enables
ﬁrms to entirely personalize consumer experiences, which eliminates any collective baseline from which to gauge price increases or decreases.
The decision of which product market in which Amazon may choose toraise prices is also an open question—and one that current predatory pricing
doctrine ignores. Courts generally assume that a ﬁrm will recoup by increasing
prices on the same goods on which it previously lost money. But recoupment
across markets is also available as a strategy, especially for ﬁrms as diversiﬁed
across products and services as Amazon. Reporting suggests the company did
just this in 2013, by hiking prices on scholarly and small-press books and creating the risk of a “two-tier system where some books are priced beyond an audi-

276. As a group of authors stated in a recent letter to the Justice Department:[T]he corporation’s detailed knowledge of the buying habits of millions of readers—which it amasses through a minute-by-minute tracking of their actions
online—puts it in a powerful position to use such ‘personalized’ pricing and marketing to inﬂuence the decisions of readers and thereby extract the most amountof cash possible from each individual.
Letter from Authors United to William J. Baer, Assistant Att’y Gen., Antitrust Div., Dep’tof Justice (July 14, 2015), http://www.authorsunited.net/july/longdocument.html[http://perma.cc/L9RN-YESR]; see also David Streitfeld, Accusing Amazon of Antitrust
Violations, Authors and Booksellers Demand Inquiry, N.Y. TIMES (July 13, 2015), http://www.nytimes.com/2015/07/14/technology/accusing-amazon-of-antitrust-violations-authors-and-booksellers-demand-us-inquiry.html [http://perma.cc/G8QF-5LYY] (reporting on the Authors United letter to the Assistant Attorney General and its claim that Amazon seems to be“engag[ing] in content control” in its decisions to sell certain books).
277. See supra Section I.A. For accounts of how some retailers have successfully implemented discriminatory pricing online, see supra note 270 and accompanying text.

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ence’s reach.”278 Although Amazon may be recouping its initial losses in ebooks through markups on physical books, this cross-market recoupment is
not a scenario that enforcers or judges generally consider.279 One possible reason for this neglect is that Chicago School scholarship, which assumes recoupment in single-product markets is unlikely, also holds recoupment in multi-product scenarios to be implausible.280
Although current predatory pricing doctrine focuses only on recoupment
through raising prices for consumers, Amazon could also recoup its losses by
imposing higher fees on publishers. Large book retailer chains like Barnes &Noble have long used their market dominance to charge publishers for favorable product placement, such as displays in a storefront window or on a prominent table.281 Amazon’s dominance in the e-book market has enabled it to demand similar fees for even the most basic of services. For example, when
renewing its contract with Hachette last year, Amazon demanded payments forservices including the pre-order button, personalized recommendations, andan Amazon employee assigned to the publisher.282 In the words of one personclose to the negotiations, Amazon “is very inventive about what we’d callstandard service. . . . They’re teasing out all these layers and saying, ‘If you
want that service, you’ll have to pay for it.’”283 By introducing fees on services
that it previously offered for free, Amazon has created another source of revenue. Amazon’s power to demand these fees—and recoup some of the losses itsustained in below-cost pricing—stems from dominance partly built through278. Streitfeld, supra note 1.
279. See PHILLIP AREEDA & HERBERT HOVENKAMP, FUNDAMENTALS OF ANTITRUST LAW 7-72

(2010) (“There may be cases in which a predator who makes more than one product or operates in more than one region selects only one for below-cost pricing but reaps recoupment
beneﬁts in all . . . . The courts have not dealt adequately with this problem.”); Leslie, supranote 94, at 1720 (“Courts apparently do not appreciate the prospect of recoupment in another market.”); Timothy J. Trujillo, Note, Predatory Pricing Standards Under Recent Supreme
Court Decisions and Their Failure To Recognize Strategic Behavior as a Barrier to Entry, 19 J.
CORP. L. 809, 813, 825 (1994) (“The . . . recoupment analysis in Matsushita, Cargill, andBrooke refers to recoupment only in the market in which the predation actually occurs. Thus,
the Court’s analyses and test . . . ignore the possibility that successful predation could occur
because the dominant ﬁrm can spread its gains from predation over several markets.”).
280. See Leslie, supra note 94, at 1720-21.
281. See Randy Kennedy, Cash Up Front, N.Y. TIMES (June 5, 2005), http://www.nytimes.com/2005/06/05/books/review/cash-up-front.html [http://perma.cc/H9L2-RUPU].
282. See James B. Stewart, Booksellers Score Some Points in Amazon’s Spat with Hachette, N.Y. TIMES(June 20, 2014), http://www.nytimes.com/2014/06/21/business/booksellers-score-some-points-in-amazons-standoff-with-hachette.html [http://perma.cc/PD34-M28S].
283. Id.

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126:7102017that same below-cost pricing. The fact that Amazon has itself vertically integrated into book publishing—and hence can promote its own content—may
give it additional leverage to hike fees. Any publisher that refuses could see
Amazon favor its own books over the publisher’s, reﬂecting a conﬂict of interest I discuss further in Section IV.D. It is not uncommon for half of the titles on
Amazon’s Kindle bestseller list to be its own.284
While not captured by current antitrust doctrine, the pressure Amazon puts
on publishers merits concern.285 For one, consolidation among book sellers—partly spurred by Amazon’s pricing tactics and demands for better terms frompublishers—has also spurred consolidation among publishers. Consolidation
among publishers last reached its heyday in the 1990s—as publishing houses
sought to bulk up in response to the growing clout of Borders and Barnes &Noble—and by the early 2000s, the industry had settled into the “Big Six.”286
This trend has cost authors and readers alike, leaving writers with fewer paths
to market and readers with a less diverse marketplace. Since Amazon’s rise, themajor publishers have merged further—thinning down to ﬁve, with rumors ofmore consolidation to come.287
Second, the increasing cost of doing business with Amazon is upending the
publishers’ business model in ways that further risk sapping diversity. Traditionally, publishing houses used a cross-subsidization model whereby theywould use their best sellers to subsidize weightier and riskier books requiring
greater upfront investment.288 In the face of higher fees imposed by Amazon,
284. See LaVecchia & Mitchell, supra note 6, at 2.
285. Acquisition and maintenance of monopsony power are still recognized harms under the

Sherman and Clayton Acts, even though few cases are brought today. But cf. Complaint at
12-13, United States v. George’s Foods, LLC, No. 5:11-cv-00043-gec (W.D. Va. May 10, 2011)(arguing that a company’s acquisition of a chicken complex would “substantially lessen
competition for the purchase of broiler grower [chicken farmer] services . . . in violation ofSection 7 of the Clayton Act”).
286. Boris Kachka, Book Publishing’s Big Gamble, N.Y. TIMES (July 9, 2013), http://www.nytimes.com/2013/07/10/opinion/book-publishings-big-gamble.html[http://perma.cc/AP5X] (“The merger, announced last October and completed on July 1 after regulatory approval, shrinks the Big Six, which publish about two-thirds of books in the United States,
down to the Big Five.”).
287. Id. Publishers have also merged divisions internally. See, e.g., Alex Shephard, The Vanishing
Mass Market: Penguin Merges Two Mass Market Publishing Houses To Create New Mass Market
Publishing House, MELVILLE HOUSE (June 26, 2015), http://www.mhpbooks.com/the-vanishing-mass-market-penguin-merges-two-mass-market-publishing-houses-merge-to-create-new-mass-market-publishing-house [http://perma.cc/F4V6-GGLU].
288. Cross-subsidization schemes can have widely different effects, depending on how the two
submarkets are or are not interrelated. In Amazon’s case, losses do have cross-market effects:
Amazon prices below cost in order to generate higher sales in another line of business; its766

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publishers say they are less able to invest in a range of books. In a recent letter
to DOJ, a group of authors wrote that Amazon’s actions have “extract[ed] vital
resources from the [book] industry in ways that lessen the diversity and qualityof books.”289 The authors noted that publishers have responded to Amazon’s
fees by both publishing fewer titles and focusing largely on books by celebrities
and bestselling authors.290 The authors also noted, “Readers are presented withfewer books that espouse unusual, quirky, offbeat, or politically risky ideas, aswell as books from new and unproven authors. This impoverishes America’s
marketplace of ideas.”291
Amazon’s conduct would be readily cognizable as a threat under the preChicago School view that predatory pricing laws speciﬁcally and antitrust generally promoted a broad set of values. Under the predatory pricing jurisprudence of the early and mid-twentieth century, harm to the diversity and vibrancy of ideas in the book market may have been a primary basis for government
intervention. The political risks associated with Amazon’s market dominancealso implicate some of the major concerns that animate antitrust laws. For instance, the risk that Amazon may retaliate against books that it disfavors—
either to impose greater pressure on publishers or for other political reasons—raises concerns about media freedom. Given that antitrust authorities previously considered diversity of speech and ideas a factor in their analysis, Amazon’s
degree of control, too, should warrant concern.
Even within the narrower “consumer welfare” framework, Amazon’s attempts to recoup losses through fees on publishers should be understood as
harmful. A market with less choice and diversity for readers amounts to a formof consumer injury. That DOJ ignored this concern in its suit against Appleand the publishers suggests that its conception of predatory pricing fails to
captureoverlooks the full suite of harms that Amazon’s actions may cause.292
losses in one market actively boost another market. By contrast, the cross-subsidization model
used by publishers has no analogous crossover effects. A publisher might decide to publish
an obscure book, even if it knows it will lose money, and subsidize those losses throughproﬁts made on a more popular book. However, the publisher’s choice to sustain a loss on
the obscure book does not boost sales of its popular books. The major difference in Amazon’s
case is that it is an online platform. The market effects across its different segments are signiﬁcant in ways that do not hold for brick-and-mortar stores or other non-platform entities.
289. Letter from Authors United to William J. Baer, supra note 276.
290. Id.
291. Id.
292. That said, the DOJ did consider how rising consolidation in the media sector—speciﬁcally inthe context of a proposed merger between two newspapers—would risk undermining the
spread of ideas. Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Files Antitrust Lawsuit To Stop L.A. Times Publisher from Acquiring Competing767the yale law journal

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Amazon’s below-cost pricing in the e-book market—which enabled it tocapture 65% of that market,293 a sizable share by any measure—strains predatory pricing doctrine in several ways. First, Amazon is positioned to recoup its
losses by raising prices on less popular or obscure e-books, or by raising prices
on print books. In either case, Amazon would be recouping outside the original
market where it sustained losses (bestseller e-books), so courts are unlikely tolook for or consider these scenarios. Additionally, constant ﬂuctuations in prices and the ability to price discriminate enable Amazon to raise prices with little
chance of detection. Lastly, Amazon could recoup its losses by extracting morefrom publishers, who are dependent on its platform to market both e-books
and print books. This may diminish the quality and breadth of the works thatare published, but since this is most directly a supplier-side rather than buyerside harm, it is less likely that a modern court would consider it closely. The
current predatory pricing framework fails to capture the harm posed to thebook market by Amazon’s tactics.
B. Acquisition of Quidsi and Flawed Assumptions About Entry and Exit Barriers
In addition to using below-cost pricing to establish a dominant position ine-books, Amazon has also used this practice to put pressure on and ultimately
acquire a chief rival. This history challenges contemporary antitrust law’s assumption that predatory pricing cannot be used to establish dominance. Whiletheory may predict that entry barriers for online retail are low, this accountshows that in practice signiﬁcant investment is needed to establish a successful
platform that will attract traffic. Finally, Amazon’s conduct suggests that psychological intimidation can discourage new entry that would challenge a dominant player’s market power.
In 2008, Quidsi was one of the world’s fastest growing e-commerce companies.294 It oversaw several subsidiaries: Diapers.com (focused on baby care),Soap.com (focused on household essentials), and BeautyBar.com (focused on

Newspapers (Mar. 17, 2016), http://www.justice.gov/opa/pr/justice-department-ﬁles-antitrust-lawsuit-stop-la-times-publisher-acquiring-competing [http://perma.cc/3MNY-8XZE] (“‘Newspapers continue to play an important role in the dissemination of news andinformation to readers . . . .’” (quoting Assistant Attorney General Bill Baer of the DOJ’s Antitrust Division)).
293. At the height of its market share, this ﬁgure was closer to 90%. After Apple entered themarket, Amazon’s share fell slightly and then stabilized around 65%. See Packer, supra note
239.
294. STONE, supra note 239, at 297 (“Quidsi [grew] from nothing to $300 million in annual sales
in just a few years. . . .”).

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beauty products). Amazon expressed interest in acquiring Quidsi in 2009, but
the company’s founders declined Amazon’s offer.295
Shortly after Quidsi rejected Amazon’s overture, Amazon cut its prices fordiapers and other baby products by up to 30%.296 By reconﬁguring their prices,
Quidsi executives saw that Amazon’s pricing bots—software “that carefully
monitors other companies’ prices and adjusts Amazon’s to match”—were tracking Diapers.com and would immediately slash Amazon’s prices in response to
Quidsi’s changes.297 In September 2010, Amazon rolled out Amazon Mom, a
new service that offered a year’s worth of free two-day Prime shipping (whichusually cost $79 a year).298 Customers could also secure an additional 30% discount on diapers by signing up for monthly deliveries as part of a service
known as “Subscribe and Save.”299 Quidsi executives “calculated that Amazon
was on track to lose $100 million over three months in the diaper category
alone.”300
Eventually, Amazon’s below-cost pricing started eating into Diapers.com’s
growth, and it “slowed under Amazon’s pricing pressure.”301 Investors, meanwhile, “grew wary of pouring more money” into Quidsi, given the challenge
from Amazon.302 Struggling to keep up with Amazon’s pricing war, Quidsi’s
owners began talks with Walmart about potentially selling the business. Amazon intervened and made an aggressive counteroffer.303 Although Walmart

295. Id. at 295-96.
296. Id. at 296.
297. Id.; Brad Stone, The Secrets of Bezos: How Amazon Became the Everything Store, BLOOMBERG(Oct. 10, 2013, 5:57 AM), http://www.bloomberg.com/news/articles/2013-10-10/jeff-bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone [http://
perma.cc/TD96-G6HV].
298. Brad Tuttle, It’s Target Versus Amazon in the Battle for Moms, TIME (Sept.
26, 2013), http://business.time.com/2013/09/26/its-target-versus-amazon-in-the-battle-for-moms [http://perma.cc/UJE6-Y3R9].
299. STONE, supra note 239, at 297.
300. Id. at 298.
301. Jason Del Ray, How Jeff Bezos Crushed Diapers.com so Amazon Could Buy Diapers.com, ALL
THINGS D (Oct. 10, 2013, 5:09 AM), http://allthingsd.com/20131010/how-jeff-bezos-crushed-diapers-com-so-amazon-could-buy-diapers-com [http://perma.cc/K98D-VGNP].
302. Will Oremus, The Time Jeff Bezos Went Thermonuclear on Diapers.com, SLATE (Oct. 10, 2013,
12:37 PM), http://www.slate.com/blogs/future_tense/2013/10/10/amazon_book_how_jeff_bezos_went_thermonuclear_on_diapers_com.html [http://perma.cc/A9JE-VNWR].
303. Stone, supra note 297 (noting that Amazon offered $540 million, giving Quidsi a fortyeight-hour window in which to respond and “rachet[ing] up the pressure,” telling Quidsi

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offered a higher ﬁnal bid, “the Quidsi executives stuck with Amazon, largelyout of fear.”304 The FTC reviewed the Amazon-Quidsi deal and decided that it
did not trigger anticompetitive concerns.305 Through its purchase of Quidsi,
Amazon eliminated a leading competitor in the online sale of baby products.
Amazon achieved this by slashing prices and bleeding money,306 losses that its
investors have given it a free pass to incur—and that a smaller and newer venture like Quidsi, by contrast, could not maintain.
After completing its buy-up of a key rival—and seemingly losing hundredsof millions of dollars in the process—Amazon went on to raise prices. In November 2011, a year after buying out Quidsi, Amazon shut down new memberships in its Amazon Mom program.307 Though the company has since reopened the program, it has continued to scale back the discounts and generous
shopping terms of the original offer. As of February 2012, discounts that had
previously been 30% were reduced to 20%, and the one year of free Primemembership was cut to three months.308 In November 2014, the company
hiked prices further: members purchasing more than four items in a monthwould no longer receive the general 20% discount, and the 20% discount onbaby wipes—one of the program’s top-selling products—was cut to 5%.309

that Bezos was “such a furious competitor [that he] would drive diaper prices to zero if theywent with Walmart,” in which case “the Amazon Mom onslaught would continue”).
304. Id.
305. The FTC reviewed the deal under Section 7 of the Clayton Act, the provision that governs
mergers, as well as section 5 of the Federal Trade Commission Act, which targets general unfair practices. See Letter from Donald S. Clark, Sec’y, FTC, to Peter C. Thomas, Simpson
Thacher & Bartlett LLP (Mar. 23, 2011), http://www.ftc.gov/sites/default/ﬁles/documents/closing_letters/amazon.com-inc./quidsi-inc./110323amazonthomas.pdf [http://perma.cc/7E5A-LYMB]; see also Stone, supra note 297 (“The Federal Trade Commission scrutinized
the acquisition for four and a half months, going beyond the standard review to the secondrequest phase, where companies must provide more information about a transaction. The
deal raised a host of red ﬂags, such as the elimination of a major player in a competitive category, according to an FTC official familiar with the review.”).
306. See STONE, supra note 239, at 298.
307. “At this time, [Amazon Mom is] not accepting new members,” a company spokesman stated, declining to explain why. Thad Rueter, Let’s Hope Amazon Doesn’t Make Them Wait Until
Potty Training Ends, INTERNET RETAILER (Nov. 30, 2011, 3:35 PM), http://www.internetre
tailer.com/2011/11/30/now-amazon-closes-membership-moms-discount-program [http://
perma.cc/L76R-XEHP].
308. Thad Rueter, Amazon Tweaks Its Diaper Program, Moms Vent and a Competitor Pounces, INTERNET RETAILER (Feb. 23, 2012, 4:19 PM), http://www.internetretailer.com/2012/02/23/amazon-tweaks-diaper-program-moms-vent-competitor-pounces [http://perma.cc/GBU7-KYNF].
309. Id.

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Summarizing the series of changes, one journalist observed, “The Amazon
Mom program has become much less generous than it was when it was introduced in 2010.”310 In online forums where consumers expressed frustrations
with the changes, several users said they would be taking their business from
Amazon and returning to Diapers.com—which, other users pointed out, wasno longer possible.311 Through its strategy, Amazon now holds a strong position in the baby-product market.312
Amazon’s conduct runs counter to contemporary predatory pricing thinking, which contends that predation is no path to buying up a competitor. In
The Antitrust Paradox, Bork wrote, “[T]he modern law of horizontal mergers
makes it all but impossible for the predator to bring the war to an end by purchasing his victim. To accomplish the predator’s purpose, the merger must create a monopoly” and law “would preclude the attainment of the monopoly necessary to make predation proﬁtable.”313 For sectors with low entry costs, Bork
writes, this strategy is precluded by the constant possibility of reentry by otherplayers. “A shoe retailer can be driven out rapidly, but reentry will be equally
rapid.”314 In ﬁelds in which entry costs are high, Bork argued that exit by competitors is unlikely because management would need to believe that the predation had rendered the value of their facilities negligible. For instance,“[r]ailroading, which involves specialized facilities, is difficult to enter, but thepotential victim of predation would be difficult to drive out precisely because
railroad facilities are not useful in other industries.”315

310. Laura Owen, Amazon Cuts the Beneﬁts Again in Amazon Mom, Its Prime Program for Parents,
GIGAOM (Sept. 29, 2014, 7:42 AM), http://gigaom.com/2014/09/29/amazon-cuts-the-beneﬁts-again-in-amazon-mom-its-prime-program-for-parents[http://perma.cc/993P-JPZN].
311. In response to complaints about Amazon’s abrupt change, followed by customers recommending Diapers.com, one customer stated, “Diapers.com has a different shipping program, but they were recently bought out by Amazon. I would think that their shipping policies might change soon as well.” Shopaholic, Comment to Amazon Mom Beneﬁts Misleading!,
AMAZON (June 15, 2011, 4:56 PM), http://www.amazon.com/forum/baby/ref=cm_cd_pg_pg2?_encoding=UTF8&cdForum=FxSKWDWQRZ03WU&cdPage=2&cdThr
ead=Tx1ZC5GMKB4JEQP [http://perma.cc/E5NH-JCJ7].
312. Amazon leads the online market for baby supplies, holding 43%. Walmart and Target follow,
with 23% and 18%, respectively. Target, Walmart, Amazon Dominate the Online Baby Goods
Market, BUS. INSIDER (Apr. 22, 2016, 8:30 PM), http://www.businessinsider.com/target-walmart-amazon-dominate-the-online-baby-goods-market-2016-4 [http://perma.cc/85KZ-QQCR].
313. BORK, supra note 32, at 153.
314. Id.
315. Id.

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2017

Does online retailing of baby products resemble shoe retailing or railroading? Given the absence of formal barriers, entry should be easy: unlike railroading, selling baby products online requires no heavy investment or ﬁxed
costs. However, the economics of online retailing are not quite like traditional
shoe retailing. Given that attracting traffic and generating sales as an independent online retailer involves steep search costs, the vast majority of online commerce is conducted on platforms, central marketplaces that connect buyers andsellers. Thus, in practice, successful entry by a potential diaper retailer carries
with it the cost of attempting to build a new online platform, or of creating abrand strong enough to draw traffic from an existing company’s platform. As
several commentators have observed, the practical barriers to successful andsustained entry as an online platform are very high, given the huge ﬁrst-moveradvantages stemming from data collection and network effects.316 Moreover,the high exit barriers that Bork assumes for railroads—namely, that they would
have to be convinced their facilities were worth more as scrap than as a railroad—do not apply to online platforms. Investment in online platforms lies notin physical infrastructure that might be repurposed, but in intangibles likebrand recognition. These intangibles can be absorbed by a rival platform or retailer with greater ease than a railroad could take over a competing line.317 In
other words, online retailers like Quidsi face the high entry barriers of a railroad coupled with the relatively low exit costs typical of brick-and-mortar retailers—a combination that Bork, and the courts, failed to consider.
Courts also tend to discount that predators can use psychological intimidation to keep out the competition.318 Amazon’s history with Quidsi has sent a
clear message to potential competitors—namely that, unless upstarts have deep
pockets that allow them to bleed money in a head-to-head ﬁght with Amazon,

316. See generally TIM WU, THE MASTER SWITCH: THE RISE AND FALL OF INFORMATION EMPIRES(2010) (arguing that all American information industries since the telephone have resulted
in monopolies); Candeub, supra note 225 (suggesting that network effects may produce anticompetitive results in the online market because of the cognitive effort necessary to switch
search engines); Nathan Newman, Search, Antitrust, and the Economics of the Control of User
Data, 31 YALE J. ON REG. 401 (2014) (proposing a new approach to antitrust investigations
that would focus on the anticompetitive effects of corporations’ control of personal data);
Frank Pasquale, Privacy, Antitrust, and Power, 20 GEO. MASON L. REV. 1009 (2013) (advocating reforms to privacy and antitrust policy to take into account the connections between
market share and control over data).
317. For example, Amazon acquired Zappos.com in 2009 but chose to maintain the brand as astandalone rather than absorbing it within Amazon.com. Sarah Lacy, Amazon Buys Zappos;
The Price Is $928m., Not $847m., TECHCRUNCH (July 22, 2009), http://techcrunch.com/2009/07/22/amazon-buys-zappos [http://perma.cc/5NGV-P2AU].
318. See, e.g., Leslie, supra note 94, at 1728-29.

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it may not be worth entering the market. Even as Amazon has raised the priceof the Amazon Mom program, no newcomers have recently sought to challenge
it in this sector, supporting the idea that intimidation may also serve as a practical barrier.319
As the world’s largest online retailer, Amazon serves as a default starting
point for many online shoppers: one study estimates that 44% of U.S. consumers “go[] directly to Amazon ﬁrst to search for products.”320 Moreover, theswaths of data that Amazon has collected on consumers’ browsing and searching histories can create the same problem that Google’s would-be competitors
encounter: “an insurmountable barrier to entry for new competition.”321
Though at least one venture opened shop with an eye to challenging Amazon,322 its founders recently sold the ﬁrm to Walmart323—a move that suggeststhat the only players positioned to challenge Amazon are the existing giants.
However, even this strategy has skeptics.324 While established brick-andmortar retailers like Target have tried to lure online consumers through dis-319. Jet.com, the one company that did try to tackle Amazon, was recently purchased byWalmart. See Steven Davidoff Solomon, Tech Giants Gobble Start-Ups in an Antitrust Blind
Spot, N.Y. TIMES: DEALBOOK (Aug. 16, 2016), http://www.nytimes.com/2016/08/17/bus
iness/dealbook/expect-little-antitrust-challenge-to-walmarts-bid-for-jet-com.html [http://
perma.cc/WRC9-QGKR].
320. Moore, supra note 14. Google has stated that its biggest rival in search is not Bing or Yahoo,
but Amazon. See Jeevan Vasagar & Alex Barker, Amazon Is Our Biggest Search Rival, Says
Google’s Eric Schmidt, FIN. TIMES (Oct. 13, 2014), http://www.ft.com/cms/s/0/748bff70-52f2-11e4-b917-00144feab7de.html [http://perma.cc/3PHW-77EW].
321. Newman, supra note 316, at 409.
322. See Vauhini Vara, Can Jet.com Take On Amazon and Win?, NEW YORKER (July 21,2015),
http://www.newyorker.com/business/currency/can-jet-com-take-on-amazon-and-win [http://perma.cc/S2K2-SMHA].
323. Shannon Pettypiece & Selina Wang, Wal-Mart To Acquire Jet.com for $3.3 Billion To Fight
Amazon, BLOOMBERG (Aug. 8, 2016), http://www.bloomberg.com/news/articles/2016-08-08/wal-mart-agrees-to-buy-jet-com-for-3-billion-to-ﬁght-amazon [http://perma.cc/FEK9-NMR9].
324. See Grace Noto, Jet.Com Acquisition Not Enough To Challenge Amazon, Experts Say, BANK INNOVATION (Aug. 22, 2016), http://bankinnovation.net/2016/08/jet-com-acquisition-not-enough-to-challenge-amazon-experts-say [http://perma.cc/CQ3Y-6J8X] (“[T]here remains a healthy amount of skepticism in the industry about anyone’s ability to topple Amazon from its throne. ‘Amazon is quite dominant and will continue to be in the foreseeable
future, because the resources they are putting into ecommerce and all of their other initiatives are formidable,’ said vice president and principal analyst at Forester Research Sucharita
Mulpuru-Kodali. ‘Walmart has slowly been gaining some share in some ways, but it’s often
two steps forward, one step back for them.’”); Pettypiece & Wang, supra note 323 (“Amazon
is such a machine . . . . You aren’t going to out-Amazon Amazon.”).

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counts and low delivery costs,325 Amazon remains the major online seller ofbaby products.326 Although Amazon established its dominance in this market
through aggressive price cutting and selling steeply at a loss, its actions havenot triggered predatory pricing claims. In part, this is because prevailing theory
assumes—per Bork’s analysis—that market entry is easy enough for new rivals
to emerge any time a dominant ﬁrm starts charging monopoly prices.
In this case, Amazon raised prices by cutting back discounts and (at least
temporarily) refusing to expand the program. Even if a ﬁrm viewed the unmet
demand as an invitation to enter, several factors would prove discouraging inways that the existing doctrine does not consider. In theory, online retailing itself has low entry costs since anyone can set up shop online, without signiﬁcant
ﬁxed costs. But in practice, successful entry in online markets is a challenge, requiring signiﬁcant upfront investment. It requires either building up strong
brand recognition to draw users to an independent site, or using an existing
platform, such as Amazon or eBay, which can present other anticompetitive
challenges.327 Indeed, most independent retailers choose to sell through Amazon328—even when the business relationship risks undermining their business.
The fact that no real rival has emerged, even after Amazon raised prices, undercuts the assumption embedded in current antitrust doctrine.
C. Amazon Delivery and Leveraging Dominance Across Sectors
As its history with Quidsi shows, Amazon’s willingness to sustain losses has
allowed it to engage in below-cost pricing in order to establish dominance as
an online retailer. Amazon has translated its dominance as an online retailer into signiﬁcant bargaining power in the delivery sector, using it to secure favorable conditions from third-party delivery companies. This in turn has enabled
Amazon to extend its dominance over other retailers by creating the Fulﬁllment-by-Amazon service and establishing its own physical delivery capacity.
This illustrates how a company can leverage its dominant platform to successfully integrate into other sectors, creating anticompetitive dynamics. Retailcompetitors are left with two undesirable choices: either try to compete with
Amazon at a disadvantage or become reliant on a competitor to handle delivery
and logistics.

325. See Tuttle, supra note 298.
326. See id. (noting that Amazon’s market share is double Target’s).
327. See infra Section IV.D.
328. See LaVecchia & Mitchell, supra note 6, at 18.

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As Amazon expanded its share of e-commerce—and enlarged the ecommerce sector as a whole—it started comprising a greater share of delivery
companies’ business. For example, in 2015, UPS derived $1 billion worth ofbusiness from Amazon alone.329 The fact that it accounted for a growing shareof these ﬁrms’ businesses gave Amazon bargaining power to negotiate for lower rates.330 By some estimates, Amazon enjoyed a 70% discount over regulardelivery prices.331 Delivery companies sought to make up for the discounts theygave to Amazon by raising the prices they charged to independent sellers,332 aphenomenon recently termed the “waterbed effect.”333 As scholars have described,
329. Laura Stevens & Greg Bensinger, Amazon Seeks To Ease Ties with UPS, WALL ST. J.

(Dec. 22, 2015, 8:52 PM), http://www.wsj.com/articles/amazon-seeks-to-ease-ties-with-ups-1450835575 [http://perma.cc/8385-A7AJ].
330. In its 10-K, UPS states that while no single customer accounts for more than 10% of its consolidated revenue, its business remains vulnerable to the choices of some big clients.
UPS, Inc., Annual Report (Form 10-K) 15 (Jan. 29, 2016), http://www.sec.gov/Archives/edgar/data/1090727/000109072715000008/ups-12312014x10k.htm [http://perma.cc/TU7T-B4Q4] (“[S]ome of our large customers might account for a relatively signiﬁcantportion of the growth in revenue in a particular quarter or year . . . . These customers could
choose to divert all or a portion of their business with us to one of our competitors, demand
pricing concessions for our services, require us to provide enhanced services that increase
our costs, or develop their own shipping and distribution capabilities. If these factors drove
some of our large customers to cancel all or a portion of their business relationships with us,
it could materially impact the growth in our business and the ability to meet our current andlong-term ﬁnancial forecasts.”).
331. See Stephanie Clifford & Claire Cain Miller, Wal-Mart Says ‘Try This On’: Free Shipping,
N.Y. TIMES (Nov. 11, 2010), http://www.nytimes.com/2010/11/11/business/11shipping.html[http://perma.cc/ULM8-3ASC] (“[A]ir shipping prices for big retailers are about 70 percent less than for a small company. Shipping at Amazon costs about 4 percent of sales, andAmazon loses money on it because it offers marketing beneﬁts . . . . [S]hipping at small sites
usually costs about 35 percent of sales . . . .”). Congress passed the Robinson-Patman Act
precisely to prevent this sort of “waterbed effect.” As I describe earlier, Chicago School hostility to Robinson-Patman has meant that both the antitrust agencies and courts have largely
stopped enforcing the law. See supra text accompanying notes 77-108.
332. See Laura Stevens, ‘Free’ Shipping Crowds Out Small Retailers, WALL ST. J. (Apr. 27,
2016, 10:39 PM), http://www.wsj.com/articles/for-online-shoppers-free-shipping-reigns-supreme-1461789381 [http://perma.cc/R7YL-2FTS].
333. See Paul W. Dobson & Roman Inderst, The Waterbed Effect: Where Buying and Selling Power
Come Together, 2008 WIS. L. REV. 331, 336-37 (“If, in contrast, the discounts to one or a few
buyers were to put other buyers in a worse bargaining position to the extent of them paying
even-higher prices (e.g., premiums rather than discounts) then the knock-on consequence
could be higher retail prices and dampened competition. This latter case is an instance of awaterbed effect—where differential buyer power means that some buyers gain at both therelative and absolute expense of other buyers.”); John Kirkwood, Powerful Buyers and Merger
Enforcement, 92 B.U. L. REV. 1485, 1544 (2012) (“[Suppose a ﬁrm] demands price or other775

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126:7102017[T]he presence of a waterbed effect can further distort competition by
giving a powerful buyer now a two-fold advantage, namely, throughmore advantageous terms for itself and through higher purchasing
costs for its rivals. What then becomes a virtuous circle for the strong
buyer ends up as a vicious circle for its weaker competitors.334
To this two-fold advantage Amazon added a third perk: harnessing the
weakness of its rivals into a business opportunity. In 2006, Amazon introduced
Fulﬁllment-by-Amazon (FBA), a logistics and delivery service for independent
sellers.335 Merchants who sign up for FBA store their products in Amazon’s
warehouses, and Amazon packs, ships, and provides customer service on any
orders. Products sold through FBA are eligible for service through Amazon
Prime—namely, free two-day shipping and/or free regular shipping, dependingon the order.336 Since many merchants selling on Amazon are competing with
Amazon’s own retail operation and its Amazon Prime service, using FBA offers
sellers the opportunity to compete at less of a disadvantage.
Notably, it is partly because independent sellers faced higher rates from
UPS and FedEx—a result of Amazon’s dominance—that Amazon succeeded indirecting sellers to its new business venture.337 In many instances, orders routed through FBA were still being shipped and delivered by UPS and FedEx,
since Amazon relied on these ﬁrms.338 But because Amazon had secured dis-concessions from . . . suppliers . . . . [and] that those concessions nevertheless cause thesuppliers to increase prices to smaller buyers or otherwise worsen their terms.”).
334. Dobson & Inderst, supra note 333, at 337.
335. Press Release, Amazon, Amazon Launches New Services To Help Small and Medium-Sized
Businesses Enhance Their Customer Offerings by Accessing Amazon’s Order Fulﬁllment,
Customer Service, and Website Functionality (Sept. 19, 2006), http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=906817 [http://perma.cc/MC8G-9LRJ].
336. Id. (“Amazon.com customers can now use offers such as Amazon Prime and Free Super Saver Shipping when buying products with the ‘Fulﬁlled by Amazon’ icon next to the offeringlisting.”).
337. See Paul Cole, Should You Use Amazon Discounted UPS Shipping?, SELLERENGINE(2012), http://sellerengine.com/should-you-use-amazon-discounted-ups-shipping [http://
perma.cc/54ND-B2WH] (“Probably the most common choice is to use Amazon’s discounted
rate with UPS. For many sellers, this is the way to go. It’s a lower rate than you’re likely toreceive from UPS or FedEx if you have your own account. Currently, Amazon’s UPS rate isabout 20% cheaper than an average FedEx account, $.38/lb. compared to $.48/lb.”).
338. Before building out its own delivery operations, Amazon used (among others) UPS andFedEx. See, e.g., Marcus Wohlsen, Amazon Takes a Big Step Towards Finally Making Its Own
Deliveries, WIRED (Sept. 25, 2014, 2:30 PM), http://www.wired.com/2014/09/amazon-takes-big-step-toward-competing-directly-ups [http://perma.cc/42AT-Y4JK].

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counts unavailable to other sellers, it was cheaper for those sellers to go
through Amazon than to use UPS and FedEx directly. Amazon had used its
dominance in the retail sector to create and boost a new venture in the delivery
sector, inserting itself into the business of its competitors.
Amazon has followed up on this initial foray into fulﬁllment services bycreating a logistics empire. Building out physical capacity lets Amazon further
reduce its delivery times, raising the bar for entry yet higher. Moreover it is theﬁrm’s capacity for aggressive investing that has enabled it to rapidly establish
an extensive network of physical infrastructure. Since 2010, Amazon has spent$13.9 billion building warehouses, 339 and it spent $11.5 billion on shipping in2015 alone.340 Amazon has opened more than 180 warehouses,341 28 sorting
centers, 59 delivery stations that feed packages to local couriers, and more than
65 Prime Now hubs.342 Analysts estimate that the locations of Amazon’s fulﬁllment centers bring it within twenty miles of 31% of the population andwithin twenty miles of 60% of its core same-day base.343 This sprawling network of fulﬁllment centers—each placed in or near a major metropolitan area—equips Amazon to offer one-hour delivery in some locations and same-day inothers (a service it offers free to members of Amazon Prime).344 While several
rivals initially entered the delivery market to compete with Prime shipping,some are now retreating.345 As one analyst noted, “Prime has proven exceedingly difficult for rivals to copy.”346

339. Daniella

Kucera, Why Amazon Is on a Building Spree, BLOOMBERG (Aug. 29,
2013 8:51 AM), http://www.bloomberg.com/bw/articles/2013-08-29/why-amazon-is-on-a-warehouse-building-spree [http://perma.cc/999P-MLSN].
340. Leonard, supra note 207.
341. Greg Bensinger & Laura Stevens, Amazon’s Newest Ambition: Competing Directly with UPS
and FedEx, WALL ST. J. (Sept. 27, 2016, 1:45 PM), http://www.wsj.com/articles/ama
zons-newest-ambitioncompeting-directly-with-ups-and-fedex-1474994758 [http://perma.cc/BB7F-PXJP].
342. Id.
343. Jillian D’Onfro, Here Are All of Amazon’s Warehouses in the US, BUS. INSIDER (Mar. 24, 2015,
1:48 PM), http://www.businessinsider.com/how-many-fulﬁllment-centers-does-amazon-have-in-the-us-2015-3#ixzz3f3AX8zda [http://perma.cc/TF8G-BJ72].
344. Bensinger & Stevens, supra note 341.
345. See Spencer Soper, EBay Ends Same-Day Delivery in U.S. in Face of Amazon Effort, BLOOMBERG (July 27, 2015, 3:53 PM), http://www.bloomberg.com/news/articles/2015-07-27/ebay-ends-same-day-delivery-in-u-s-in-face-of-amazon-effort [http://perma.cc/5TD9-XDC5].
346. Stone, supra note 206; see also JP Mangalindan, Amazon’s Prime and Punishment, FORTUNE(Feb. 21, 2012, 8:02 PM), http://fortune.com/2012/02/21/amazons-prime-and-punishment[http://perma.cc/68KL-8C5Z] (“‘If you’re a competing retailer, it should be in your plansthat Prime will someday be a next-day or same-day delivery service with 100,000 free mov-777

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2017

Most recently, Amazon has also expanded into trucking. Last December, itannounced it plans to roll out thousands of branded semi-trucks, a move thatwill give it yet more control over delivery, as it seeks to speed up how quickly it
can transport goods to customers.347 Amazon now owns four thousand truck
trailers and has also signed contracts for container ships, planes,348 anddrones.349 As of October 2016, Amazon had leased at least forty jets.350 Former
employees say Amazon’s long-term goal is to circumvent UPS and FedEx altogether, though the company itself has said it is looking only to supplement its
reliance on these ﬁrms, not supplant them.351
The way that Amazon has leveraged its dominance as an online retailer tovertically integrate into delivery is instructive on several fronts. First, it is a
textbook example of how the company can use its dominance in one sphere toadvantage a separate line of business. To be sure, this dynamic is not intrinsically anticompetitive. What should prompt concern in Amazon’s case, however,is that Amazon achieved these cross-sector advantages in part due to its bargaining power. Because Amazon was able to demand heavy discounts fromFedEx and UPS, other sellers faced price hikes from these companies—which
positioned Amazon to capture them as clients for its new business. By overlooking structural factors like bargaining power, modern antitrust doctrine fails
to address this type of threat to competitive markets.

ies—it’s going in that direction,’ chimes analyst [Matt] Nemer. If that day comes, Prime
won’t just be a nominal loyalty program or balance sheet customer acquisition cost. It’ll be amonolith few can compete with.”).
347. Jason Del Ray, Amazon Buys Thousands of Its Own Truck Trailers as Its Transportation Ambitions Grow, RECODE (Dec. 4, 2015, 8:00 AM), http://recode.net/2015/12/04/amazon-buys-thousands-of-its-own-trucks-as-its-transportation-ambitions-grow [http://perma.cc/8LBF-NCYB]; Leonard, supra note 207.
348. Robin Lewis, Amazon’s Shipping Ambitions Are Larger than It’s Letting On, FORBES (Apr. 1,
2016, 8:30 AM), http://www.forbes.com/sites/robinlewis/2016/04/01/planes-trains-trucks-and-ships/#260c3aa1408c [http://perma.cc/HZ4V-KCLE].
349. Farhad Manjoo, Think Amazon’s Drone Idea Is a Gimmick? Think Again, N.Y. TIMES (Aug. 10,2016),
http://www.nytimes.com/2016/08/11/technology/think-amazons-drone-delivery-idea-is-a-gimmick-think-again.html [http://perma.cc/9A7F-VAY6].
350. Id.
351. See Del Ray, supra note 347; see also Leonard, supra note 207 (“Others believe that Amazon
will make a business out of its delivery network, as it did with Amazon Web Services, thereby challenging the world’s leading shipping companies . . . . The fear has spread to WallStreet, where analysts say investors worry about what Amazon’s strategy means for the
shipping industry. ‘The natural inclination among any observers of the market when theysee Amazon is to be scared,’ says David Vernon, a Sanford C. Bernstein analyst who tracks
the shipping market. ‘Amazon is the epitome of a zero-sum game.’”).

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Second, Amazon is positioned to use its dominance across online retail anddelivery in ways that involve tying, are exclusionary, and create entry barriers.352 That is, Amazon’s distortion of the delivery sector in turn creates anticompetitive challenges in the retail sector. For example, sellers who use FBA
have a better chance of being listed higher in Amazon search results than those
who do not, which means Amazon is tying the outcomes it generates for sellers
using its retail platform to whether they also use its delivery business.353 Amazon is also positioned to use its logistics infrastructure to deliver its own retailgoods faster than those of independent sellers that use its platform and fulﬁllment service—a form of discrimination that exempliﬁes traditional concerns
about vertical integration. And Amazon’s capacity for losses and expansive logistics capacities mean that it could privilege its own goods while still offering
independent sellers the ability to ship goods more cheaply and quickly thanthey could by using UPS and FedEx directly.
Relatedly, Amazon’s expansion into the delivery sector also raises questions
about the Chicago School’s limited conception of entry barriers. The company’s
capacity for losses—the permission it has won from investors to show negative
proﬁts—has been key in enabling Amazon to achieve outsized growth in delivery and logistics. Matching Amazon’s network would require a rival to invest
heavily and—in order to viably compete—offer free or otherwise below-cost
shipping. In interviews with reporters, venture capitalists say there is no appetite to fund ﬁrms looking to compete with Amazon on physical delivery.354 In
this way, Amazon’s ability to sustain losses creates an entry barrier for any ﬁrm
that does not enjoy the same privilege.
Third, Amazon’s use of Prime and FBA exempliﬁes how the company has
structurally placed itself at the center of e-commerce. Already 44% of American
online shoppers begin their online shopping on Amazon’s platform.355 Given
the traffic, it is becoming increasingly clear that in order to succeed in ecommerce, an independent merchant will need to use Amazon’s infrastructure.

352. A tie is created when a ﬁrm requires consumers interested in purchasing good A to purchasegood A (the tying good) and good B (the tied good) from the ﬁrm. The practice forces anunwilling customer to purchase the tied good while a refusal-to-deal turns away a willing
customer. See Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly
Proﬁt Theorem, 123 HARV. L. REV. 397, 466–67 (2009).
353. See Will Mitchell, How To Rank Your Products on Amazon—The Ultimate Guide,
STARTUPBROS, http://startupbros.com/rank-amazon [http://perma.cc/6X3E-KNHF].
354. “One of the biggest themes is the challenge of getting product to your consumers, and relying on [fulﬁllment companies], but they don’t have another option, they can’t make investments [if] Amazon is in fulﬁllment.” Ray, supra note 232.
355. Moore, supra note 14.

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The fact that Amazon competes with many of the businesses that are coming todepend on it creates a host of conﬂicts of interest that the company can exploit
to privilege its own products.
The dominant framework in antitrust today fails to recognize the risk that
Amazon’s dominance poses for discrimination and barriers to new entry. Inpart, this is because—as with the framework’s view of predatory pricing—theprimary harm that registers within the “consumer welfare” frame is higher consumer prices. On the Chicago School’s account, Amazon’s vertical integration
would only be harmful if and when it chooses to use its dominance in delivery
and retail to hike fees to consumers. Amazon has already raised Prime prices.356
But antitrust enforcers should be equally concerned about the fact that Amazon
increasingly controls the infrastructure of online commerce—and the ways inwhich it is harnessing this dominance to expand and advantage its new business ventures. The conﬂicts of interest that arise from Amazon both competingwith merchants and delivering their wares pose a hazard to competition, particularly in light of Amazon’s entrenched position as an online platform. Amazon’s conﬂicts of interest tarnish the neutrality of the competitive process. The
thousands of retailers and independent businesses that must ride Amazon’s
rails to reach market are increasingly dependent on their biggest competitor.
D. Amazon Marketplace and Exploiting Data
As described above, vertical integration in retail and physical delivery may
enable Amazon to leverage cross-sector advantages in ways that are potentiallyanticompetitive but not understood as such under current antitrust doctrine.
Analogous dynamics are at play with Amazon’s dominance in the provision of
online infrastructure, in particular its Marketplace for third-party sellers. Because information about Amazon’s practices in this area is limited, this Section
necessarily will be brief. But to capture fully the anticompetitive features of
Amazon’s business strategy, it is vital to analyze how vertical integration acrossinternet businesses introduces more sophisticated—and potentially more troubling—opportunities to abuse cross-market advantages and foreclose rivals.
The clearest example of how the company leverages its power across online
businesses is Amazon Marketplace, where third-party retailers sell their wares.
Since Amazon commands a large share of e-commerce traffic, many smaller
merchants ﬁnd it necessary to use its site to draw buyers.357 These sellers list

356.

See Bensinger, supra note 223.
357. See Angus Loten & Adam Janofsky, Sellers Need Amazon, but at What Cost?, WALL ST. J.
(Jan. 14, 2015, 6:30 PM), http://www.wsj.com/articles/sellers-need-amazon-but-at-what780

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their goods on Amazon’s platform and the company collects fees ranging from
6% to 50% of their sales from them.358 More than two million third-party
sellers used Amazon’s platform as of 2015, an increase from the roughly one
million that used the platform in 2006.359 The revenue that Amazon generates
through Marketplace has been a major source of its growth: third-party sellers’share of total items sold on Amazon rose from 36% in 2011360 to over 50% in
2015.361
Third-party sellers using Marketplace recognize that using the platformputs them in a bind. As one merchant observed, “You can’t really be a highvolume seller online without being on Amazon, but sellers are very aware of thefact that Amazon is also their primary competitor.”362 Evidence suggests that
their unease is well founded. Amazon seems to use its Marketplace “as a vast
laboratory to spot new products to sell, test sales of potential new goods, andexert more control over pricing.”363 Speciﬁcally, reporting suggests that “Amazon uses sales data from outside merchants to make purchasing decisions inorder to undercut them on price” and give its own items “featured placement
under a given search.”364 Take the example of Pillow Pets, “stuffed-animal pillows modeled after NFL mascots” that a third-party merchant sold throughAmazon’s site.365 For several months, the merchant sold up to one hundred pillows per day.366 According to one account, “just ahead of the holiday season,[the merchant] noticed Amazon had itself beg[u]n offering the same Pillow
Pets for the same price while giving [its own] products featured placement on
the site.”367 The merchant’s own sales dropped to twenty per day.368 Amazon-cost-1421278220 [http://perma.cc/4MYB-PHQN] (“If you say no to Amazon, you’re closing the door on tons of sales.”).
358. Id.
359. Id.
360. Greg Bensinger, Competing with Amazon on Amazon, WALL ST. J. (June 27, 2012,
6:15 PM), http://www.wsj.com/articles/SB10001424052702304441404577482902055882264[http://perma.cc/W9AG-BDRC].
361. Nancee Halpin, Third-Party Merchants Account for More than Three-Quarters of Items Sold on
Amazon, BUS. INSIDER (Oct. 16, 2015, 2:55 PM), http://www.businessinsider.com/third-party-merchants-drive-amazon-grow-2015-10 [http://perma.cc/5XL9-NTCQ].
362. Loten & Janofsky, supra note 357.
363. Bensinger, supra note 360.
364. Id.
365. Id.
366. Id.
367. Id.
368. Id.

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has gone head-to-head with independent merchants on price, vigorously
matching and even undercutting them on products that they had originally introduced. By going directly to the manufacturer, Amazon seeks to cut out theindependent sellers.
In other instances, Amazon has responded to popular third-party products
by producing them itself. Last year, a manufacturer that had been selling an
aluminum laptop stand on Marketplace for more than a decade saw a similar
stand appear at half the price. The manufacturer learned that the brand was
AmazonBasics, the private line that Amazon has been developing since 2009.369
As one news site describes it, initially, AmazonBasics focused on generic goods
like batteries and blank DVDs. “Then, for several years, the house brand ‘slept
quietly as it retained data about other sellers’ successes.’”370 As it now rolls out
more AmazonBasics products, it is clear that the company has used “insights
gleaned from its vast Web store to build a private-label juggernaut that now
includes more than 3,000 products.”371 One study found that in the case of
women’s clothing, Amazon “began selling 25 percent of the top items ﬁrst soldthrough marketplace vendors.”372
It is true that brick-and-mortar retailers sometimes also introduce private
labels and may use other brands’ sales records to decide what to produce. The
difference with Amazon is the scale and sophistication of the data it collects.
Whereas brick-and-mortar stores are generally only able to collect informationon actual sales, Amazon tracks what shoppers are searching for but cannot ﬁnd,as well as which products they repeatedly return to, what they keep in their
shopping basket, and what their mouse hovers over on the screen.373
In using its Marketplace this way, Amazon increases sales while shedding
risk. It is third-party sellers who bear the initial costs and uncertainties when
369. Spencer Soper, Got a Hot Seller on Amazon? Prepare for E-Tailer To Make One Too,
BLOOMBERG (Apr. 20, 2016, 7:00 AM), http://www.bloomberg.com/news/articles/2016-04-20/got-a-hot-seller-on-amazon-prepare-for-e-tailer-to-make-one-too[http://perma.cc/79GL-5A8E].
370. Id. (quoting a report by Skubana, an e-commerce company).
371. Id.
372. George Anderson, Is Amazon Undercutting Third-Party Sellers Using Their Own Data?,
FORBES (Oct. 30, 2014, 9:23 AM), http://www.forbes.com/sites/retailwire/2014/10/30/is-amazon-undercutting-third-party-sellers-using-their-own-data [http://perma.cc/SQE3-SEU8].
373. As one analyst said of Amazon employees, “They’re data scientists. They know what people
want and they’re going to mop it up.” Nick Bravo, Amazon Private Labels Threaten Manufacturers, TRENDSOURCE (July 5, 2016, 8:00 AM), http://trustedinsight.trendsource.com/trusted-insight-trends/amazon-private-labels-threaten-manufacturers[http://perma.cc/W7VE-LXSS].

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introducing new products; by merely spotting them, Amazon gets to sell products only once their success has been tested. The anticompetitive implications
here seem clear: Amazon is exploiting the fact that some of its customers arealso its rivals. The source of this power is: (1) its dominance as a platform,
which effectively necessitates that independent merchants use its site; (2) its
vertical integration—namely, the fact that it both sells goods as a retailer andhosts sales by others as a marketplace; and (3) its ability to amass swaths of data, by virtue of being an internet company. Notably, it is this last factor—its
control over data—that heightens the anticompetitive potential of the ﬁrst two.
Evidence suggests that Amazon is keenly aware of and interested in exploiting these opportunities. For example, the company has reportedly used insights gleaned from its cloud computing service to inform its investment decisions.374 By observing which start-ups are expanding their usage of Amazon
Web Services, Amazon can make early assessments of the potential success ofupcoming ﬁrms. Amazon has used this “unique window into the technology
startup world” to invest in several start-ups that were also customers of its
cloud business.375
How Amazon has cross-leveraged its advantages across distinct lines ofbusiness suggests that the law fails to appreciate when vertical integration may
prove anticompetitive. This shortcoming is underscored with online platforms,
which both serve as infrastructure for other companies and collect swaths ofdata that they can then use to build up other lines of business. In this way, thecurrent antitrust regime has yet to reckon with the fact that ﬁrms with concentrated control over data can systematically tilt a market in their favor, dramatically reshaping the sector.376

374. See

Alistair Barr, Amazon Finds Startup Investments in the ‘Cloud,’ REUTERS (Nov. 9,
2011, 3:44 PM), http://www.reuters.com/article/amazon-cloud-idUSN1E7A727Q20111109[http://perma.cc/BH4Q-JPW7].
375. Id.
376. European antitrust authorities do investigate how concentrated control over data may haveanticompetitive effects, and—unlike U.S. antitrust authorities—investigated the Facebook/WhatsApp merger for this reason. Complaints from companies that their rivals are
acquiring an unfair competitive advantage through acquiring a ﬁrm with huge troves of data
may also prompt U.S. authorities to take the exclusionary potential of data more seriously.
In September, Salesforce announced it would urge regulators in the United States and inEurope to block Microsoft’s bid to acquire LinkedIn, on grounds that the deal would foreclose competition by giving Microsoft too much control over data. See Rachael King,
Salesforce.com To Press Regulators To Block Microsoft-LinkedIn Deal, WALL ST. J. (Sept. 29,
2016, 7:18 PM), http://www.wsj.com/articles/salesforce-com-to-press-regulators-to-block-microsoft-linkedin-deal-1475178870 [http://perma.cc/5EZE-GVBC].

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v. how platform economics and capital markets may
facilitate anticompetitive conduct and structures
As Part IV mapped out, aspects of Amazon’s conduct and structure may
threaten competition yet fail to trigger scrutiny under the analytical frameworkpresently used in antitrust. In part this reﬂects the “consumer welfare” orientation of current antitrust laws, as critiqued in Part II. But it also reﬂects a failure
to update antitrust for the internet age. This Part examines how online platforms defy and complicate assumptions embedded in current doctrine. Speciﬁcally, it considers how the economics and business dynamics of online platforms create incentives for companies to pursue growth at the expense of
proﬁts, and how online markets and control over data may enable new formsof anticompetitive activity.
Economists have analyzed extensively how platform markets may pose
unique challenges for antitrust analysis.377 Speciﬁcally, they stress that analysis
applicable to ﬁrms in single-sided markets may break down when applied totwo-sided markets, given the distinct pricing structures and network externalities.378 These studies often focus on the challenge that two-sided platforms facein attracting both sides—the classic coordination problem of having to attract
buyers without an established line of sellers, and vice versa.379 Economists tend
to conclude that—given the particular challenges of two-sided markets380—
antitrust should be forgiving of conduct that might otherwise be characterized
as anticompetitive.381
Legal analysis of online platforms is comparatively undertheorized. The
Justice Department’s case against Microsoft under Section 2 of the Sherman
Act, initiated in the 1990s, remains the government’s most signiﬁcant case involving two-sided markets—even as platforms have emerged as central arteries
377. See David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, 20 YALE J. ON
REG. 325 (2003); King, supra note 376; David S. Evans & Richard Schmalensee, The Antitrust

Analysis of Multi-Sided Platform Businesses (Coase-Sandor Inst. for Law & Econ., Working
Paper No. 623, 2012).
378. See Julian Wright, One-Sided Logic in Two-Sided Markets, 3 REV. NETWORK ECON. 44 (2004).
379. See DAVID S. EVANS, PLATFORM ECONOMICS: ESSAYS ON MULTI-SIDED BUSINESS 112 (2011).
380. Two-sided markets are platforms that have two distinct user groups that offer each othernetwork beneﬁts.
381. See EVANS, supra note 379, at 112 (“The pricing and investment strategies that ﬁrms in twosided markets use to ‘get both sides on board’ and ‘balance the interests of both sides’ raisenovel ones. These pricing and other business strategies are needed to solve a fundamental
economic problem arising from the interdependency of demand on both sides of the market.
In some cases, the product could not even exist without efforts to subsidize one side of themarket or the other.”).

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in our modern economy. Starting in 2011, the FTC pursued an investigation into Google, partly in response to allegations that the company uses its dominance as a search engine to cement its advantage and exclude rivals in otherlines of business. While the FTC closed the investigation without bringing any
charges, leaks later revealed that FTC staff had concluded that Google abused
its power on three separate counts.382 The European Union has brought charges against Google for violating antitrust laws.383
For the purpose of competition policy, one of the most relevant factors of
online platform markets is that they are winner-take-all. This is due largely to
network effects and control over data, both of which mean that early advantages become self-reinforcing. The result is that technology platform markets will yield to dominance by a small number of ﬁrms. Walmart’s recent purchase of the one start-up that had sought to challenge Amazon in online
retail—Jet.com—illustrates this reality.384
Network effects arise when a user’s utility from a product increases as others use the product. Since popularity compounds and is reinforcing, markets
with network effects often tip towards oligopoly or monopoly.385 Amazon’s user
reviews, for example, serve as a form of network effect: the more users thathave purchased and reviewed items on the platform, the more useful information other users can glean from the site.386 As the Fourth Circuit has noted,“[O]nce dominance is achieved, threats come largely from outside the dominated market, because the degree of dominance of such a market tends to become so extreme.”387 In this way, network effects act as a form of entry barrier.
A platform’s control over data, meanwhile, can also entrench its position.388
Access to consumer data enables platforms to better tailor services and gauge
demand. Involvement across markets, meanwhile, may permit a company to use

382. Brody

Mullins et al., Inside the U.S. Antitrust Probe of Google, WALL ST. J. (Mar.
19, 2015, 7:38 PM), http://www.wsj.com/articles/inside-the-u-s-antitrust-probe-of-google-1426793274 [http://perma.cc/H4PZ-JZ9K].
383. Mark Scott & James Kanter, Google Faces New Round of Antitrust Charges in Europe, N.Y.
TIMES (July 14, 2016), http://www.nytimes.com/2016/07/15/technology/google-european-union-antitrust-charges.html [http://perma.cc/2SYP-5Z4B].
384. See supra note 319.
385. STUCKE & GRUNES, supra note 47, at 163.
386. This is a form of “scale of data” network effect rather than a “traditional network effect.” Id.
at 170.
387. Novell Inc. v. Microsoft Corp., 505 F.3d 302, 308 (4th Cir. 2007).
388. See Guy Rolnik & Asher Schechter, Is the Digital Economy Much Less Competitive than We
Think It Is?, PROMARKET (Sept. 23, 2016), http://promarket.org/digital-economy-much-less-competitive-think [http://perma.cc/K2R6-TB7Q].

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126:7102017data gleaned from one market to beneﬁt another business line.389 Amazon’s useof Marketplace data to advantage its retail sales, as described in Section IV.D, isan example of this dynamic. Control over data may also make it easier for dominant platforms to enter new markets with greater ease. For example, reports
now suggest that Amazon may dramatically expand its footprint in the adbusiness, “leveraging its rich supply of shopping data culled from years of operating a massive e-commerce business.”390 In other words, control over data,
too, acts as an entry barrier.
Given that online platforms operate in markets where network effects andcontrol over data solidify early dominance, a company looking to compete inthese markets must seek to capture them. The most effective way is to chasemarket share and drive out one’s rivals—even if doing so comes at the expenseof short-term proﬁts, since the best guarantee of long-term proﬁts is immediate growth. Due to this dynamic, striving to maximize market share at the expense of one’s rivals makes predation highly rational; indeed, it would be irrational for a business not to frontload losses in order to capture the market. RecRecognizing that enduring early losses while aggressively expanding can lockup a monopoly, investors seem willing to back this strategy.
As the Introduction and Part III describe, Amazon has charted immense
growth while investing aggressively—both by expanding provision of physicaland online infrastructure and by pricing goods below cost. Amazon’s stock
price has soared despite a history of razor-thin—or even negative—margins. In
essence, investors have given Amazon a free pass to grow without any pressure
to show proﬁts. The ﬁrm has used this edge to expand wildly and dominate
online commerce.
The idea that investors are willing to fund predatory growth in winnertake-all markets also holds in the case of Uber. Although the dynamics of theonline retail market are distinct from those of ride-sharing, Uber’s growth trajectory is worth analyzing for general insight into how investors enable plat389. Interestingly, agencies have required vertically merging parties to erect ﬁrewalls to prevent

anticompetitive use of data. See, e.g., In re Coca-Cola Co., 150 F.T.C. 520, 2010 WL 9549986(2010) (ordering Coca-Cola to set up a ﬁrewall to ensure that its merger with a bottlingsubsidiary does not give it access to information from its competitor, Dr. Pepper Snapple
Group); Press Release, FTC, FTC Puts Conditions on Coca-Cola’s $12.3 Billion Acquisitionof its Largest North American Bottler (Sept. 27, 2010), http://www.ftc.gov/news-events/press-releases/2010/09/ftc-puts-conditions-coca-colas-123-billion-acquisition-its[http://perma.cc/BP7U-EY33] (discussing the Coca-Cola settlement and a similar PepsiCo
settlement).
390. Mike Shields, Amazon Looms Quietly in Digital Ad Landscape, WALL ST. J. (Oct. 6, 2016,
3:28 PM), http://www.wsj.com/articles/amazon-looms-quietly-in-digital-ad-landscape-1475782113 [http://perma.cc/5ACL-MJ7D].

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form dominance. In 2015, news reports revealed that Uber had an operating
loss of $470 million on $415 million in revenue, conﬁrming suspicions that thecompany has been bleeding money for the sake of achieving steep growth andacquiring market share.391 In China, the company has lost more than $1 billion
a year.392 The strategy of aggressive price competition and brazen leadershipcoupled with soaring growth prompted immediate comparisons to Amazon.393
Like Amazon, Uber has drawn immense interest from investors. As of July
2015, its valuation hit nearly $51 billion, equaling the record set by Facebook in
2012.394 It recently secured an additional $3.5 billion in investment, bringing its
total funds to $13.5 billion—a ﬁgure “far greater than most companies raiseeven during an initial public offering,” which Uber has avoided.395
One might dismiss this phenomenon as irrational investor exuberance. But
another way to read it is at face value: the reason investors value Amazon andUber so highly is because they believe these platforms will, eventually, generatehuge returns. As one venture capitalist recently remarked, if he had to “put his
entire capital in a single company and hold it for the next 10 years,” he would
choose Amazon. “I don’t see any cleaner monopoly available to buy in the public markets right now.”396 In other words, that these platform companies are

391. See Eric Newcomer, Uber Draws Fresh Amazon Comparisons as Growth Trumps Proﬁt, BLOOMBERG (July 1, 2015, 12:30 AM), http://www.bloomberg.com/news/articles/2015-07-01/uber-draws-fresh-comparison-with-amazon-as-growth-trumps-proﬁt [http://perma.cc/AYF9-9RJ7]. Uber does not just lose money in the aggregate by reinvesting more than it generates, but also by pricing rides below what it pays drivers. In other words, it is pricing below
its variable costs—which enforcers traditionally read as a sign of predatory pricing. “As anyone who has taken an Uber and talked to the driver knows, sometimes the fare collectedfrom the rider is less than what Uber pays the driver.” Id.
392. Charles Clover & Leslie Hook, Uber Losing More than $1bn a Year in China, FIN.
TIMES (Feb. 18, 2016, 7:25 PM), http://www.ft.com/content/f889f812-d664-11e5-829b-8564e7528e54 [http://perma.cc/6U6P-JQ7Q].
393. “‘They’re wise to expand as fast as they can,’ said Lou Shipley, a lecturer at the MIT Sloan
School of Management. ‘I would liken it to what Amazon did with books.’” Newcomer, supra note 391.
394. Douglas MacMillan & Telis Demos, Uber Valued at More than $50 Billion, WALL ST. J. (July31, 2015, 8:50 PM), http://www.wsj.com/articles/uber-valued-at-more-than-50-billion-1438367457 [http://perma.cc/T6GW-SY2J].
395. Leslie Hook, Uber Cranks Up Ride-Hailing Battle with $3.5 bn Saudi Investment, FIN. TIMES(June 2, 2016), http://www.ft.com/content/3ac7c982-2879-11e6-8b18-91555f2f4fde [http://
perma.cc/RXV8-TPBP].
396. Eugene Kim, Billionaire VC Says that Most Companies Will Eventually Pay an Amazon ‘Tax,’
BUS. INSIDER (Jan. 21, 2016, 4:21 AM), http://www.businessinsider.in/Billionaire-VC-says-that-most-companies-will-eventually-pay-an-Amazon-tax/articleshow/50662558.cms[http://perma.cc/4ZGS-VSL7].

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126:7102017undertaking consistent, steep losses and still generating strong investor backing suggests that the markets expect Amazon and Uber to recoup these losses.
While investors have unambiguously endorsed and funded online platforms’ quest to bleed money in their race to draw users, antitrust doctrine fails
to acknowledge this strategy. In the past, the Supreme Court’s analysis has embraced the Efficient Market Hypothesis (EMH), the idea that market prices reﬂect all available information.397 The Justice Department also acknowledges
that market information—for example, the ﬁnancial terms of an acquisition—
may “be informative regarding competitive effects.”398 Applying EMH in thisinstance overwhelmingly suggests that these platforms are positioned to recoup
their losses. Yet bringing a predatory pricing suit against an online platform
would be almost impossible to win in light of the recoupment requirement.
Strikingly, the market is reﬂecting a reality that our current laws are unable todetect.399
In addition to overlooking why online platform dynamics make predation
especially rational, current doctrine also fails to appreciate how a platformmight recoup losses. For one, investor support allows Amazon to strategize andoperate on a time horizon far longer than what the Brooke Group or Matsushita
Courts confronted. Raising prices in a third year after enduring losses for two
is different from engaging in a decade-long quest to become the dominant
online retailer and provider of internet infrastructure. That longer timeline,
meanwhile, makes available more recoupment mechanisms. Not only has Amazon inaugurated an entire generation into online shopping through its platform, but it has expanded into a suite of additional businesses and amassed
signiﬁcant troves of data on users. This data enables it both to extend its tug
over customers through highly tailored personal shopping experiences, and,potentially, to institute forms of price discrimination, as described in Section
IV.A. Both the latitude granted by investors and control over data equip an in-

397. The Supreme Court has affirmed the validity of EMH. See Halliburton Co. v. Erica P. John

Fund, 134 S. Ct. 2398, 2409-11, 2417 (2014).
398. Horizontal Merger Guidelines, supra note 44, at 4 (“For example, a purchase price in excess of
the acquired ﬁrm’s stand-alone market value may indicate that the acquiring ﬁrm is paying apremium because it expects to be able to reduce competition or to achieve efficiencies.”).
399. Ironically, the logic that is motivating investors—the idea that it is worth encouraging platforms to bleed money to establish a dominant position and capture the market, at which
point these ﬁrms will be able to recoup those losses—maps on to the logic underpinningcurrent predatory pricing doctrine. The main issue is how narrowly the law currently conceives of recoupment, which does not account for how Amazon can leverage its multiplelines of business.

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cumbent platform to recoup losses in ways less obviously connected to the initial form of below-cost pricing.
These recoupment mechanisms may also be more sophisticated than what a
judge or even rivals would be able to spot. This last point becomes even more
apparent in the context of Uber, whose dynamic pricing has conditioned users
not to expect a stable or regular price. While Uber claims that its algorithms set
prices to reﬂect real-time supply and demand, initial research has found thatthe company manipulates the availability of both.400 Moreover, it routinely
gives away discount coupons to select users, effectively charging users different
prices, even for the same service at the same time.401
Although platforms form the backbone of the internet economy, the waythat platform economics implicates existing laws is relatively undertheorized.402
Amazon’s conduct suggests that predatory pricing and integration across related business lines are emerging as key paths to establishing dominance—aided
by the control over data that dominant platforms enjoy. But because current
predatory pricing doctrine deﬁnes recoupment in overly narrow terms, competitors generally have not been able to make an effective legal case. Similarly,
because current doctrine largely discounts entry barriers, the anticompetitiveeffects of vertical integration are difficult to cognize under the existing framework. Roadblocks to these claims persist even as Amazon’s valuation and shareprice point to a strong market expectation of recoupment and proﬁts.
There are signs that enforcers are becoming more attuned to the special factors that may render current antitrust analysis inadequate to promote competition in internet platform markets. For example, in 2014 the United States successfully challenged a merger between two leading providers of online ratings
and reviews platforms. In its complaint, DOJ acknowledged that data-driven
industries can be characterized by network effects, which increase switchingcosts and entry barriers.403 Recent comments by FTC Commissioner Terrell
400. See

Tim Hwang & Madeleine Clare Elish, The Mirage of the Marketplace: The
Disingenuous Ways Uber Hides Behind Its Algorithm, SLATE (July 27, 2015, 6:00
AM), http://www.slate.com/articles/technology/future_tense/2015/07/uber_s_algorithm_and_the_mirage_of_the_marketplace.html [http://perma.cc/B5UR-P9PN].
401. See Felix Salmon, Why the Internet Is Perfect for Price Discrimination, REUTERS (Sept.
3, 2013), http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfectfor-price-discrimination [http://perma.cc/NZ4E-SVJJ].
402. See David Singh Grewal, Before Peer Production: Infrastructure Gaps and the Architecture ofOpenness in Synthetic Biology, 20 STAN. TECH. L. REV. (forthcoming 2017).
403. The Justice Department wrote, “[A]s more retailers purchase Bazaarvoice’s PRR platform,
the Bazaarvoice network becomes more valuable for manufacturers because it will allow[ ]them to syndicate content to a greater number of retail outlets. The feedback between the
manufacturers and retailers creates a network effect that is a signiﬁcant and durable compet-789

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2017

McSweeny—noting that data can act as a barrier to entry and that “competition
enforcers can and should assess the competitive implications of data”—alsosuggest that top officials are assessing how to revise their tools and frameworkfor gauging competition in platform markets.404
While this burgeoning recognition is heartening, the unique features ofplatform markets require a more thorough evaluation of how antitrust is applied. Because scale is both vital to platforms’ business model and helps entrench their dominant position, antitrust should reckon with the fact that pursuing growth at the expense of returns is—contra to current doctrine—highly
rational. An approach more attuned to the realities of online platform markets
would also recognize the variety of mechanisms that businesses may use to recoup losses, the longer time horizon on which recoupment might occur, andthe ways that vertical integration and concentrated control over data may enable new forms of anticompetitive conduct. Revising antitrust to reﬂect the dynamics of online platforms is vital, especially as these companies come to mediate a growing share of communications and commerce.
vi. two models for addressing platform power
If it is true that the economics of platform markets may encourage anticompetitive market structures, there are at least two approaches we can take.
Key is deciding whether we want to govern online platform markets throughcompetition, or want to accept that they are inherently monopolistic or oligopolistic and regulate them instead. If we take the former approach, we should
reform antitrust law to prevent this dominance from emerging or to limit its
scope. If we take the latter approach, we should adopt regulations to take advantage of these economies of scale while neutering the ﬁrm’s ability to exploit
its dominance.
A. Governing Online Platform Markets Through Competition
Reforming antitrust to address the anticompetitive nature of platform markets could involve making the law against predatory pricing more robust andstrictly policing forms of vertical integration that ﬁrms can use for anticompeti-

itive advantage for Bazaarvoice.” Complaint at 18, United States v. Bazaarvoice, Inc., No. 130133 2014 (N.D. Cal. Jan. 10, 2013), 2014 WL 203966.
404. Terrell McSweeny, Comm’r, FTC, Remarks to the U.S. Chamber of Commerce at TecNation
2016 (Sept. 20, 2016), http://www.ftc.gov/system/ﬁles/documents/public_statements/985773/mcsweeny_-_tecnation_2016_9-20-16.pdf [http://perma.cc/N7GA-YN5P].

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tive ends. Importantly, each of these doctrinal areas should be reformulated sothat it is sensitive to preserving the competitive process and limiting conﬂicts
of interest that may incentivize anticompetitive conduct.
1. Predatory Pricing
While predatory pricing technically remains illegal, it is extremely difficult
to win predatory pricing claims because courts now require proof that the alleged predator would be able to raise prices and recoup its losses.405 Revisingpredatory pricing doctrine to reﬂect the economics of platform markets, whereﬁrms can sink money for years given unlimited investor backing, would require
abandoning the recoupment requirement in cases of below-cost pricing bydominant platforms. And given that platforms are uniquely positioned to fundpredation, a competition-based approach might also consider introducing apresumption of predation for dominant platforms found to be pricing products
below cost.
Several reasons militate in favor of a presumption of predation in such cases. First, ﬁrms may raise prices years after the original predation, or raise prices
on unrelated goods, in ways difficult to prove at trial. Second, ﬁrms may raise
prices through personalized pricing or price discrimination, in ways not easily
detectable. Third, predation can lead to a host of market harms even if the ﬁrm
does not raise consumer prices. Within a consumer welfare framework, theseharms include degradation of product quality and sapping diversity ofchoice.406 Such harms may arise if Amazon uses its bargaining power to extract
better terms from producers and suppliers, who, in turn, slash investments tomeet its demands. Within a broader framework—which seeks to protect thefull range of interests that antitrust laws were enacted to safeguard—the potential harms include lower income and wages for employees, lower rates of new
business creation, lower rates of local ownership, and outsized political andeconomic control in the hands of a few.407
Introducing a presumption of predation would involve identifying when aprice is below cost, a subject of much debate. The Supreme Court has not addressed the issue, but most appellate courts have said that average variable cost405. See supra Section I.A.
406. See Stucke, supra note 38; Horizontal Merger Guidelines, supra note 44, at 2.
407. See K. Sabeel Rahman & Lina Khan, Restoring Competition in the U.S. Economy, in UNTAMED:HOW TO CHECK CORPORATE, FINANCIAL, AND MONOPOLY POWER 18, 18 (Nell Abernathy et

al. eds., 2016).

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is the right metric.408 This Note does not advocate the adoption of one particular measure over others. Admittedly, “below cost” is an imperfect ﬁlter, especially since what constitutes the relevant cost may vary depending on the industry or cost structure. And the speciﬁc deﬁnition of “costs” that courts andenforcers adopt may ultimately be less signiﬁcant if the test for predatory pricing also permits a business justiﬁcation defense, which would help screen
against false positives.409 A business justiﬁcation defense could cover compensating a buyer for taking the risk of buying a new product, expanding demand
to a level which will allow the entrant to achieve scale economies, keeping prices at competitive levels while expecting costs to decline, and matching competition.410
Whether a platform is dominant enough to trigger the presumption could
be assessed through its market share: those holding greater than, say, 40% of
the market in any given line of service (e.g., cloud computing, ride sharing)might be designated “dominant.” Rather than measuring this market share nationally, enforcers would look to levels of local control; a ride-sharing platformthat held only 35% of the national market but 75% of the Nashville market
would still be considered dominant for the purpose of price-cutting in Nashville.
2. Vertical Integration
The current approach to antitrust does not sufficiently account for how vertical integration may give rise to anticompetitive conﬂicts of interest, nor doesit adequately address the way a dominant ﬁrm may use its dominance in one
sector to advance another line of business. This concern is heightened in thecontext of vertically integrated platforms, which can use insights generated
through data acquired in one sector to undermine rivals in another. Potential
ways to address this deﬁciency include scrutinizing mergers that would enable
a ﬁrm to acquire valuable data and cross-leverage it, or introducing a prophylactic ban on mergers that would give rise to conﬂicts of interest.
One way to address the concern about a ﬁrm’s capacity to cross-leverage data is to expressly include it in merger review.411 Under the current approach,408. See Leslie, supra note 94, at 1753.
409. See id. at 1759.
410. Id. at 1758.
411.

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Admittedly, this approach would not reach vertical integration that arose due to internal expansion. That type of vertical integration could be covered by the prophylactic approach discussed below.

amazon's antitrust paradox

only mergers over a particular monetary threshold require agency review412—
yet the monetary value of a deal may not be a good proxy for the scope andscale of data at stake. Thus, it could make sense for the agencies to automatically review any deal that involves exchange of certain forms (or a certain quantity) of data. Data that gave a player deep and direct insight into a competitor’sbusiness operations, for example, might trigger review. Under this regime, Facebook’s purchases of WhatsApp and Instagram,413 for instance, would havereceived greater scrutiny from the antitrust agencies, in recognition of how acquiring data can deeply implicate competition. International transactions
granting foreign corporations access to data on U.S. users would also require
close review. Uber’s decision to sell its China operations to Didi Chuxing, China’s dominant ride-sharing service—a deal through which Uber will also gain
partial ownership over its main U.S. rival, Lyft414—is one deal that would
prompt scrutiny under this regime.415
A stricter approach would place prophylactic limits on vertical integrationby platforms that have reached a certain level of dominance. This would recognize that a platform’s involvement across multiple related lines of business cangive rise to conﬂicts of interest by creating circumstances in which a platform
has an incentive to privilege its own business and disadvantage other companies.416 Seeking to prevent the industry structures that create these conﬂicts ofinterest may prove more effective than policing these conﬂicts. Adopting thisprophylactic approach would mean banning a dominant ﬁrm from entering
any market that it already serves as a platform—in other words, from competing directly with the businesses that depend on it.417 In the case of Amazon, for412. For a list of FTC thresholds, see Revised Jurisdictional Thresholds for Section 7A of the

Clayton Act, 81 Fed. Reg. 4,299 (Jan. 26, 2016).
413. See STUCKE & GRUNES, supra note 47, at 74.
414. For some of the potential concerns raised by this deal, see Kevin Carty, Will Uber Rouse theTrustbusters?, SLATE (Aug. 9, 2016, 11:22 AM), http://www.slate.com/articles/technology/future_tense/2016/08/uber_s_deal_with_didi_chuxing_could_open_it_up_to_antitrust_scrutiny.html [http://perma.cc/F4NT-AYRZ].
415. See id. See generally STUCKE & GRUNES, supra note 47 (analyzing how Big Data issues relate tocompetition laws and policy).
416. See, e.g., Scott & Kanter, supra note 383; Benjamin Edelman & Damien Geradin, Android andCompetition Law: Exploring and Assessing Google’s Practices in Mobile 1-2 (Harvard Bus.
Sch. Negotiation, Orgs. & Mkts. Unit, Working Paper No. 17-018, 2016), http://
ssrn.com/abstract=2833476 [http://perma.cc/7JA6-RXPN].
417. This is a version of the “Separations Principle” that Tim Wu recommends for informationindustries. WU, supra note 316, at 305 (“More than anything else, the preceding chapterschronicle the corrupting effects of vertically integrated power. A strong stake in more than
one layer of the industry leaves a ﬁrm in a position of inherent conﬂict of interest. You can-793

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example, this prophylactic approach would prohibit the company from running both a dominant retail platform and a dominant platform for third-party
sellers. These two businesses would have to be separated into different entities,
in part to prevent Amazon from using insights from its role as a third-party
host to beneﬁt its retail business, as it reportedly does now.418
This form of prophylactic ban has a long history in banking law.419 A core
principle of banking law is the separation of banking and commerce.420 “U.S.
commercial banks generally are not permitted to conduct any activities that do
not fall within . . . the statutory concept of ‘the business of banking.’”421 Morespeciﬁcally, the Bank Holding Company Act of 1956 forbids ﬁrms that own orcontrol a U.S. bank from engaging in business activities other than banking or
managing banks.422 The main exception is that a bank that qualiﬁes as a “ﬁnancial holding company” “may conduct broader activities that are ‘ﬁnancial innature,’ including securities dealing and insurance underwriting.”423
The policy goals of this regime are worth reviewing because they have analogues in antitrust and competition policy. The main justiﬁcations for preserving the separation between banking and commerce have “included the needs topreserve the safety and soundness of insured depository institutions, to ensurea fair and efficient ﬂow of credit to productive [businesses], and to prevent excessive concentration of ﬁnancial and economic power in the ﬁnancial sector.”424 All three concerns are linked to the fact that banks serve as critical intermediaries in our economy. The “safety and soundness” concern traces to thenot serve two masters, and the objectives of creating information are often at odds withthose of disseminating it. That is the very ﬁrst reason for the Separations Principle.”).
418. See supra Section IV.D.
419. This prophylactic approach has also been applied in the power industry. For example, in
1996, the Federal Energy Regulatory Commission issued a mandate requiring vertically integrated utilities to “functionally separate their generation, transmission, and distribution
business, and provide transmission access to all generators on transparent, nondiscriminatory terms.” Sandeep Vaheesan, Reviving an Epithet: A New Way Forward for the Essential Facilities Doctrine, 3 UTAH L. REV. 911, 927 (2010).
420. See, e.g., Saule T. Omarova, The Merchants of Wall Street: Banking, Commerce, and Commodities, 98 MINN. L. REV. 265, 268, 274-75 (2013); Bernard Shull, Banking and Commerce in the
United States, 18 J. BANKING & FIN. 255, 267 (1994); Bernard Shull, The Separation of Banking
and Commerce in the United States: An Examination of Principal Issues, 8 FIN. MKTS. INSTITUTIONS & INSTRUMENTS 1, 1 (1999).
421. Omarova, supra note 420, at 268.
422. Bank Holding Company Act of 1956, Pub. L. No. 84-511, § 4, 70 Stat. 133, 135-37 (codiﬁed as
amended at 12 U.S.C. §§ 1841-48 (2012)).
423. Omarova, supra note 420, at 268 (citing 12 U.S.C. § 1843(k)(1)(A)).
424. Id. at 275.

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idea that our banking system is too vital to be subject to the risks of other business activities.425 The concern about fairness and efficiency centers on the ideathat allowing banks to be affiliated with commercial companies may encouragebanks to issue credit on the basis of how those lending decisions will affecttheir commercial affiliates, thereby distorting competition. The practices thismay trigger—“price discrimination, unfair restriction of access to credit, andother anticompetitive banking practices”—would both “hurt the individualcommercial companies not affiliated with banks” and undermine national“productivity and growth.”426 Lastly, seeking “the prevention of excessive concentration of economic . . . power” among “large ﬁnancial-industrial conglomerates” recognizes that this market power tends to concentrate political power427 while also creating systemic dangers of “too-big-to-fail” conglomerates.428
Like bank holding companies, Amazon—along with a few other dominant
platforms—now play a crucial role in intermediating swaths of economic activity. Amazon itself effectively controls the infrastructure of the internet economy.
This level of concentrated control creates hazards analogous to those recognized in banking law. In light of this control, the conﬂicts of interest createdthrough Amazon’s expansion into distinct lines of business are especially troubling. As in banking, enabling an essential intermediating entity to competewith the companies that depend on it creates bad incentives. Allowing a vertically integrated dominant platform to pick and choose to whom it makes its
services available, and on what terms, has the potential to distort fair competition and the economy as a whole.
The other two concerns—safety and soundness, and excessive economic
and political power—are also worth considering. It is true that Amazon (andother dominant platforms like Uber and Google) have extended directly intoﬁnancial services.429 But its level of involvement in these businesses, at least at

425. See id. at 275-76.
426. Id. at 276.
427. Id.
428. Id. at 275-77. Notably, several banking regulations that previously sought to prevent concen-

tration of systemic risk in our ﬁnancial system were repealed by Congress in the 1990s—
leading in part to the “too-big-to-fail” crisis. See JOHNSON & KWAK, supra note 179.
429. See Sara E. Needleman & Greg Bensinger, Small Businesses Are Finding an Unlikely Banker:
Amazon, WALL ST. J. (Oct. 4, 2012, 1:17 PM), http://www.wsj.com/articles/SB10000872396
390443493304578034103049644978 [http://perma.cc/PUH8-XFKS]; Eric Newcomer &Olivia Zaleski, Inside Uber’s Auto-Lease Machine, Where Almost Anyone Can Get a Car,BLOOMBERG (May 31, 2016, 11:00 AM), http://www.bloomberg.com/news/articles/2016-05-31/inside-uber-s-auto-lease-machine-where-almost-anyone-can-get-a-car[http://
perma.cc/A7AM-VZRJ]; Richard Waters & Barney Jopson, Google Makes First Foray into795

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the current scale, is unlikely to concentrate ﬁnancial risk in ways that warrant
concern. Rather, the systemic risks created by concentration among platforms
are of a different kind. One involves concentration of data. That a huge share of
consumer retail data may be concentrated within a single company makes
hacks of or technical failures by that company all the more disruptive. The 2013
hack into Target’s system—as a result of which up to 110 million consumers
had personal information stolen430—could have been orders of magnitude
more disruptive had the hacked entity been Amazon. A few instances where
Amazon Web Services crashed led to disruptions for scores of other businesses,
including Netﬂix.431
Lastly, there is sound reason to ask whether permitting Amazon to leverage its platform to integrate across business lines hands it undue economic andpolitical power.432 While this subject invites much deeper consideration thanCredit Business, FIN. TIMES (Oct. 7, 2012), http://www.ft.com/content/55be35f2-1093-11e2-a5f7-00144feabdc0 [http://perma.cc/NC6P-2EEG].
430. Chris Isidore, Target: Hacking Hit up to 110 Million Customers, CNN MONEY (Jan. 11, 2014,
6:20 PM), http://money.cnn.com/2014/01/10/news/companies/target-hacking [http://
perma.cc/D6W3-TM75].
431. There have been some policy debates about whether Google should be considered “criticalinfrastructure.” See, e.g., Eric Engleman, Google Exception in Obama’s Cyber Order Questioned
as Unwise Gap, BLOOMBERG (Mar. 5, 2013, 12:01 AM), http://www.bloomberg.com/news/articles/2013-03-05/google-exception-in-obama-s-cyber-order-questioned-as-unwise-gap [http://perma.cc/5Z2M-HVU3]. That debate has not yet extended to Amazon, but—given the growth of Amazon Web Services—it may be appropriate.
432. That platforms’ concentration of economic power also concentrates political power is becoming increasingly evident. Amazon, Google, and Uber have all shifted regulatory debates
and—in some cases—directly shaped outcomes. See Liam Dillon, Uber and Lyft Are Winningat the State Capitol—Here’s Why, L.A. TIMES (May 7, 2016, 12:05 AM), http://www.latimes.com/politics/la-pol-sac-why-uber-is-winning-in-california-20160507-snap-htmlstory.html[http://perma.cc/7BRX-F39U]; Peter Elkind & Doris Burke, Amazon’s (Not So Secret) War
on Taxes, FORTUNE (May 23, 2013, 10:42 AM), http://fortune.com/2013/05/23/amazons-not-so-secret-war-on-taxes [http://perma.cc/LN8G-GTNN]; Simon Marks & Harry Davies,
Revealed: How Google Enlisted Members of US Congress It Bankrolled To Fight $6bn EU Antitrust Case, GUARDIAN, (Dec. 17, 2015, 7:30 AM), http://www.theguardian.com/world/2015/dec/17/google-lobbyists-congress-antitrust-brussels-eu [http://perma.cc/NLA7-KNVC];
Anna Palmer & Scott Wong, Lobbying Drives Uber’s Expansion, POLITICO, (Sept. 18, 2013,
11:16 PM), http://www.politico.com/story/2013/09/uber-taxi-lobbying-expansion-097028[http://perma.cc/B3LA-7WUD]; Sam Jewler & Taylor Lincoln, Mission Creep-y: Google Is
Quietly Becoming One of the Nation’s Most Powerful Political Forces While Expanding Its Information-Collection Empire, PUB. CITIZEN (Nov. 2014), http://www.citizen.org/documents/Google-Political-Spending-Mission-Creepy.pdf [http://perma.cc/83QR-X3PA]; Martin
Moore, Tech Giants and Civil Power, CTR. FOR STUDY MEDIA, COMM. & POWER(Apr. 2016), http://www.kcl.ac.uk/sspp/policy-institute/CMCP/Tech-Giants-and-Civic-Power.pdf [http://perma.cc/D76X-NALM].

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what this Note will provide, studies interviewing the host of businesses thatnow depend on Amazon—retailers, manufacturers, publishers, to name afew—reveal that the power it wields is acute.433 History suggests that allowing
a single actor to set the terms of the marketplace, largely unchecked, can poseserious hazards. Limiting Amazon’s reach through prophylactic bans on vertical
integration—and thereby forcing it to split up its retail and Marketplace operation, for example—would help mitigate this concern.
B. Governing Dominant Platforms as Monopolies Through Regulation
As described above, one option is to govern dominant platforms throughpromoting competition, thereby limiting the power that any one actor accrues.
The other is to accept dominant online platforms as natural monopolies or oligopolies, seeking to regulate their power instead. In this Section, I sketch out
two models for this second approach, traditionally undertaken in the form of
public utility regulations and common carrier duties. Industries that historically have been regulated as utilities include commodities (water, electric power,gas), transportation (railroads, ferries), and communications (telegraphy, telephones).434 Critically, a public utility regime aims at eliminating competition:
it accepts the beneﬁts of monopoly and chooses instead to limit how a monopoly may use its power.435
Although largely out of fashion today, public utility regulations were widelyadopted in the early 1900s, as a way of regulating the technologies of the industrial age. Animating public utility regulations was the idea that essential
network industries—such as railroads and electric power—should be madeavailable to the public in the form of universal service provided at just and reasonable rates. The Progressive movement of the early twentieth century embraced public utility as a way to use government to steer private enterprise toward public ends. It was precisely because essential network industries often
required scale that unregulated private control over these sectors often led toabuse of monopoly power. Famously, the Interstate Commerce Commission—
which instituted a form of common carriage for railroads—was created partly

433. See LaVecchia & Mitchell, supra note 6; Barry C. Lynn, Killing the Competition: How New
Monopolies Are Destroying Open Markets, HARPER’S MAG., Feb. 2012, at 27.
434. William Boyd, Public Utility and the Low-Carbon Future, 61 UCLA L. REV. 1614, 1616 (2014).
435. Id. at 1643.

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in response to the abusive conduct of railroads, whose control over an essential
facility enabled them to pick winners and losers among farmers.436
In the United States, the ﬁrst case applying public utility regulations to a
private business was Munn v. Illinois, in which the Supreme Court upheld statelegislation establishing maximum rates that companies could charge for the
storage and transportation of grain.437 When one “devotes his property to a use
in which the public has an interest, he, in effect, grants to the public an interestin that use, and must submit to be controlled by the public for the common
good,” Chief Justice Waite wrote.438 “[W]hen private property is devoted to a
public use, it is subject to public regulation.”439 While the decision ushered into
doctrine the principle of common carriers, the question of when a business wastruly “affected with the public interest” was highly contested.440
Most importantly, “public utility was seen as a common, collective enterprise aimed at managing a series of vital network industries that were too important to be left exclusively to market forces.”441 At the level of policy, public
utility regulations also enabled “utilities to secure capital at lower cost and tochannel it into very large technological systems,” and thus was a way to “socialize the costs of building and operating” a centralized system while “protecting
consumers from the potential abuses associated with natural monopoly.”442
Given that Amazon increasingly serves as essential infrastructure across theinternet economy, applying elements of public utility regulations to its businessis worth considering.443 The most common public utility policies are (1) requiring nondiscrimination in price and service, (2) setting limits on ratesetting, and (3) imposing capitalization and investment requirements. Of thesethree traditional policies, nondiscrimination would make the most sense, while

436. See Christopher Leslie, Antitrust Law as Public Interest Law, 2 U.C. IRVINE L. REV. 885, 887(2012).
437. 94 U.S. 113 (1877).
438. Id. at 126.
439. Id. at 130.
440. Id.
441. Boyd, supra note 434, at 1635.
442. Id. at 1643.
443. See K. Sabeel Rahman, From Railroad to Uber: Curbing the New Corporate Power, BOS. REV.

(May 4, 2015), http://bostonreview.net/forum/k-sabeel-rahman-curbing-new-corporate-power [http://perma.cc/Y6TU-E449]; K. Sabeel Rahman, Private Power and Public Purpose: The Public Utility Concept and the Future of Corporate Law in the New Gilded Age,
Address at the Association of American Law Schools’ 110th Annual Meeting (Jan. 8, 2016)(transcript on ﬁle with author).

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rate-setting and investment requirements would be trickier to implement and,perhaps, would less obviously address an outstanding deﬁciency.
A nondiscrimination policy that prohibited Amazon from privileging its
own goods and from discriminating among producers and consumers would
be signiﬁcant. Given that many of the most notable anticompetitive concerns
around Amazon’s business structure arise from its vertical integration and theresulting conﬂicts of interest, applying a nondiscrimination scheme would curb
the anticompetitive risk. This approach would permit the company to maintainits involvement across multiple lines of business and permit it to enjoy the beneﬁts of scale while mitigating the concern that Amazon could unfairly advantage its own business or unfairly discriminate among platform users to gain
leverage or market power.444 Coupling nondiscrimination with common carrier
obligations—requiring platforms to ensure open and fair access to other businesses—would further limit Amazon’s power to use its dominance in anticompetitive ways.
Rate setting would be trickier. This would involve setting a ceiling on theprices that Amazon can charge to both producers and consumers. Traditionally,
governments used rate setting by identifying a “fair return” that a company deserved for its investment, and then calculated consumer or producer prices accordingly.445 But calculating “fair return” may prove more challenging in the
online platform context than it did with traditional public utilities. One potential source of difficulty is that Amazon has invested so widely across such arange of projects that it is not clear which the government should peg to “rateof return.” Another complicating factor is that part of Amazon’s investment inthese platforms, so far, has involved losing money through below-cost pricing.
Lastly, it is not clear that imposing capitalization and investment requirements would be necessary. A traditional reason for these policies has been thatthat the economics of creating and running a utility can be unfavorable, occasionally leading private companies to scrimp on investing and upkeep. In Amazon’s case, the company is choosing to expand at a speed and scale that is pushing it into the red—but it is not clear that the activity is intrinsically loss
generating. That said, a public utility regime could also be justiﬁed on the basis444. Net neutrality is a form of common carrier regime. For an exposition of why net neutrality

and search neutrality should apply to major platforms, see Frank Pasquale, Internet Nondiscrimination Principles: Commercial Ethics for Carriers and Search Engines, 2008 U. CHI. LEGAL
F. 263.
445. A “fair return” has been variously deﬁned. For an overview of public utility regulatory regimes, see WILLIAM A. PRENDERGAST, PUBLIC UTILITIES AND THE PEOPLE 2 (1933) (“What isa utility? . . . It is commonly used to denote a business the product or use of which serves the
public generally . . . . [It is] a business which cannot choose its clients or customers.”).

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126:7102017that succeeding as an online platform requires incurring heavy losses—a modelthat Amazon and Uber have pursued. This approach would treat market-sharechasing losses as a capital investment,446 suggesting the public utility domain
may be appropriate.
Practically, ushering in a public utility regime may prove challenging.
Public utility regulations suffered an intellectual and policy attack around midcentury. For one, critics challenged the theory of natural monopoly as an ongoing rationale for regulation, arguing that rapid economic and technologicalchange would render monopolies temporary problems. Second, critics portrayed public utility as a form of corruption, a system in which private industry
executives colluded with public officials to enable rent seeking. Ultimately
these lines of criticism substantially thinned the very concept of public utility.447 The trend was part of a broader effort to idealize competitive markets andassume that nonintervention was almost always superior to interference. Although the concept of public utility regulation remains somewhat maligned today, there are signs that a robust movement to apply utility-like regulations toservices that widely register as public—such as the internet—can catch wind.
The core of the net neutrality debates, for example, involved foundational discussions about how to regulate the communication infrastructure of the twenty-ﬁrst century.448 The net neutrality regime ultimately adopted falls squarelyin the common carrier tradition.
Given Amazon’s growing share of e-commerce as a whole, and the vast
number of independent sellers and producers that now depend on it, applying
some form of public utility regulation could make sense. Nondiscrimination
principles seem especially apt, given that conﬂicts of interest are a primary hazard of Amazon’s vertical power. One approach would apply public utility regulations to all of Amazon’s businesses that serve other businesses. Anotherwould require breaking up parts of Amazon and applying nondiscrimination
principles separately; so, for example, to Amazon Marketplace and Amazon
Web Services as distinct entities. That said, given the political challenges ofushering in such a regime, strengthening and reinforcing traditional antitrust
principles may—in the short run—prove most feasible.
A lighter version of the regulatory approach would be to apply the essential
facilities doctrine. This doctrine imposes sharing requirements on a natural

446. I am indebted to David Kim for making this connection at the Yale Law Journal Author Sem-inar Workshop on October 12, 2016.
447. Boyd, supra note 434, at 1656.
448. OpenInternet, FED. COMM. COMMISSION, http://www.fcc.gov/general/open-internet[http://perma.cc/ZL6S-6Q38].

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monopoly asset that serves as a necessary input in another market. As Sandeep
Vaheesan explains:
This doctrine rests on two basic premises: ﬁrst, a natural monopolist in
one market should not be permitted to deny access to the critical facility
to foreclose rivals in adjacent markets; second, the more radical remedyof dividing the facility among multiple owners, while mitigating thethreat of monopoly leveraging, could sacriﬁce important efficiencies.449
Unlike the prophylactic ban on integration, the essential facilities route accepts consolidated ownership. But recognizing that a vertically integrated monopolist may deny access to a rival in an adjacent market, the doctrine requires
the monopolist controlling the essential facility to grant competitors easy access. This duty has traditionally been enforced through regulatory oversight.
While the essential facilities doctrine has not been precisely deﬁned, thefour-factor test enumerated by the Seventh Circuit in MCI Communications
Corp. v. American Telephone & Telegraph Co. forms the basis of an essential facility claim today.450 Under that test, a facility is essential and must be shared if
four conditions are met: (1) a monopolist controls the essential facility; (2) acompetitor is unable practically or reasonably to duplicate the essential facility;(3) the monopolist is denying use of the facility to a competitor; and (4)providing the facility is feasible.451 The MCI court also held that, in order to bedeemed essential, the facility must be a “necessary input in a distinct, verticallyrelated market.”452
While the Supreme Court has never recognized nor articulated a standard
for “essential facility,” three Supreme Court rulings “are seen as having established the functional foundation” for the doctrine.453 In 2004, however, theCourt disavowed the essential facilities doctrine in dicta,454 leading several
commentators to wonder whether it is a dead letter. This decision by the Court
to effectively reject its prior case law on essential facilities followed challenges

449. Vaheesan, supra note 419, at 911.
450. 708 F.2d 1081, 1132-33 (7th Cir. 1982).
451. Id. This last factor allows for efficiency defenses.
452. Vaheesan, supra note 419, at 921.
453. Id. at 918 (citing Marianna Lao, Networks, Access, and ‘Essential Facilities,’ 62 SMU L. REV.

557 (2009)). The three cases that Vaheesan identiﬁes are United States v. Terminal Railroad
Ass’n, 224 U.S. 383 (1912); United States v. Associated Press, 326 U.S. 1 (1945); and Otter TailPower Co. v. United States, 410 U.S. 366 (1973).
454. See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 410(2004).

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on other fronts: notably from Congress, enforcement agencies, and academic
scholars, all of whom have critiqued the idea of requiring dominant ﬁrms toshare their property.455
Treating aspects of Amazon’s business as “essential facilities” seems appropriate, given that factors two, three, and four of the MCI test are likely to holdfor at least one line of business. The ﬁrst factor—whether Amazon is a “monopolist”—is subject to the risk that doctrine takes an excessively narrow viewof what constitutes a “monopolist,” a deﬁnition that may be especially out of
touch with dominance in the internet age.
Essential facilities doctrine has traditionally been applied to infrastructuresuch as bridges, highways, ports, electrical power grids, and telephone networks.456 Given that Amazon controls key infrastructure for e-commerce, imposing a duty to allow access to its infrastructure on a nondiscriminatory basis
make sense. And in light of the company’s current trajectory, we can imagine atleast three aspects of its business could eventually raise “essential facilities”-like
concerns: (1) its fulﬁllment services in physical delivery; (2) its Marketplaceplatform; and (3) Amazon Web Services. While the essential facilities doctrine
has not yet been applied to the internet economy, some proposals have started
exploring what this might look like.457 Pursuing this regime for online platforms could maintain the beneﬁts of scale while preventing dominant players
from abusing their power.
conclusion
Internet platforms mediate a large and growing share of our commerce andcommunications. Yet evidence shows that competition in platform markets is
ﬂagging, with sectors coalescing around one or two giants.458 The titan in ecommerce is Amazon—a company that has built its dominance through aggres455. See Brett Frischmann & Spencer Weber Waller, Revitalizing Essential Facilities, 75 ANTITRUSTL.J. 1, 3 (2008).
456. Id. at 4.
457. For more pieces grappling with the possibility of applying the “essential facilities” doctrine
to internet platforms, see Frank Pasquale, Dominant Search Engines: An Essential Cultural &Political Facility, in THE NEXT DIGITAL DECADE 401 (Berin Szoka et al. eds., 2011); and Zachary Abrahamson, Comment, Essential Data, 124 YALE L.J. 576 (2014).
458. Seea Giant Problem, ECONOMIST (Sept. 17, 2016), http://www.economist.com/news/leaders/21707210-rise-corporate-colossus-threatens-both-competition-and-legiti
macy-business [http://perma.cc/DNN2-YKL3] (“[T]he most striking feature of business
today is . . . the entrenchment of a group of superstar companies at the heart of the global
economy . . . . But they have two big faults. They are squashing competition, and they areusing the darker arts of management to stay ahead.”); Davidoff Solomon, supra note 319.

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sively pursuing growth at the expense of profits and that has integrated across
many related lines of business. As a result, the company has positioned itself at
the center of Internet commerce and serves as essential infrastructure for a hostof other businesses that now depend on it. This Note argues that Amazon’s
business strategies and current market dominance pose anticompetitive concerns that the consumer welfare framework in antitrust fails to recognize.
In particular, current law underappreciates the risk of predatory pricing andhow integration across distinct business lines may prove anticompetitive.
These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets incentivize the pursuit ofgrowth over proﬁts, a strategy that investors have rewarded. Under these conditions predatory pricing becomes highly rational—even as existing doctrine
treats it as irrational. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control
the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.
In order to capture these anticompetitive concerns, we should replace theconsumer welfare framework with an approach oriented around preserving acompetitive process and market structure. Applying this idea involves, for example, assessing whether a company’s structure creates anticompetitive conﬂicts of interest; whether it can cross-leverage market advantages across distinct lines of business; and whether the economics of online platform markets
incentivizes predatory conduct and capital markets permit it. More speciﬁcally,
restoring traditional antitrust principles to create a presumption of predationand to ban vertical integration by dominant platforms could help maintaincompetition in these markets. If, instead, we accept dominant online platforms
as natural monopolies or oligopolies, then applying elements of a public utility
regime or essential facilities obligations would maintain the beneﬁts of scale
while limiting the ability of dominant platforms to abuse the power that comeswith it.
My argument is part of a larger recent debate about whether the current
paradigm in antitrust has failed. Though relegated to technocrats for decades,
antitrust and competition policy have once again become topics of public concern.459 Last year, the Wall Street Journal reported that “[a] growing number of459. In a striking speech welcoming the public and political attention towards antitrust, AssistantAttorney General for Antitrust Renata Hesse stated, “Antitrust is too important to be left
solely in the hands of antitrust experts.” Renata Hesse, Assistant Att’y Gen., Antitrust Div.,
Dep’t of Justice, Remarks at the 2016 Global Antitrust Enforcement Symposium: And Neverthe Twain Shall Meet? Connecting Popular and Professional Visions for Antitrust Enforce-803

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126:7102017industries in the U.S. are dominated by a shrinking number of companies.”460
In March 2016, the Economist declared, “Proﬁts are too high. America needs adose of competition.”461 Policy elites, too, have weighed in, issuing policy papers and hosting conferences documenting the decline of competition acrossthe U.S. economy and assessing the resulting harms, including a drop in startup growth and widening economic inequality.462 Antitrust even made it into
the 2016 presidential campaign: Democrats included competition policy intheir party platform for the ﬁrst time since 1988, and in October of the same
year, presidential candidate Hillary Clinton released a detailed antitrust platform, highlighting not only a need for more vigorous enforcement but for an
enforcement philosophy that takes into account market structure.463
Animating these critiques is not a concern about harms to consumer welfare,464 but the broader set of ills and hazards that a lack of competition breeds.
ment (Sept. 20, 2016), http://www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-opening [http://perma.cc/84E6-H4JB].
460. Theo Francis & Ryan Knutson, Wave of Megadeals Tests Antitrust Limits in U.S., WALL ST. J.
(Oct. 18, 2015), http://www.wsj.com/articles/wave-of-megadeals-tests-antitrust-limits-in-u-s-1445213306 [http://perma.cc/WA8J-ATZT].
461. Too Much of a Good Thing, ECONOMIST (Mar. 26, 2016), http://www.economist.com/news/brieﬁng/21695385-proﬁts-are-too-high-america-needs-giant-dose-competition-too-much-good-thing [http://perma.cc/4YPA-G3HB].
462. See Eduardo Porter, With Competition in Tatters, the Rip of Inequality Widens, N.Y. TIMES(July 12, 2016), http://www.nytimes.com/2016/07/13/business/economy/antitrust-competition-inequality.html [http://perma.cc/8Z8A-KCFJ]; America’s Monopoly Problem,
NEW AM., http://www.newamerica.org/open-markets/events/americas-monopoly-problem[http://perma.cc/64YF-6KZV]; Marc Jarsulic et al., Reviving Antitrust, CTR. FOR AM. PROGRESS(June 29, 2016), http://www.americanprogress.org/issues/economy/report/2016/06/29/140613/reviving-antitrust [http://perma.cc/QCV8-52TV]; Making Antitrust
Work for the 21st Century, CTR. FOR EQUITABLE GROWTH, http://equitablegrowth.org/event/making-antitrust-work-for-the-21st-century [http://perma.cc/HAX7-BRK2]; Untamed: How To Check Corporate, Financial, and Monopoly Power, ROOSEVELT INST.
(2016), http://rooseveltinstitute.org/wp-content/uploads/2016/06/Untamed-Final-Single-Pages.pdf [http://perma.cc/FM9R-DXJJ].
463. See Neil Irwin, Liberal Economists Think Big Companies Are Too Powerful. Hillary Clinton
Agrees, N.Y. TIMES (Oct. 4, 2016), http://www.nytimes.com/2016/10/05/upshot/lib
eral-economists-think-big-companies-are-too-powerful-hillary-clinton-agrees.html [http://
perma.cc/WXA9-RX2J]; Hillary Clinton’s Vision for an Economy Where Our Businesses,
Our Workers, and Our Consumers Grow and Prosper Together, HILLARY
CLINTON, http://www.hillaryclinton.com/brieﬁng/factsheets/2016/10/03/hillary-clintons-vision-for-an-economy-where-our-businesses-our-workers-and-our-consumers-grow-and-prosper-together [http://perma.cc/2EHG-PT9Z] (“Promote Free and Fair Competition
and Stopping Big Businesses from Hurting Small Businesses”).
464. One of the most striking aspects of Hesse’s speech is that she distances herself from a strict
consumer-welfare based approach—departing from current orthodoxy:804

amazon's antitrust paradox

As Amazon continues both to deepen its existing control over key infrastructure and to reach into new lines of business, its dominance demands the same
scrutiny. To revise antitrust law and competition policy for platform markets,
we should be guided by two questions. First, does our legal framework capture
the realities of how dominant ﬁrms acquire and exercise power in the internet
economy? And second, what forms and degrees of power should the law identify as a threat to competition? Without considering these questions, we risk
permitting the growth of powers that we oppose but fail to recognize.

But, although we believe competition maximizes consumer welfare, the ultimate
standard by which we judge practices is their effect on competition, not on consumer welfare. It is certainly relevant when a merger will lead to higher prices andreduced output because these results are hallmarks of reduced competition. But
the law instructs us to examine whether a merger may substantially lessen competition and that means we must sometimes look to other evidence of harm to competition.
Hesse, supra note 459.

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