These two practices—predatory pricing and integration across business lines—may sound normal. But under old readings of U.S. antitrust law, they are illegal.
Still, it’s unclear whether consumers have seen higher prices as a result of either strategy. As such, Amazon rejects the “predatory pricing” label. And Republican Senator Orrin Hatch last August decried the new antitrust movement as “hipster antitrust” and said it left him “deeply unimpressed.”
As Khan and I entered the sprawling Whole Foods three stories below Amazon Books, we noticed a tower of avocados. A sign bragged that, thanks to the Amazon merger, a single avocado now cost $1.49, down from $2.49. Khan cracked up. “This is peak myself,” she said. “This is hipster antitrust, right here.”
From the Progressive era onward, the U.S. government enacted a powerful set of antitrust laws to curb “the Curse of Bigness,” as Supreme Court Justice Louis Brandeis put it. The scope of these laws was remarkable: The Court once used them to block a shoe company from acquiring 2 percent of the national footwear market.
But antitrust laws could be unwieldy. Judges sometimes struggled to know whether they were enforcing the law or capriciously blocking a merger. And then, in 1978, a Yale Law professor named Robert Bork promoted a clean new theory of antitrust law, inspired by the libertarian Chicago school of economics.
Bork decreed that all antitrust suits should be judged by one question: What will most lower prices for consumers? The answer, he said, was almost always more mergers. When companies merge, they get rid of redundant business units, lower their operating costs, and become more efficient, ultimately passing this efficiency on to consumers as lower prices.
Within a decade, the Reagan administration turned Bork’s theory into official Department of Justice policy. The business world noticed. In 1985, there were about 2,300 corporate mergers in the United States, according to the Institute for Mergers, Acquisitions and Alliances. In 2017, there were more than 15,300, a new record.
Bork’s views become interesting in light of Amazon. Bork thought vertical integration was fine: Since he believed markets were perfectly efficient, he assumed that a lower-cost competitor would always butt in and fight off a would-be monopolist. And predatory pricing? It is “a phenomenon that probably does not exist,” he wrote. The Chicago school, he said, had proved that companies would always pursue short-term profits over long-term growth.
Amazon’s history seems to belie this claim. For more than a decade, Wall Street allowed the company to plow any profits into price discounts. Partly as a result, Amazon has grown so large that it can undercut other companies just by announcing that it will soon compete with them. When Amazon purchased Whole Foods, its market cap rose by $15.6 billion—some $2 billion more than it paid for the chain. Meanwhile, the rest of the grocery industry immediately lost $37 billion in market value. (Amazon protests that it has no control over how investors value its competitors.)