FTC Chair Lina Khan on Antitrust in the age of Amazon

0:00This message comes from Capital One with the Capital One Saver Card. Earn unlimited 3 % cash back on dining and entertainment. Capital One. What's in your wallet? Terms apply. Details at CapitalOne.com. This is Planet Money from NPR. Last week, I had a chance to sit down with Lina Khan. Hey! Hello. Hey, I'm Lina. Hey, Alexi. Nice to meet you. And okay, Alexi, I have to say this was super exciting because Lena Kahn is the chair of the Federal Trade Commission, which, among other things, regulates how big companies can get in the U.S. OK, so just to start, I have to ask, when you were a kid, was Monopoly your favorite board game?

0:45No, I think it was probably like snakes and ladders. Nevertheless, Lena is now helping set the rules for the real-life game of Monopoly playing out across the American economy. As FTC chair, she is one of the country's top antitrust cops, policing companies as they vie for bigger and bigger slices of any given market. Now, for a long time, antitrust was kind of this sleepy policy backwater. The prevailing theory of how to police monopoly power had basically been to let the market sort it out on its own, unless you could prove that consumers were clearly getting harmed. But a few years ago in 2017, Lena Kahn rocketed into the national conversation with a simple but radical argument, which is that we had been doing everything wrong and that by now it was exacting this hidden toll on our everyday lives.

1:36Monopoly power and consolidation can make the difference between whether you have to drive five miles to go to the hospital or whether you're driving 50 miles to go to the hospital. It can be the difference between whether you're paying$4 for eggs or$10 for eggs. It can make the difference between whether you can quit your job and have opportunities with a rival firm or whether you're in fact just stuck working for a company, even if they're docking your wages or worsening your working conditions. And so there are just very real material consequences of how we do antitrust. In other words, the stakes are a lot bigger than a board game.

2:21Hello and welcome to Planet Money. I'm Jeff Kuo. And I'm Alexi Horowitz-Gazi. In just a few years, Lena Kahn went from a controversial new voice calling for antitrust reform to the person leading one of the main government agencies that could actually do something about it. And as FTC chair, she's taken some big swings against some of the economy's most prominent tech giants. She's suffered a couple big setbacks. And now the FTC has filed one of the biggest antitrust cases in decades against Amazon, which we should say supports and pays to distribute some NPR content. Today on the show, a conversation with Lina Khan.

2:58What it's like to try to turn audacious theory into bureaucratic practice and what it all means for business as usual.

3:34Thank you. Using rich first-party insights, Amazon Ads connects brands with the right audiences where they browse, buy, and stream. Learn more at advertising.amazon.com. This message comes from Capital One with the Capital One Saver Card. Earn unlimited 3 % cash back on dining and entertainment. Capital One. What's in your wallet? Terms apply. Details at CapitalOne.com. Okay, so to kind of go back to your origins, tell me the story of how you fell in love with antitrust, at least as a kind of professional calling. So one of my first jobs after college was as a researcher and business journalist for a think tank.

4:20And one of my first assignments was a deep dive into the chicken industry, the poultry market. And pretty quickly, it became clear that the poultry market is structured like an hourglass. So you have millions of consumers on one side, thousands of farmers on the other side, and they're connected just by a handful of companies. And what that means practically is that if you're a chicken farmer today to do business, oftentimes you're just dependent on a single company to get to market. And from interviewing these farmers, it became clear that that asymmetry of power was resulting in a lot of abuse.

4:59And farmers told me that they wanted to go speak out to the government, but chicken companies threatened them and said, if you speak up, we'll retaliate against you. And it was such an instructive example of how concentrated private power, how monopoly power, could also infringe on people's most fundamental liberties. The origins of antitrust law go back to the Gilded Age. Listeners who've heard parts one and two of Planet Money's series on antitrust in America will know the backstory to this history. But here's a quick recap. The late 19th century saw the rise of these massive new companies, these trusts, as they were called, like John D.

5:38Rockefeller's Standard Oil, which were using their sheer size to push competitors out of the market. So the antitrust laws at the federal level were passed back in 1890 against the backdrop of this phenomenal industrial revolution that had delivered a lot of technological gains and progress, but had also concentrated power over these new industries and a very small number of hands. And so you had farmers, for example, who were often dependent on a single railroad that was going through their town, and they saw how that concentrated power could result in discrimination. It could result in arbitrary price hikes.

6:16And there was a sense that who was winning and who was losing in our economy was not based on who on the merits was offering the best products or services or prices, but really the whims of these gatekeepers. And so there was a big movement to really push Congress to pass a set of laws to really rein in some of this unchecked power. So in 1890, you had the Sherman Act that was passed. In 1914, you had the Clayton Act, the FTC Act, which created the Federal Trade Commission. Is that your favorite one? Yeah, I think it has to be. Over the next 60 years, the government took a pretty aggressive approach to policing anti-competitive behavior, regularly stopping companies from merging or even breaking up companies they argued had gotten too big.

7:01Until the 1970s, when there was a backlash to all this aggressive enforcement and the pendulum swung the other way. A new way of thinking about antitrust started to take hold, which essentially said, the fact that some shoe manufacturer or pie company is gobbling up market share from its competitors isn't necessarily a bad thing. The only thing we should really be worrying about is whether actual consumers are harmed by things like rising prices or fewer kinds of products. What mattered should be consumer welfare. And that consumer welfare standard, as it was christened, set the stage for the next 40 years.

7:41Antitrust regulators became a lot more hands off. The market, the thinking went, would solve a lot of these problems all on its own. There was a view that if you ever had monopolization in the economy and that monopoly started to hike prices or hurt its customers, that that monopoly power would be disciplined by a new set of companies that would rush in and try to take business away from the monopoly. This new paradigm in antitrust thinking was spelled out most famously by a legal scholar named Robert Bork in his book The Antitrust Paradox. Antitrust, he argued, the law that's supposed to help competition, was actually harming it by intervening on behalf of particular companies.

8:22That was the paradox. And Bork's view? That has become mainstream. That was the paradigm Lena Kahn decided to attack when she was a law student at Yale back in 2017. when she wrote a provocative paper for the Yale Law Journal playing off the title of Bork's famous book, The Antitrust Paradox. The paper was called Amazon's Antitrust Paradox. And what was the vision you laid out in that paper for what needed to change when it came to antitrust policy in the U.S.? So that paper is that I wrote, you know, as a student in a very different role than the one I'm in right now, basically argued that the shift in antitrust that we had seen in the 70s and 80s now created serious blind spots.

9:02in how we enforce the laws against monopolies. And those blind spots were especially acute in digital markets. In her paper, Lina pointed to the wave of social media platforms and online marketplaces, places like Amazon, that had come to define this new internet economy. These new business models, she argued, they'd started to pose whole new kinds of antitrust threats that couldn't be captured by a narrow definition of consumer welfare, which is based on things like price or product variety. One of the arguments was that a focus on short-term price effects, for example, could disable us from recognizing monopoly power in its earlier stages, especially in digital markets.

9:44There can be a real premium on getting big as quickly as you can. And when you're looking to do that, you may not be focused on short-term profits in the same way. You're really looking to expand, to build a huge user base, to build market share. And so some of the tactics that firms can deploy in those early stages can be anti-competitive, but they can really fall off the radar from antitrust enforcers if they're just looking at, for example, price or output as key metrics. In her 2017 Law Review article, Lena argued it was time to drastically shift our approach to antitrust enforcement, to return in many ways to the spirit of the original antitrust laws that had led to the breakup of Gilded Age behemoths like Standard Oil.

10:27The paper suggested that similar action needed to be taken now by taking steps that included potentially breaking up Amazon. Lena argued that focusing too narrowly on consumer harm had allowed a handful of tech companies and digital platforms to get so big and powerful, it had become nearly impossible for new businesses to compete. Antitrust enforcement, she said, needed to go back to a more proactive approach. The paper went kind of viral. People went bananas. it is. And it helped catapult Lena and a wider group of scholars calling for antitrust reform into the public sphere. For a lot of scholars, it was a rallying cry.

11:04Though others saw this reform movement as backsliding and dismissed it as a kind of vintage way of looking at monopolies. They called it hipster antitrust. Do you identify as a hipster in the rest of your life? Probably not. Okay. Hipster or not, Lena became kind of famous in policy circles. And back in 2019, when our colleagues Jacob Goldstein and Kenny Malone interviewed her for Planet Money, they asked her a hypothetical. If you had all the antitrust power in the world, what would you do? Do you want a title? We're going to make you the ruler of antitrust in America. That seems kind of antithetical to the spirit of antitrust.

11:42Well played. Oh. Yeah, that's fair. Well, just two years after that conversation in 2021, it kind of happened. President Joe Biden appointed Lena to be the chair of the Federal Trade Commission. That is about as close as you can get to being the ruler of antitrust in America. All of a sudden, Lena went from an outspoken academic to someone on the inside, someone at the helm of antitrust enforcement in America. And as chair con, she's had a rare chance to put some of her ideas into actual practice. So once you kind of became the chair, like, did it seem like it was going to be easy? No. No. Elaborate.

12:21So look, I mean, you know, the FTC is this remarkable agency, but we're small. We're around 1 ,200 people. We're smaller today than we were at various points in the 1970s, even as the economy has continued to expand significantly. We're also outgunned oftentimes, you know, at base when the FTC is doing its job, when it's taking on, you know, monopolies that we believe have illegally used their monopoly power. That's pitting the agency against some of the most powerful and well-resourced companies in our entire economy. You're kind of like taking on the oil barons of our era in a way. Do you think about it that way?

13:00I think it's fair to think that, you know, there are certain markers of the Gilded Age once again that we're living through. And so, you know, the robber barons and the industrial trusts that the FTC was charged with taking on a century ago were once again facing similar battles. After the break, how those battles have started to shape up since Lena Kahn leapt from the ivory tower into the enforcer's chair.

13:30This message comes from Vanguard. Capturing value in the bond market is not easy. That's why Vanguard offers a suite of over 80 institutional quality bond funds, actively managed by a 200-person global team of sector specialists, analysts, and traders. They're designed for financial advisors looking to give their clients consistent results year in and year out. See the record at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing is subject to risk. Vanguard Marketing Corporation Distributor. This message comes from Apollo Global Management, who believes the global industrial renaissance is transforming the world.

14:11Over the next decade, industries like energy, infrastructure, and technology will need an estimated$75 to$100 trillion to modernize and meet demand. Long-term projects need long-duration capital. That's where Apollo steps in. With scale, flexibility, and a focus on growth, they're partnering with companies to drive the future one innovation at a time. Learn more at thinkitnew.com slash renaissance. This message comes from Capital One. Say hello to stress-free subscription management. Easily track, block, or cancel recurring charges right from the Capital One mobile app. Simple as that. Learn more at capitalone.com slash subscriptions.

14:56In June of 2021, Lena Kahn was appointed by President Biden to chair of the Federal Trade Commission. Now, the FTC isn't the only agency tasked with enforcing antitrust laws in the U.S. There's also the DOJ and state attorneys general. But Lena Kahn has become one of the top monopoly cops in the country. And like any other cop, her job is not to make the law, but to enforce it. Her job is to investigate companies, review proposed mergers, figure out if any of them are breaking antitrust laws. And if they are, she can file lawsuits against them. But the final decision on those cases is up to the courts.

15:31And if you want to get a sense of Lena Kahn's antitrust philosophy, how she's trying to enforce antitrust law more aggressively and even expand the law beyond the consumer welfare standard, a good place to start would be the merger guidelines. The merger guidelines are kind of like the government's antitrust manual. They lay out how the FTC and the Department of Justice will investigate company mergers, like what red flags they're looking for, what kinds of mergers they'll try to block for being anti-competitive. After Lena became chair, the FTC decided to revise and update the merger guidelines.

16:04Lena says they've been revised periodically over the last few decades, but significant parts hadn't been revised since 2010. And we believe that a lot had changed since 2010. I think one of the worries has been that the agencies have used at various points models and theories that haven't always mapped onto the reality of what happens once firms merge and how firms can use their power. And so Lena pulled a move from earlier in her career when she studied the impacts of monopoly power on chicken farmers by talking to them directly. She teamed up with the DOJ to collect information directly from the public about how mergers have worked in the time of online platforms like Facebook or Amazon or Uber.

16:47So we got a lot of input. We did a bunch of listening sessions with farmers, with nurses, with health care workers more generally, with journalists, with musicians, really with people across the economy to understand on the ground, what has it looked like when you've seen mergers in your sector and what have the real world effects been? You know, we got thousands and thousands of comments, a lot of them from workers who had noted, for example, the ways in which mergers that have gone through have ended up resulting in their pay being cut, their work schedules becoming less predictable, their working conditions becoming worse.

17:23We heard from, you know, small businesses, independent businesses about how mergers have resulted in them being muscled out of markets, not because they can't compete, not because customers don't want their products, but because firms that have merged have been able to use their muscle to bully firms and push them out. And so there are revisions that we put forward this summer, for example, address platform markets. For the first time ever, they address labor markets. They make clear that the agencies are going to look at how mergers could potentially limit competition, not just in ways that will harm consumers, but also in ways that could harm workers and labor.

18:01The FTC and DOJ put out a draft of the new merger guidelines this summer, and they give you a sense of how Lina is exploring broader types of harm than many of her predecessors. The FTC is now looking not just at how consumers might be harmed by a merger, by, you know, higher prices or less product variety, but also at how a merger might affect, you know, workers. And in speeches and articles, she's also talked about harm to digital security, harm to privacy. But the merger guidelines are only one tool she has to change the way companies behave. For this agenda to have any real teeth, it comes down to filing actual lawsuits against companies that Lina Khan and the FTC allege have broken antitrust law.

18:41And with those lawsuits, she's taken some pretty big swings. We asked Lina to walk us through four of those lawsuits. The first one was a case the FTC refiled against Facebook, arguing that some high-profile acquisitions from the last decade or so shouldn't have been allowed. And one of the claims there was that Facebook had become dominant on the desktop market. And then they quickly saw that the market at a later stage was shifting to mobile. And they saw that firms like Instagram and WhatsApp instead were threatening to become more dominant in the mobile space and make Facebook irrelevant. And so we allege Facebook made those acquisitions of Instagram and WhatsApp because it viewed them as a threat in the mobile market.

19:24The FTC is arguing that the courts should unwind the deal, force Facebook to divest itself of WhatsApp and Instagram. We reached out to Facebook's parent company, Meta, for comment, and they referred us to a previous statement in which they say, quote, Our investments in Instagram and WhatsApp transformed them into what they are today. They've been good for competition and good for the people and businesses that choose to use our products. The court has not yet made a decision on this case. The FTC's lawsuit is still pending. But the case shows how Lina Khan and the FTC are now thinking about why it's so important to stop anti-competitive acquisitions earlier in the process.

20:03The idea is that if regulators aren't paying close enough attention to emerging markets, especially in tech, huge dominant firms can just buy up any would-be rivals and scuttle that market before it ever really gets going. These technological inflection points can be really important moments of new competition. And so the incumbents oftentimes feel threatened during these moments. And so we want to be making sure that we're not allowing dominant monopolies today to also solidify their monopoly power in tomorrow's markets through these acquisitions. And this is the underlying philosophy that's also motivating the second lawsuit we're going to talk about.

20:43Another case the FTC brought against Facebook. This one after it had been rebranded to Meta. Meta was trying to acquire a virtual reality company called Within Unlimited. And even though that VR market was still in its tiniest infancy, the FTC argued that Meta's behavior was still anti-competitive because it preempted competition that might otherwise bloom in the virtual reality space. And so Lena and the FTC used an old legal theory that hadn't been used much for decades, since basically before the whole backlash against aggressive antitrust enforcement. So the FTC's case seeking to block Meta's acquisition of Within was really about what's known as potential competition.

21:24And so the claims in the case included noting that Meta itself had actually been planning to enter this market itself. And it ended up doing this acquisition in ways that short-circuited that organic competition that we would have seen if Meta had organically looked to enter. And so that was one of the counts. We also noted that just the mere fact that Meta was potentially going to enter also ended up disciplining the existing players in the VR market. Now, in the case of Meta within Unlimited, the courts decided not to block that acquisition. Tell me a little bit about what happened in the decision and what lessons you're taking from that.

22:03So, look, we only bring cases where we believe there's a law violation, and our team did a terrific job putting together that case in a very compressed period of time. And it's true, you know, we did not win and we were disappointed by that. But the court's decision also had a whole set of really important determinations about how this potential competition doctrine applies in digital markets. So in the case, you know, one of Facebook's argument was that this doctrine is so old, it doesn't even apply to these markets. And the court firmly rejected that. He said, no, this potential competition doctrine is alive and well, even in markets like digital markets, even relating to virtual reality.

22:43And he noted a whole set of important ways that that doctrine applies in this market and gave us a whole set of wins that we can build on in any future cases. But, of course, anytime we have setbacks in the court, we look closely at those opinions and try to figure out what we do better. According to the court, the argument the FTC made in this case was, quote, impermissibly speculative. But the court did accept potential competition as a valid argument in theory. And Lena sees that as a kind of win. Another one of her big swings? The FTC's attempt to block what are called vertical mergers. That's when companies buy up other companies in their industry that they don't directly compete with, like a car company buying a smaller tire manufacturer, for example.

23:27Under recent mainstream interpretations of antitrust law, vertical mergers are generally seen as OK. They're not seen as anti-competitive. They're even seen as a way to improve efficiency, which, you know, is good for consumers. But Lena Kahn argues those mergers can come at a big cost. They can give a company too much power in an industry. And you can see this argument playing out in case number three. The FTC's attempt to block Microsoft from acquiring a video game company called Activision Blizzard. Microsoft and Activision Blizzard, they aren't direct competitors. Not exactly. Microsoft makes the popular gaming console the Xbox, while Activision Blizzard makes games.

24:07But the FTC's case argued that this merger could allow Microsoft to starve other video game platforms, like the PlayStation, from getting access to big Activision games, like, you know, Call of Duty. We've generally had a market where you could have platform agnostic content developers that are able to reach video gamers through a whole set of platforms. And there's a risk that if this acquisition goes through, we'll instead see a shift to a series of walled gardens that will make it much more difficult for organic content to be getting to video game users. But the courts decided again in this case against the FTC.

24:46They let Microsoft's vertical merger go through, saying the FTC hadn't proven the deal would hurt consumers. Though the FTC is still pursuing a case post-merger. This leads us to the fourth and final case that Lena walked us through. The one that many people across the world of antitrust had been waiting for for years. This fall, the FTC brought a case against the subject of her famous law school paper. Against Amazon. But the crux of the FTC's case against Amazon rests on more conventional antitrust arguments about consumer welfare. That Amazon had had a policy that harmed its third-party sellers, which ultimately had harmed consumers.

25:25So our lawsuit lays out how Amazon is, for example, harming the millions of merchants that rely on Amazon to access consumers. In today's digital economy, if you want to be visible in e-commerce, you generally have to sell on Amazon. And the lawsuit lays out a set of tactics that Amazon has deployed against those merchants that we believe are anti-competitive. It has basically dictated policies that say, if you sell on Amazon, you can't list your products on any other website for a price that's lower than what you're listing on Amazon. And one reason that ends up being problematic is because Amazon has also been hiking the fees that it charges these merchants.

26:09So these merchants face higher costs on Amazon, but are not able to raise their price on Amazon to reflect those higher costs. And instead, they have to either raise their price on other websites or they just stop selling anywhere else entirely because Amazon is so punitive when it does see that people have listed their products elsewhere for a lower price. And so at the end of the day, Amazon's tactics are actually resulting in higher prices, not just on Amazon, but across the rest of the economy. And if you step back, you know, in a healthy competitive market, if you have a company that's raising prices for its customers and making the service worse, you should expect competition, right?