The FTC’s Aggressive Stance May Harm Its Only Constituents

I n an effort to control major U.S. e-commerce and tech companies, the FTC’s chair, Lina Khan, has initiated a new wave of lawsuits, which include antitrust suits against Amazon and Meta (formerly Facebook). Her actions have led to the federal agency’s adoption of an aggressive regulatory posture. Unfortunately, the FTC’s new agenda may fail the very people the FTC purports to help: American consumers.

The Federal Trade Commission is a government agency explicitly intended to protect American consumers. In antitrust law, the “consumer welfare standard” has been employed for decades. In short, this means that the FTC should take enforcement action (such as blocking mergers) only when it is necessary to do so to protect consumers, a commonsense requirement that also serves as a useful block on administrative overreach.

However, Khan’s appointment to the FTC chair signaled an attempt by progressives to break through this guardrail, which stood in the way of their broader attack on big business. To progressives, “bigness” itself might be reason enough for suspicion (or worse), regardless of whether the behavior of the big company in question has demonstrably hurt Americans’ pocketbooks.

Khan first attracted serious attention as a result of a 2017 article in the Yale Law Journal in which she noted that sustained underpricing (something that might be thought to benefit the consumer) could eventually become hugely profitable because it would allow a firm to dominate the market. She noted:

In 2014, Amazon hiked its Prime membership fee to $99. The move prompted some consumer ire, but 95% of Prime members surveyed said they would either definitely or probably renew their membership regardless, suggesting that Amazon has created significant buy-in and that no competitor is currently offering a comparably valuable service at a lower price. Although competition for online services may seem to be “just one click away,” research drawing on behavioral tendencies shows that the “switching cost” of changing web services can, in fact, be quite high.

Khan argued for more antitrust litigation and said there should be a “presumption” of predatory pricing against large platforms, even if the firm sets prices below cost and does not raise prices later on. The problem for trustbusters was that such antitrust lawsuits would not meet the consumer welfare standard. But for Khan and some like Josh Hawley on the right, this meant that the definition of harmful, behavior simply needed to change.

Since being confirmed as FTC chair, Khan has repeatedly taken steps to limit corporate behavior she deems unacceptable. Just recently, Khan moved to block Meta from acquiring the virtual-reality (VR) fitness company Within Unlimited for $400 million, despite advice from FTC staff not to pursue the case.

Under Khan’s leadership, the agency has argued that Meta’s acquisition of Within Unlimited, which builds a range of augmented-reality fitness products, is anti-competitive, but on its face, this claim strains credulity. Within is a comparatively small player in the VR market, a fact that the FTC itself admits. Instead of addressing any specific harm, Khan’s case rests on the belief that, once acquired by Meta, Within Unlimited could become a leading player in the emerging virtual-reality market in the future.

This would not be the first time that Khan used her position to attack large e-commerce platforms based on speculation. Khan’s article in the Yale Law Review highlighted Amazon, and as chair, she has used her power to scrutinize Amazon’s acquisition of MGM and to extend another probe into whether Amazon engaged in predatory behavior with its Amazon Prime service.

Making aggressive use of one product or service as a way to attract or retain customers is not a new concept, and it is hard to see why, on the basis of current antitrust law, Amazon Prime should be much of a problem. It isn’t even especially profitable, as Prime shipping has historically been offered to customers below cost. Low prices are hardly a threat to consumers, but that isn’t stopping Khan from putting her theories into practice. In her Yale Law article, Khan argued for “prophylactic limits” on monopolies by blocking mergers. It is widely believed, for example, that Khan will subject Amazon’s $1.7 billion acquisition of Roomba-maker iRobot to unfriendly scrutiny to preemptively scrutinize whether Amazon will control too much of the “smart home” market.

Aggressive actions such as this are a threat to our free-market economy. For example, under Khan, the FTC has looked to reverse Facebook’s acquisitions of Instagram, and WhatsApp — two separate transactions that were approved by the FTC almost a decade ago. It may also be pursuing an unwinding of defense contractor Northrop Grumman’s acquisition of missile and rocket-engine manufacturer Orbital ATK for alleged violations of the 2018 settlement that allowed the deal to go through. Should these actions be successful, they would seriously disrupt business activities and set the precedent that political appointees can, in a sense, rewrite the past. If successful, the result could have a chilling effect on many future acquisitions, something that Khan may regard as a win. But it could also easily have a chilling effect on innovation, efficiency, and economic growth, too.

It is not the job of the FTC to help steer the American economy. What Americans need from the FTC is for it to protect consumer interests. Let’s hope the next chairperson has a better understanding of the agency’s mandate, and that legislators do not attempt to change it.