Few Amazon customers or sellers could be surprised by most of the allegations in the massive lawsuit filed against the company Tuesday by the Federal Trade Commission and 17 states.
The lawsuit accuses Amazon of a host of anti-competitive practices, all aimed at exploiting its enormous footprint in the online retail market.
These include price manipulation and punitive and coercive behavior against sellers with the temerity to use competing retail platforms or to set their own prices or engage in non-Amazon methods to serve their own customers.
The harms here…have basically created a really distorted and competitive landscape….That may require significant relief.
— FTC Chair Lina Khan, contemplating an Amazon breakup
Then there’s the degradation of the Amazon shopping experience by the infusion of “sponsored” — that is, favored — products that may be inferior or more expensive than those a buyer may be seeking.
The company’s public response to the lawsuit is that it would result in “fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses,” its general counsel, David Zapolsky, said in a prepared statement, adding that the agency is “wrong on the facts and the law.”
But most of the FTC’s allegations are familiar enough. Consumers know how hard it is to determine whether Amazon’s prices are the lowest available. They know that when they’re searching for an item on Amazon.com, the varieties pushed at them most assiduously are those from Amazon’s commercial partners or marketed by Amazon itself.
They feel the pressure to sign up for Amazon’s Prime service, now $139 a year, necessary to receive one- or two-day, or even overnight, delivery, in addition to the company’s video and music streaming services.
Sellers who have marketed their merchandise on Amazon are certainly aware of the cost — a share of as much as 50% taken by the company.
They know the consequences of flouting its rules or trying to discount its products from Amazon’s price, which include banishment from the website’s one-click “buy box” or the burying of discounting sellers “so far down in Amazon’s search results that they become effectively invisible,” to quote the lawsuit.
The question is what to do about it.
That’s the question implicit in every one of the FTC complaint’s 174 pages. It’s the same question raised any time the government tries to rein in a big, powerful corporation, but it’s especially important in this case, because there are so very few corporations that dominate their markets so powerfully.
The FTC points to Amazon’s ability to leverage its various businesses, which include its “fulfillment” services — the warehousing, packing and shipping of sellers’ merchandise — and Prime eligibility, which gives sellers’ products preferential placement on the website and by eliminating shipping charges lowers the cost of their products for buyers.
That suggests that one answer would be to break up Amazon, say by forcing it to divest its fulfillment operation. FTC Chair Lina Khan dodged that issue in her statements about the lawsuit, possibly because she knows that the remedy to Amazon’s misdeeds, assuming it’s found guilty, would be in the hands of a federal judge.
“At this stage, the focus is more on liability,” she told reporters in a briefing session Tuesday. On Wednesday, during an appearance at a Washington, D.C., conference sponsored by Politico, she noted that in the lawsuit “we don’t specify any one type of remedy.”
She also observed, however, that “the harms here are really mutually reinforcing, and have basically created a really distorted and competitive landscape … that may require significant relief.”
The lawsuit isn’t entirely silent on possible remedies, mentioning, among other options, “structural relief.” That could only mean a breakup.
Some disclosures are proper here. I am, like many other customers, a willing prisoner of the Amazon ecosystem, or perhaps more accurately, an addict. The books I read for pleasure are almost invariably ebooks, which means they’re Amazon ebooks; I blindly buy the latest version of the company’s Kindle e-reader (up to and including its new large-format Kindle Scribe).
If I’m interested in a book that doesn’t come in a Kindle version, I’ll wait until it does. I can’t remember the last time I bought an ebook not on Amazon. All but two of the books I’ve written come in Kindle versions, for which I’m thankful.
Outside of food and gasoline, I probably do 70% to 80% of my shopping online, and the vast majority of purchases are on Amazon. I’ll make a purchase on Amazon even if the product is available at a store less than a mile away, and especially if it will be delivered the next day or even (increasingly) overnight.
That doesn’t mean that I’m an uncritical fan. I’ve had to train myself to look past the “sponsored” products Amazon thrusts at me when I’m searching for a product. I’ve avoided its Echo/Alexa devices, because I know they exist to push favored products my way, and who wants a device in the home with the capability of listening in to private conversations?
I’m not happy that I can’t own an ebook purchased on Amazon, but only purchase a license giving me the right to read it (but not give it away, like a physical book). Nor that this arrangement gives Amazon rights over my ebook library that I may not even know about, as when it stealthily deleted from customers’ Kindles versions of George Orwell’s “Animal Farm” and “1984” after copyright issues arose with those versions.
An Amazon ebook generally can be read only on an Amazon Kindle or an Amazon app — another pair of mutually reinforcing near-monopolies.
Quite obviously, Amazon could never get away with such restrictive rules if it had genuine competition in the ebook or e-reader markets.
Amazon and its mouthpieces in Congress have made much of the fact that Khan has had Amazon’s number for years. Exhibit A is her 2017 article in the Yale Law Review titled “Amazon’s Antitrust Paradox.” Amazon and Meta (then Facebook) tried to use it to force Khan to recuse herself from FTC proceedings against them. Wisely and properly, she turned them down.
The article delved deeply into Amazon’s anti-competitive strategies, which consisted chiefly in undercutting competitors’ prices and consequently taking losses; the company’s expectation that this would drive rivals out of its markets and leave the field clear for it to turn to extracting profits from consumers by exploiting its near-monopoly bore fruit in the long term.
Khan homed in on, among other tools, Amazon’s fulfillment services. But she noticed how Amazon leveraged its Prime membership by bundling “other deals and perks” into it, turning Prime into its “biggest driver of growth.”
The discussions in the FTC lawsuit of Prime and fulfillment as anti-competitive tools replicate Khan’s 2017 analysis with astonishing fidelity, showing that Khan understood Amazon’s business strategy very well indeed.
The remedies Khan offered in 2017 wouldn’t be adequate to rein in the Amazon of today. She recommended applying especially close scrutiny to merger deals reached by companies that already dominated their markets — but that might not work with a company such as Amazon, which has the ability to expand its market dominance without having to acquire other companies.
What most people overlook is that the 2017 article was a critique not so much of Amazon, but of the failure of antitrust regulators to recognize that the new online retail market was fundamentally different from bricks-and-mortar retailing, and that Amazon had been able to exploit that failure.
The best example, Khan pointed out, involved the efforts by major book publishers to counteract Amazon’s policy, rolled out in 2007, of pricing bestseller ebooks at $9.99, undercutting the publishers’ hardcover and ebook prices. Within two years, Amazon’s share of the ebook market was 90%.
The publishers struck a deal with Apple allowing them to set their own ebook prices for sale on Apple’s iBooks app. Amazingly, the Justice Department sued Apple and the publishers for colluding to fix prices. As Khan noted, the DOJ found “persuasive evidence lacking” that Amazon had engaged in predatory pricing.
Apple eventually settled the lawsuit for $450 million, the three largest publishers — Hachette Book Group, Simon & Schuster, and HarperCollins — settled for a combined $69 million, and the last two, Macmillan and Penguin, settled by agreeing not to set ebook prices. Apple never became a significant player in the ebook market.
As Khan perceived, old-school antitrust regulators failed to understand how the retail market had evolved and Amazon was poised to take advantage: “How steep discounting on a platform … creates a higher risk that the firm will generate monopoly power” than discounting in physical stores, and how Amazon’s business had become so big and varied that it could undercut rivals’ prices, take a temporary loss, and recoup its red ink in multiple ways.
The lawsuit that her FTC filed against Amazon sends a clear signal: She doesn’t intend to make the same mistake.
Video: Harris Not Worried About Biden Trailing Trump in Key Polls
1 00:00:00,000 —> 00:00:05,030 “Former President Trump, not only on a national level, 2 00:00:05,030 —> 00:00:09,710 appears to be beating the Biden-Harris ticket, 3 00:00:09,710 —> 00:00:14,780 but uniquely in those five of the six key swing states, 4 00:00:14,780 —> 00:00:16,450 that seems to be the case. 5 00:00:16,450 —> 00:00:18,980 What do you think when you see the polls?” 6 00:00:18,980 —> 00:00:20,493 “Listen, if I listened to polls 7 00:00:20,493 —> 00:00:22,160 I would have never run for my first office 8 00:00:22,160 —> 00:00:23,040 or my second one. 9 00:00:23,040 —> 00:00:24,570 And here I am as vice president. 10 00:00:24,570 —> 00:00:27,260 There are fundamental freedoms that are at stake 11 00:00:27,260 —> 00:00:29,730 right now, and the American people do understand that. 12 00:00:29,730 —> 00:00:33,080 And again, I will point to the midterms and the most 13 00:00:33,080 —> 00:00:36,980 recent elections — when freedom was on the ballot, 14 00:00:36,980 —> 00:00:40,580 be it from Kansas to California, Ohio to Virginia.” 15 00:00:40,580 —> 00:00:41,410 “Do you think the polls —” 16 00:00:41,410 —> 00:00:42,240 “The American people voted in favor. 17 00:00:42,240 —> 00:00:44,270 “Do you think the polls are just wrong? 18 00:00:44,270 —> 00:00:46,490 “That’s a little too simplistic, 19 00:00:46,490 —> 00:00:48,470 with all due respect. 20 00:00:48,470 —> 00:00:51,020 I don’t think that we should use 21 00:00:51,020 —> 00:00:56,150 polling as our only measure of who we are as Americans, 22 00:00:56,150 —> 00:00:59,240 and our values and our principles 23 00:00:59,240 —> 00:01:00,740 and our priorities.” 24 00:01:00,740 —> 00:01:06,480 “Your ratings, 38.5 percent, Biden’s, 40.4 percent 25 00:01:06,480 —> 00:01:09,030 and Trump is higher. 26 00:01:09,030 —> 00:01:13,800 Ron Klain says this, and and you’ve seen press about 27 00:01:13,800 —> 00:01:15,160 yourself over the years. 28 00:01:15,160 —> 00:01:18,090 He says that he believes that your popularity 29 00:01:18,090 —> 00:01:22,080 or unpopularity or whatever rating you want to put it as 30 00:01:22,080 —> 00:01:25,312 is a function of sexism and racism. 31 00:01:25,312 —> 00:01:26,770 He says that’s part of the problem. 32 00:01:26,770 —> 00:01:28,990 He says she doesn’t get the credit for all that 33 00:01:28,990 —> 00:01:29,830 she’s done. 34 00:01:29,830 —> 00:01:31,880 Do you think that’s true?” 35 00:01:31,880 —> 00:01:34,635 “Well, are we talking about the media or people? 36 00:01:34,635 —> 00:01:35,760 As it relates to the media, 37 00:01:35,760 —> 00:01:38,410 I’m sure some of that is true.”
Column: This lawsuit has the NCAA staring down extinction. Is that a bad thing?
There can be few American public institutions more widely destested than the National Collegiate Athletic Assn.
The NCAA spent decades promoting the ideal of the amateur “student-athlete,” barring football and basketball players from compensation while their coaches and university athletic directors collected millions of dollars a year. Its disciplinary system, rife with favoritism and inconsistencies, is honored by member universities more in the breach than the observance.
And when it doesn’t get its way, it hasn’t been shy about bullying — not that it always works, as when it threatened in 2019 to ban California universities from championship games if the Legislature voted to allow payments to those student-athletes.
Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate.
— Supreme Court Justice Brett Kavanaugh
(The measure in question passed anyway and was signed into law by Gov. Gavin Newsom.)
As it happens, the very issue covered by that legislation — compensation for the use of college players’ “names, images and likenesses,” or NIL for short — is at the center of what the NCAA implies could be an extinction event for the collegiate sports system as we know it today, if not for the NCAA itself.
The NCAA’s hand-wringing has come about because federal Judge Claudia Wilken of Oakland has certified an antitrust lawsuit naming the association and its five most important regional sports conferences, the so-called Power Five, as a class action.
Wilken designated three classes of plaintiffs: current and former men’s football and basketball players in the Power Five conferences, current and former women’s basketball players in those conferences, and all other current and former athletes who competed on Division I teams prior to July 1, 2021, and have received NIL payments from third parties under the NCAA’s temporary suspension of NIL payment restrictions.
The athletes who brought the case have asked for $1.4 billion in damages, which under antitrust law would be trebled if they win, for a total of $4.2 billion.
A judgment of that magnitude, the NCAA says in an appeal brief, “would necessitate curtailing college sports programs across the country.” It says it would face “intense pressure to settle,” presumably on highly disadvantaged terms — at least for the association, the athletic conferences and the administrators who have been running university programs on a business model dependent on paying athletes virtually nothing.
This problem is the product of the transformation of college football and basketball into big businesses so rich and powerful that they often overwhelm the academic goals of their universities.
Who’s responsible? The NCAA and the universities with big-money programs themselves. They built these enormous financial edifices on a business model based on the players’ free labor.
“The hard work of college athletes,” the plaintiffs observed in their lawsuit, “has translated into billion-dollar television deals, multi-million dollar coaching salaries, extravagant facilities, and lucrative commercial licensing and sponsorship agreements” for the NCAA, its conferences and their executives.
Now that the financial ground is shifting under the feet of the NCAA and the richest athletic programs, they’re feeling the pain from the collapse of their franchise.
The numbers tell the story.
In recent years the Big Ten, Southeastern and Big 12 conferences signed multiyear television deals for football worth a total of more than $12 billion. In 2016, the NCAA renewed its contract with Turner Sports and CBS for broadcast rights to its men’s basketball tournament for $8.8 billion over eight years.
The lawsuit plaintiffs assert that more than 150 football and basketball coaches in the NCAA’s elite Division I earn more than $1 million a year; the best-paid 25 football coaches collect an average of $5.2 million and the top 25 basketball coaches an average of $3.2 million. In fiscal 2021-22, NCAA President Mark Emmert earned nearly $3.3 million, according to NCAA disclosures. Emmert retired earlier this year, but it’s a fair bet that the compensation of his successor, former Massachusetts Gov. Charlie Baker, will be in the same neighborhood.
That should provide context to the NCAA’s long drive to keep student players on a short financial leash, in order to preserve the impression that the players are merely amateurs, playing sports out of love for the game.
The opening of the NIL spigot has provided a bounty for star college football and basketball athletes.
Seven-figure NIL endorsement deals have been signed by marquee players, topped by USC basketball player Bronny James, the son of Lakers star LeBron James, for $5.9 million from Nike and Apple’s Beats by Dre, among other brands; University of Colorado quarterback Shedeur Sanders, the son of former NFL star and current Colorado coach Deion Sanders, for $4.5 million from brands including Adidas and Gatorade; and University of Texas quarterback Arch Manning, the nephew of retired NFL quarterbacks Payton and Eli Manning and grandson of NFL quarterback Archie Manning, for deals totaling an estimated $2.8 million.
Other top players without gilded parentages are also receiving eye-popping deals.
The NCAA’s position that amateurism is crucial to maintaining fans’ enthusiasm for college football and basketball has been under attack for the better part of a decade. In 2014, Wilken chipped away at the NCAA’s ban on NIL compensation, in a landmark case launched in 2009 with former UCLA basketball star Ed O’Bannon as lead plaintiff.
Wilken recognized big-college sports as a business, not amateur competition. But her solution was to allow NCAA schools to set up trust funds of several thousand dollars per player per year to hold their shares of the licensing revenue they had earned until graduation. She rejected the plaintiffs’ proposal to allow student-athletes to make commercial endorsements, because she accepts that the NCAA and its member schools should protect the students from “commercial exploitation.”
The NCAA had already sustained two blows in 2021. In June, the Supreme Court ruled narrowly, but unanimously, that the NCAA was subject to antitrust laws and that its restrictions on certain education-related benefits for athletes breached the laws. In a concurring opinion, Justice Brett Kavanaugh ridiculed the NCAA’s argument that fans would abandon big-time football and basketball if they knew the players were getting paid.
“Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate,” Kavanaugh wrote.
In the wake of the Supreme Court ruling the NCAA, perhaps detecting the writing on the wall, temporarily suspended its ban on NIL compensation while working out a system of new rules.
The following September, National Labor Relations Board General Counsel Jennifer A. Abruzzo issued a memo defining scholarship athletes at academic institutions as employees. Calling them “student-athletes” is legally a misclassification, Abruzzo said; in fact, she explicitly refused to accept the term in her memo, on the grounds that it had been coined chiefly “to avoid paying workers’ compensation claims to injured athletes.”
Abruzzo drew from the Supreme Court ruling as well as a sea change in the law and what she called “the societal landscape,” which she said “demonstrate that traditional notions that all Players at Academic Institutions are amateurs have changed.” Her memo opened the door to fairer compensation for athletes and even to giving them the right to unionize.
This May, the NLRB’s Los Angeles office followed Abruzzo’s lead by filing a complaint against USC, the Pac-12 Conference and the NCAA, alleging that they broke the law by misclassifying college athletes in men’s and women’s basketball and football as student-athletes rather than employees. The case is pending.
“The conduct of USC, the Pac-12 Conference and the NCAA, as joint employers, deprives their players of their statutory right to organize and to join together to improve their working and playing conditions if they wish to do so,” Abruzzo said at the time.
The truth is that amateurism in college sports — indeed, the very concept of the student-athlete — has always been clothed in the rosy glow of myth. The meet generally regarded as the first intercollegiate athletic contest, the 1852 Harvard-Yale boat race on Lake Winnipesaukee in New Hampshire, was openly a profit-making event, sponsored by a railroad magnate conniving to gin up tourist interest in the lake and its environs.
In that era, collegiate football was a commercial enterprise employing athletes for pay — “‘tramp athletes’ who ‘roamed the country making cameo athletic appearances’ for pay,” as Justice Neil M. Gorsuch wrote in the 2021 Supreme Court opinion. That system prevailed until 1905, when 18 fatalities on the college gridiron provoked President Theodore Roosevelt to force Harvard, Yale and Princeton to codify rules aimed at protecting players from injury.
Roosevelt’s initiative gave birth to the NCAA. As one of its first acts, the NCAA outlawed payments, direct or indirect, to players, thereby defining players as amateurs. The NCAA rode that concept hard for more than a century. Its lawyers coined the term “student-athlete” in the 1950s, but since under-the-table payments still existed it was offered with a cynical wink.
The NCAA is trying to hold back the tide on two fronts. In its appeal of Wilken’s latest ruling, it is arguing that the judge was wrong to certify the three classes of plaintiffs. College players don’t have the common characteristics needed for a class action, the NCAA asserts; nor would it be fair to apportion, say, revenues from a TV deal evenly among all players on a team.
“The value of NIL is inherently tied to each athlete’s unique status and characteristics,” it told the appeals court. “A star quarterback can plainly command more money for the use of his image on the cover of a video game than an unheard-of, backup offensive lineman.”
The NCAA’s second front is on Capitol Hill. The association has been trying to persuade Congress to step in. In an appearance Oct. 17 before the Senate Judiciary Committee, the NCAA’s Baker asked the lawmakers to overrule state laws in 30 states governing NIL payment rights by enacting a federal law.
More tellingly, Baker asked the senators to enact a law affirming that “student-athletes … are not employees of an institution” — in other words, to overturn the NLRB’s doctrine in a way that would stifle the earning rights of most players and eliminate such threats as unionization.
“College sports are a uniquely powerful and beloved institution,” Baker said.
How often have we heard this before? It’s a rare industry that doesn’t come to Capitol Hill pleading that it’s so special that it deserves a tailor-made system of laws and regulations. Baker may claim that his industry is unique, but he sounds exactly like every other business leader looking for a legal bailout.
The NCAA is trapped in a morass of its own making. Its century-old business model has come face to face with 21st century realities, and it needs to deal with the world as it is, instead of trying to keep living in a world of its own.
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