Lawsuit against the technology giant: Lawyer (34) scared Amazon

Stock markets reacted negatively to this news. Amazon shares lost 4 percent on Tuesday, but Apple and Google also reacted significantly. At the close of trading, Apple lost 2.3 percent and Google lost 2 percent.

Why do headlines come under pressure?

To understand why tech stocks have come under so much pressure due to the FTC lawsuit, it’s helpful to first look at the term “enrichment.”

The term was coined by technologist and author Cory Doctorow to describe a process that will be familiar to many Internet users: The user-friendliness of digital platforms decreases over time, although different stages can be distinguished:

1. Startup phase: A platform attracts users with an innovative offer that creates added value. For example, Facebook has made photo sharing easier and Amazon has created a market with cheap offers.
2. Growth phase: The platform benefits from network effects that occur as more users join. The platform becomes more attractive and at the same time switching costs for users increase.
3. Disruption phase: The platform attracts sellers who want to reach its audience, and the platform increasingly becomes a marketplace for data and goods. During this phase, users see more and more ads and the order of the search results or timeline is changed to be advantageous to the platform but disadvantages to the user. Additionally, monitoring and tracking of user behavior is increasing. The platform leverages its market power to retain users and increase revenue.

Lina Khan shapes the new attitude

Meanwhile, Doctorow notes that all major tech platforms, including Amazon, Google and Facebook, have already entered the disruption phase. The question arises as to how far US tech superstars can take “deterioration” before they are seen as benefiting from their monopoly position. And here, under President Joe Biden’s administration, there has been a significant shift in FTC-driven legal opinion.

This mainly has to do with a young lawyer: Lina Khan. The 34-year-old was appointed by the Biden administration as head of the FTC and appears to be a feared rival to the tech giants. She became known far beyond legal circles thanks to her article titled “Amazon’s Antitrust Paradox”, which she wrote in 2017 while she was a law student. Khan argues that the current interpretation of U.S. antitrust law fails to capture the competitive distortions caused by the dominance and practices of Amazon and other technology companies.

“Monopoly” is being redefined

In the four decades before Lina Khan was appointed to head the FTC, courts had increasingly weakened antitrust law through monopoly-friendly interpretations. It was nearly impossible to prove that harmful monopoly behavior had occurred.

Because it was claimed that competition conditions could be valid even if a single company operated in the market. This is because potential competitors will enter the market if a monopolist charges very high prices. Because of this fear of potential competition, the price never strays far from competitive, even with a single provider.

Lina Khan, on the other hand, argues that monopoly power should be redefined. Companies like Amazon have such market power that they can distort competition even if their behavior does not fall under traditional definitions.

Amazon denied the allegations

One example of this is “burying” search results, a charge the FTC made in its lawsuit. Amazon is a seller of products, but the company also provides a marketplace for other sellers. Now, if Amazon discovers that a seller is offering their products at a lower price than the tech giant, it can rank that seller so low in search results that they become almost invisible. This means that no seller will undercut Amazon’s prices.

The typical result of this “enrichment”: the enrichment of the platform provider at the expense of competition and customers. Not only do they have to pay higher prices, but they also suffer a loss of benefits. Search results are deteriorating due to algorithms that distort competition and paid ads that push relevant search results further back.

Meanwhile, Amazon denies all of the FTC’s allegations. These are “factually and legally wrong.” The online giant said in a statement that the practices the FTC complained about help foster competition and innovation in the retail industry.

What’s next?

The FTC did not call for any specific remedies in its complaint, such as splitting Amazon. Their main goal is to hold Amazon accountable for alleged antitrust violations. That’s why the FTC and states are asking the court to enjoin Amazon from continuing its illegal behavior.

However, the statement of claim includes a paragraph stating that the court should take “structural remedial measures” if necessary to prevent further distortion of competition. And these remedial measures often mean measures that change the company itself, such as a spin-off.

Khan may fail

While all this is happening, it is important to remember that it is the courts and US jurisprudence that encourage and support increasing monopolization in the US. The pro-monopoly legal view, long held and therefore firmly held among many judges, will not easily disappear because of a single case or a new FTC chairman. That’s why many legal experts believe the FTC’s prospects in a lawsuit aren’t promising at all. So it’s quite possible that Lina Khan and the FTC will fail in their case.

But tech companies have taken “Decomposition” too far. So much so that more and more Congress members from the two major US parties are in favor of weakening the market power of internet giants. Lina Khan was nominated by Joe Biden to chair the FTC, but the position was confirmed by the Senate with cross-party support.

Currently, it is primarily Republican politicians who accuse internet platforms of censoring or suppressing conservative content. As a solution, they propose exactly what is threatening in the background if the FTC’s lawsuit is approved: a breakup of the companies in question, or at least strong regulation.

Political winds are changing

In general, the situation is as follows: In recent years, US courts have made extremely monopoly-friendly and lenient decisions in antitrust cases. But the pendulum now appears to be swinging in the other direction. The political will to regulate tech giants is clearly growing in the US. Accordingly, anxiety is increasing in the markets.

But even after recent price losses, legal and regulatory risks appear far from being fully priced in. From this perspective, investors are advised to be defensive about exposure to the US technology sector.