While the Federal Trade Commission’s complaint against Amazon is causing a buzz, other equally harmful efforts have flown under the radar. Earlier this month, Senator Amy Klobuchar (D-MN) and a bipartisan group of lawmakers reintroduced the American Innovation and Competition Online Act (AICOA). If passed, this legislation combined with actions by the FTC would tilt the scales against successful tech companies at the expense of consumers.
The FTC alleges that Amazon uses dark patterns to trick consumers into joining Amazon Prime and to make it difficult to cancel their subscriptions. In reality, it takes about 6 clicks to cancel the membership, and this service is almost universally loved by consumers. While the FTC takes direct action against Amazon, AICOA takes a more subtle approach.
Section 3 of the AICOA lays out behaviors that would qualify as unlawful conduct. Among them include the preferential treatment of a platform’s products, services, and lines of business, also known as self-preferencing. For consumers, this term encompasses favorites like generic – also referred to as private-label – alternatives for name-brand items and bundled services.
The AICOA limits its enforcement to large platforms even though Big Tech retailers such as Amazon have a relatively small market share in the generic space. The hyper-focus on size without consideration of market conditions and standard business practices has created a misguided proposal full of anti-consumer prohibitions.
Stores like Walmart and Target offer generic alternatives to brand-name items, which provide consumers with more options, frequently at lower price points. Overall, generics comprise roughly 20 percent of the marketplace when measured by either dollar value or units sold as of 2021.
While generics are a sizeable portion of the total market, Amazon – which would be covered by the AICOA – hasn’t duplicated those shares on its site. Most categories of goods sold on Amazon are primarily sold via third-parties, which means they are sold by independent retailers. Another category is referred to as a first-party seller. In this instance, Amazon buys products wholesale and then resells them on its site. This category also contains a small portion of Amazon-branded products.
Even in categories with the largest share of private label sales, Amazon is not a major competitor. Clothing has the highest portion of Amazon-branded items yet still accounts for just nine percent of first-party sales and a few percentage points of total sales. Comparatively, Aldi’s label makes up 77 percent of their sales with Trader Joe’s store brand making up almost 60 percent of sales.
These high sales don’t reflect anticompetitive behaviors, but rather consumer preferences. A 2019 study found that 65 percent of consumers liked generic items due to their associated savings.
Self-preferencing can also take the form of bundled services as seen with Amazon Prime, which is the focus of the FTC’s actions. Amazon’s expansive shipping infrastructure helps it deliver on its 2-day prime promise. However, this would be jeopardized by AICOA’s prohibition of self-preferencing, which includes bundling or conditional access to the platform.
This prohibition ignores consumer wishes. A survey by the American Consumer Institute found that Amazon Prime has a 97 percent satisfaction rate. Despite almost universal approval ratings, AICOA and the FTC’s complaint are putting these benefits at risk.
Despite companies like Amazon being rather small players in the generic market, AICOA has a limited focus on large tech platforms. This means that while Aldi and other major chains have an online presence, act as intermediaries to assist in bringing shoppers and brands together and have a large share of generic sales, they will be excluded.
At the core, the size threshold in the AICOA is a codification of regulations based on size. Over the last few decades, a bias of size has been mitigated in antitrust enforcement using the consumer welfare standard (CWS). This standard, which is largely credited to Robert Bork and his book The Antitrust Paradox, attempts to create a lens through which to measure competition. Under this guide, behaviors are generally considered competitive and legal so long as the consumer isn’t harmed. The AICOA ignores this consumer lens and presumes that “big is bad.”
In this book, Bork writes that “…often goals must be inferred from the substantive rules that men proposed or created.” Using this lens to interpret recent actions, it becomes clear that current antitrust by lawmakers and the FTC are focused on tipping the scales against large tech companies regardless of what consumer benefits they sacrifice in the process.
Tirzah Duren is the Director of Tech Policy at the American Consumer Institute, a nonprofit educational and research organization. You can follow her on Twitter @ConsumerPal.