Would Stricter Antitrust Rules Have Stopped the Rise of Amazon?
In 2023, the U.S. antitrust authorities issued expanded guidelines for challenging mergers, signaling more aggressive enforcement after a period in which tech giants like Meta and Amazon snapped up potential competitors and large numbers of tech startups. Would Amazon’s voracious appetite for acquisitions have been checked if the rules had been in place earlier? In a recent study, Yale SOM’s Edward A. Snyder and his co-authors argue that, while the guidelines would have given enforcers latitude to challenge many mergers, it’s less clear whether Amazon’s growth would have been substantially hindered. One important reason, they say, is that along with its acquisitions, Amazon demonstrated the capability to invest internally to build out its lines of business.
The list of companies acquired by Amazon, now a leader in multiple lines of business, seems endless: Zappos. Whole Foods. MGM Studios. Ring. In total, it snapped up 280 firms between 1998 and 2022. This history has led to the criticism that antitrust enforcers should have blocked many of these mergers.
In a new study, Prof. Edward Snyder collaborated with two leading antitrust lawyers, Ian Simmons and Sergei Zaslavsky, to examine the counterfactual in which enforcers had followed stricter antitrust rules over the last 25 years. In 2023, the U.S. Federal Trade Commission (FTC) and Department of Justice (DOJ) issued new guidelines laying out the basis to challenge more acquisitions. (The Trump administration said in February of this year that it would continue to follow the guidelines.) If the 2023 rules had been in place when Amazon started out as an online bookseller, what would have happened?
Snyder’s team evaluated how the expanded guidelines could have been applied to Amazon’s acquisitions. “We concluded that they are capacious,” Snyder says, “and give enforcers multiple ways to challenge acquisitions.”
But that doesn’t mean government officials would have brought those challenges forward. One weakness, he says, is that the guidelines don’t make clear which mergers are most likely to be challenged, which are lower priority, and which can safely proceed.
That could pose problems in the future because government agencies will have substantial latitude to decide whether to pursue a case, and the degree of enforcement could vary widely depending on the current administration’s whims. “Down the road, we may have a more politicized approach to antitrust enforcement,” he says. With so much prosecutorial discretion, “it invites lobbying and political maneuvering.”
Snyder also worries that the new rules come down too strictly against acquisitions of tech start-ups, which could dampen motivation for small firms to innovate. “If the guidelines were to absolutely shut the door on these kinds of acquisitions, we would get fewer start-ups,” he says.
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Lina Khan, who served as chair of the FTC during the Biden administration, wrote a famous critique of U.S. antitrust enforcement while she was a Yale Law School student. In the school’s premier law journal, she argued that the government’s approach needed a major overhaul to better contain the anti-competitive threat posed by online platforms such as Amazon.
In the updated 2023 guidelines, the FTC and DOJ beefed up the potential grounds for challenge in several ways. First, they took a stronger stance against multi-sided platforms, meaning firms that provide an online system connecting sellers and buyers of various products. Companies with large e-commerce businesses, for example, would be scrutinized more carefully.
Second, enforcers would take a closer look at acquisitions of nascent competitors—that is, small firms that might not seem like much of a threat at the time but could grow into strong rivals.
Third, the agencies emphasized the possibility of “vertical foreclosure.” This scenario occurred when a large company bought a firm that supplied a product or service—robotics technology, for example. The large firm might then prevent the supplier from serving its competitors, essentially keeping the product or service to itself.
Finally, enforcers could consider acquisitions not just in isolation but as a series. If a big company gobbled up dozens of startups, their acquisition strategy could be challenged.
What is the approach that maximizes the flow of new technologies? We’ve got the most vibrant tech ecosystem in the world. So let’s keep the flow of new companies coming.
With Simmons and Zaslavsky, Snyder, who worked as an economist in the DOJ’s antitrust division in the late 1970s and early 1980s, evaluated how Amazon’s past mergers would have fared under the new rules. The team decided to analyze nine major acquisitions: Zappos, Quidsi, Twitch Interactive, Elemental Technologies, Ring, Kiva Systems, Whole Foods Market, MGM Studios, and Annapurna Labs. The researchers also examined two series of acquisitions of tech startups that advanced Amazon’s cloud computing business and its sales of interactive technologies for homes and individuals.
In many cases, the team found that the new guidelines would have allowed enforcers to challenge the merger. Take Zappos, for instance. One could have argued at the time that the merger wasn’t a big deal because the company was a niche firm that sold only shoes and had a relatively small market share in e-commerce; it wasn’t a full-fledged rival to Amazon.
But under the new guidelines, enforcers would have had a stronger basis to question whether Zappos could start selling other products and expand into an Amazon-like platform. The company was already successful and had a strong reputation for customer service. If you had asked which firms could pose a genuine threat in the future, “Zappos would have been high on the list of potential challengers,” Snyder says.
The acquisition of Ring, which makes video doorbells, might have attracted attention too. Amazon was developing a smart home system, and enforcers could have raised concerns that the company might prevent Ring products from being used by other firms working on competing systems.
The researchers also concluded that enforcers could have challenged Amazon’s 29 acquisitions in cloud computing and 70 acquisitions in interactive technologies as a series. But Snyder raised concerns about this approach. The guidelines are “really one-sided,” he says. They focus on the possibility that acquiring many small tech companies could pre-empt the development of competitors. But they don’t acknowledge the upside of these acquisitions, Snyder says. Many startups are eager to develop new technologies but don’t want the hassle of managing a real business and getting customers. These companies view acquisition as an attractive way to bring their technology to market quickly and make a lot of money. If acquisitions are more likely to be challenged under the new rules, then potential founders might not be as motivated.
“What is the approach that maximizes the flow of new technologies?” Snyder asks. “We’ve got the most vibrant tech ecosystem in the world. So let’s keep the flow of new companies coming.”
Would the new rules have stopped Amazon’s rise if they’d been in place earlier? Snyder suspects that the company would have developed to become one of the five largest U.S. companies anyway. After all, Amazon could have still invested internally in creating the same technologies instead of acquiring them. Antitrust challenges would have shifted more development burden onto the company, he says, but “whether that would have really slowed them down, I tend to not think so.”
And while the guidelines are stricter, they lack clear boundaries, the study authors argue. For instance, for major platforms such as Amazon, the rules have largely eliminated the concept of safe harbor—the idea that certain mergers will be allowed to proceed as long as they meet specific criteria.
The gist of the guidelines is, “‘We could challenge anything you do,’” Snyder says. “They don’t say, ‘But we won’t challenge certain things within safe harbors.’ And they don’t make it clear which things are going to be the most concerning.”
That vagueness opens the door to more politicization, he says. One administration could favor a certain industry—or even an individual company—while the next could zealously challenge the same industry or company. While a cynic might say that that’s always been the case, Snyder says, “the basis for cynicism is broader now because there’s more discretion.”