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Is Amazon’s Scale a Harm?

 |  October 16, 2023

By: Brian Albrecht (Truth on The Market)

Guided by its Chair Lina Khan, known for her anti-Amazon stance, the Federal Trade Commission (FTC) has at last lodged an antitrust complaint against Amazon. However, this isn’t about the complaint regarding the inconvenience of canceling a Prime membership in six clicks. This complaint is a major one, chiefly focusing on sellers being obliged to utilize Amazon’s fulfillment services to be part of Amazon Prime and facing reduced visibility if their products are priced lower on other platforms.

Rather than delving into the specifics of the complaint, I want to utilize it as an illustration of how I employ fundamental supply and demand principles to analyze one of the arguments presented by the FTC. The purpose isn’t to advocate for particular policy outcomes concerning the case, but to transparently share how I utilize economics to reason through these crucial matters, a practice I’ve consistently followed. Additionally, by providing these examples, my aim is to assist readers in adopting a similar approach.

Understanding Scale

One noteworthy aspect that caught my attention upon reviewing the complaint was the repeated references to “scale”: Amazon’s actions “hinder competitors from achieving the necessary scale to compete meaningfully”; they obstruct companies from attaining “the scale needed to effectively compete in the relevant markets”; or a vital feature of this market is the difficulty “for single-category e-commerce companies to attain the scale required for success.”

Some of these excerpts are sourced from the FTC, while others come from Amazon and CEO Jeff Bezos. The prevalent theme across these references suggests that scale holds significant importance in this market. This appears plausible.

Scale holds relevance in antitrust cases because, if companies in this market experience substantial returns to scale, the optimal outcome might be a single massive firm that harnesses these escalating returns…