Investors seem to agree with Lina Kahn
Yesterday, the Federal Trade CommissionAmazon, alleging that tactics fundamental to the company’s online retail business are illegal. The market didn’t much care.
The FTC, under the leadership of Lina Khan, has not shied away from undertaking challenging cases, even when the odds of success are low . . . it will be a lengthy and uphill battle for the FTC . . . the FTC could have a tough time defending its stance that Amazon’s current business practices are harmful to consumers. Overall, we see low risk of major structural changes at Amazon. We keep a Buy opinion.
Khan argued that the Chicago School fell down when it came to platform companies such as Amazon and Uber. For one thing, the platform companies had demonstrated that pricing at or below cost was indeed a sustainable way to gain market share. Further, platforms provide the basic digital infrastructure that competitors and near competitors need to grow, and could use that as leverage to stifle competition.
Which brings us to the part of Khan’s paper that is directly relevant to markets. She argued that investors were more than willing to tolerate years of low profits from platform companies, and suggested they did this precisely because they foresaw monopoly profits in the future: The strategy outlined in Khan’s paper is given concrete form in the FTC lawsuit. It alleges that over time, Amazon has made its services worse by jamming more and more ads to the top of product search results and rapidly increasing fees to third-party sellers on its platform.
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