Corporate monopolies have been receiving get-out-of-jail-free cards for too long in America. The Justice Department and the Federal Trade Commission are finally stepping up to challenge this wildly rigged economic board game.
Over the last month, the Biden administration has lodged suits against two corporate behemoths, Google and Amazon, over accusations of illegal monopolistic practices. The suits failed to attract a level of media attention befitting the scale of these corporations’ misdeeds, mostly thanks to the ongoing UAW strike and Republicans’ shenanigans in the House. For this week’s Closer Look, we want to give you the facts about these cases and highlight the dangers posed by corporate monopolies.
On September 12, a federal court began trial hearings for a suit brought by the US Justice Department and a group of states against Google. The plaintiffs argue that Google monopolized the search engine market by making billion-dollar deals with phone makers and internet browser companies to effectively lock out their rivals. It is the most significant monopoly case against a tech giant that the US has seen since the famous case against Microsoft over twenty years ago.
Google controls 90% of the search engine market in the US and 91% globally. The company has become so synonymous with search engines that “google” is listed as a verb in Merriam-Webster’s dictionary. The suit is alleging that Google has maintained its deathgrip on the search engine market not by making a better product than its rivals like Bing or DuckDuckGo but by paying major phone and internet players like Apple, Samsung, AT&T, Verizon, and Mozilla $45 billion a year to be their default search engine. In many cases, these deals even prohibited them from carrying Google’s competitors.
Two weeks after news of the suit against Google broke, on September 26, the FTC and a group of states brought a similar lawsuit against another tech giant: Amazon. The plaintiffs have lodged two charges against Amazon which are a bit more nuanced than Google’s but no less egregious.
First, the FTC argues that Amazon protected its monopoly over the online retail market by effectively discouraging its third-party sellers from selling their products at discounted rates on other competitor retail sites. Specifically, they allege that Amazon did this by manipulating its famous “Buy Box” – the yellow and orange area that customers see on the right side of product pages that prompts them to “Add to Cart” or “Buy Now.” If Amazon finds that a particular product is offered for less on a competitor’s site, it will remove the seller’s Buy Box entirely and replace it with a less straightforward and uncolored “See All Buying Options” box. Without the Buy Box, sellers’ sales tank because consumers get confused and/or don’t want to go through additional hoops to purchase their desired product. And what’s the end result? Sellers end up dropping their discounted rates on competitors’ sites simply to regain the Buy Box on Amazon and turn a profit.
The plaintiffs also argue that Amazon effectively coerces its sellers to use its fulfillment and delivery services. Sellers are keen to have their products listed with the blue “Prime” check-mark logo on Amazon’s site. They make more money this way because Prime products are easier to find and notice on the site, which makes the 148 million Americans with Prime memberships more likely to buy them. But in order to get the Prime designation on their products, sellers must use Amazon’s fulfillment services, which stifles competition from other warehousing and fulfillment providers.
We wish we could say that monopolies like Amazon and Google are outliers, but they’re actually par for the course in our current economy. As antitrust regulations have been weakened over the last few decades, a tiny handful of mega-corporations have come to dominate most American industries. Across the whole economy, the top 1% of companies own no less than 97% of all corporate assets. Just four meatpackers – Cargill, Tyson, JBS USA, and National Beef Packing – control 80% of the US beef industry. Just four airlines – American, Delta, United, and Southwest – control 80% of the airline industry.
Some experts don’t think that monopolies are necessarily bad things. Subscribing to the “consumer welfare standard” made popular by legal scholar Robert Bork in the 1970s, they argue that monopolies can be good for consumers as they lower prices through efficiencies of scale. But as we’ll try to explain, this myopic focus on low prices ignores a lot of the harms caused by monopolies as they amass economic – and eventually, political – power.
Low prices, on their face, provide breathing room for working Americans. But Bork and his disciples are deliberately obscuring a major caveat that comes with those low prices: according to one estimate, the typical American household is overcharged by $5,000 a year by consolidated corporations. A captive consumer base understandably celebrates lower prices, but corporations are then weaponizing their market power. We’ve seen this play out over the last two years with inflation: there is strong evidence that corporate price gouging is driving most price increases. Corporations did face increased production costs because of supply-chain challenges brought on by the pandemic, but if they faced meaningful competition from other companies, they would have absorbed these costs instead of passing them along to customers in the form of higher prices.
Monopolies are harmful for a variety of other reasons too. They suppress wages, as workers have fewer employment options and less bargaining power. They also stifle innovation and ingenuity. With no meaningful competition, corporate executives don’t have incentives to improve and invest in their companies, make better products, and attract customers. This can have devastating consequences, as we saw with the Southwest cancellation catastrophe last holiday season and the Taylor Swift Ticketmaster fiasco last November. Finally, and perhaps most dangerous, monopolies allow corporations to amass vast profits which they use as a political weapon through lobbying and campaign contributions.
Thankfully, the Justice Department and the FTC understand the damage monopolies can do and have done to the economy, and have taken steps to address corporate consolidation. President Biden has appointed strong antitrust proponents to key roles in his administration, particularly Lina Khan at the FTC and Jonathan Kanter at the antitrust division of the US Justice Department. As we’ve seen with the Amazon and Google cases, these stalwart defenders of economic justice are fighting hard to make a material difference in the lives of working Americans. They have not always been successful, especially in the face of right-wing judicial overreach, but they have taken the fight to the monopolies and started a much-delayed conversation about corporate power. That matters.
The Biden administration believes it’s time to relegate monopolies to the only place they have any value to average people: board games. The get-out-of-jail-free cards are all used up and corporate monopolies have no place to hide anymore.