The Future of DC's Antitrust Fight With Amazon

PLUS: The New York Senate steps up to rein in corporate power.

Photo credit: Robert Geiger

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Last year, Karl Racine, the attorney general for Washington, D.C., sued Amazon under the District’s antitrust laws. And his case was a novel one. While Amazon in the American zeitgeist is associated with low prices, Racine alleged that Amazon was actually using restrictive and unfair agreements with its third-party sellers — the non-Amazon businesses that sell on Amazon’s platform — to raise prices not just on Amazon, but across the internet.

His case, the first major antitrust suit against Amazon, is a big deal. To be determined, though, is whether it will continue in the face of an intransigent judiciary and the electoral process, with three candidates running to succeed Racine, as I’ll explain below.

First, how does Racine allege that Amazon is raising prices everywhere? He points to what’s known as Amazon’s “Fair Pricing Policy,” though it is anything but.

Under this policy, Amazon penalizes sellers who offer lower prices on other platforms or on their own website by denying them what’s known as the “Buy box,” that little “buy now” button on Amazon pages that many, many customers use, or by threatening other sanctions, including booting sellers off the platform entirely. Because Amazon is so dominant in online sales, being denied access to its platform is being denied access to most online customers, so sellers fall in line, keeping prices on Amazon the same as everywhere else.

American Economic Liberties Project @econliberties

.@amazon is estimated to control 50-75% of the online retail market. 😳 As @AGKarlRacine puts it, "that sounds like monopoly power."

But Amazon also charges sky-high fees to third-party sellers, which necessarily results in sellers inflating their prices on Amazon to cover the cost of those charges. (One of the major fees Amazon levies is charges for having Amazon itself handle fulfillment and distribution for third party sellers, which is a key avenue to Amazon granting sellers access to Amazon Prime customers. And, as many of you know, that distribution network is built on the backs of taxpayers, so we’ve all been chipping in to Amazon’s monopoly play.) The combination of those fees with the restrictive pricing policy is that prices are higher on Amazon and across the internet than they would be absent Amazon’s choices.

That may sound abstract, so here’s a real-world example of how it works. As Racine’s suit alleges, “While [third party sellers], absent Amazon’s constraint, would be incentivized to avail themselves of alternative online retail sales platforms—like Walmart, eBay, and their own platforms, which have significantly lower or no fees, and in turn provide their products for lower prices to consumers to increase sales, they are unable to provide this benefit to consumers because they cannot sell for less on those other platforms. For example, Walmart routinely fields requests from merchants to raise prices on Walmart’s online retail sales platform because the merchants worry that a lower price on Walmart will jeopardize their status on Amazon.” (Emphasis mine.)

Thus, you end up actually paying more on Amazon, and everywhere else.

Unfortunately, on the first round, Superior Court Judge Hiram Puig-Lugo didn’t see it that way, issuing a bizarre dismissal of the case that didn’t even come with a written record, even though a similar case in Seattle was allowed to move forward. Racine has filed a motion for reconsideration ahead of a potential appeal attempt.

Alas— because I think he’s been a great AG — Racine is not running for a third term and so the appeal decision will likely fall to his successor. There are three candidates in the Democratic primary to replace him, and in D.C., winning the Democratic primary all but guarantees a win in the general election, so the primary victor is very likely to be the next AG.

With that in mind, I asked them what they think of the Amazon case and whether they’ll pursue an appeal. Below are the responses I received from their campaigns.

Bruce Spiva:

Regarding the antitrust case against Amazon: In Bruce's thirty years of practice, he has successfully brought and litigated several plaintiff (consumer)-side antitrust cases. While Bruce can’t pledge to continue or drop any specific litigation prior to taking office and reviewing the facts of the case, he is through and through a plaintiffs’ antitrust and civil rights lawyer who will always fight to protect District residents from harm from corporations who engage in anti-competitive and unlawful practices. 

Moreover, although Bruce would always exercise independent judgment, it will be his presumption when he takes office that existing lawsuits have merit and should be zealously pursued absent learning information that suggests that presumption is ill-founded. He is familiar with the Amazon suit, and based on what he knows, it appears to be well-founded. The Amazon suit has been dismissed and the current AG will decide whether to appeal. Having been in the trenches on complex antitrust litigation many times, Bruce knows a dismissal by a trial court does not in and of itself suggest a lack of merit; only that the trial judge differs from the Plaintiff on the law. But that is why there are appellate courts.     

Brian Schwalb:

To answer your question about Brian's plan to continue AG Racine's current cases, I can tell you that he is endorsed by Karl Racine and plans to continue and expand the good work the Office of the Attorney General has made under Karl's leadership. 

Ryan Jones:

I think the idea by the AG’s office to bring that case was in the right place, however there was not enough evidence or facts presented to support the claim.

If we can put together a better legal strategy approach and team with another AG in a federal forum, I think that would be best.

That’s one decent answer, one meh answer, and one not very good one.

Though their offices tend to fly under the radar, state attorneys general have a lot of power: They can enforce both state antitrust and consumer protection law, as well as federal law. They can block mergers, initiate rules in areas such as price fixing or price gouging, and generally protect workers and local businesses from unscrupulous corporate actors.

And they can challenge the damaging practices of the largest corporations in the country, even when Congress or other legislators won’t. D.C’s Amazon case is exactly that, and I hope it continues, whoever comes into office next. If you live in DC and care about our city continuing to fight corporate malfeasance, ask your preferred candidate what they plan to do about it. The more they hear, the more they’ll care.

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UPDATE: Some good news out of New York State: The State Senate passed both the 21st Century Antitrust Act and a bill to ban nondisclosure agreements in corporate subsidy deals. The Assembly there is still a quagmire, so I can’t put a realistic number on the chances that either gets to the governor’s desk, but still, progress is nice.

Here’s State Sen. Michael Gianaris, who sponsored both bills, explaining why the NDA ban is important. And remember, if you want to join our effort to ban secret corporate subsidy deals, head here and sign our petition.

Sen. Mike Gianaris @SenGianaris

Governments should never be allowed to conceal the spending of public money. The Senate passed my bill banning secrecy agreements in economic development deals because we should always know how our money is being spent

And here’s Gianaris speaking about why the antitrust bill is good for workers.

Pat_Garofalo @Pat_Garofalo

And here's @SenGianaris on why The 21st Century Antitrust Act would be huge for workers. #FairEconomyNow

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— Pat Garofalo