Who Broke the Internet? | E3: In God We Antitrust  ## Metadata - Author: [[The Making of Musk: Understood]] - Full Title: Who Broke the Internet? | E3: In God We Antitrust - Category: #podcasts - URL: https://share.snipd.com/episode/0cfa93e7-6554-4e46-9cfc-fd75f1bacc37 ## Document Notes ## Highlights - **Amazon Undercuts Own Sellers** - Mike Wiesel made a natural lip balm business that thrived on Amazon until Amazon began buying his products and selling them cheaper than him. - This tactic crushed his margins and sales, showcasing Amazon's competitive dominance. Transcript: Cory Doctorow Far. This is Michael Weisel, and once upon a time, Amazon was his best friend. A dream sales partner that took his business worldwide. Until Amazon turned on him. Michael Wiesel Am I allowed to swear, by the way? A lot of swearing coming. Cory Doctorow Mike's from Knowlton, Quebec. For years, he ran a general store where he sold his own homemade soaps. But his big commercial breakthrough came in 2008. It was inspired by his daughters. They were nine and seven, deep in their crafting era and making a mess. Michael Wiesel I said, what do you guys do? You know, Katie, I remember she was like seven. She said, oh, we're making lip balms. And I remember her like, you know, kids over exaggerate everything. She was taking the lip balm and like putting it like all over her face. And I'd look at the ingredients. I said, oh, I wonder what's what are the ingredients? How do you make a lip balm? The first ingredient in this lip balm-making kit was propylene glycol. Which propylene glycol is basically one of the main ingredients in antifreeze. Yeah, so it's not a really wonderful thing. So me being a soap maker, I said, hey, how hard can it be to make a natural lip balm? Cory Doctorow Turns out, not that hard. Mike found a recipe online and started making non-toxic, all-natural DIY lip balm kits for kids. And they took off. He got them into toy stores across Canada and the U.S. And then around 2010, a friend convinced him to start selling on Amazon. Michael Wiesel And it was like so exciting because we were like doing serious numbers on Amazon. It was awesome because they were helping all these kind of small brands get exposure. Cory Doctorow So fast forward to 2018. Mike's company is doing well. He even moves production into a new building that has a sort of startup vibe. Michael Wiesel Really cool loft in Montreal in the old RCA building. It was really cool. Cory Doctorow And he hires staff to help him zhuzh up his product's Amazon listings. Michael Wiesel Better pictures, better keywords, you know, all the stuff you really need to get seen out there. Cory Doctorow Then, one day, Mike's tinkering around Amazon, searching for his lip balm kits, wanting to see them from the buyer's perspective. He's scrolling down, and that's when he makes a discovery. Michael Wiesel I start seeing my products being sold by Amazon and saying, what the fuck is going on? Cory Doctorow Mike had found listings for his lip balm kits, only these weren't his listings. They were Amazon's. Michael Wiesel They had bought my products from a distributor and they were now competing with me on their platform. Cory Doctorow Amazon was buying Mike's products from Mike's distributor and underselling him on Amazon with his own stuff. Michael Wiesel So I was selling my products at that point around 1999, and they were starting to sell my products, I think, at $12.99. I think it's the most absurd thing in the world, like to compete with your own vendors. Like you have to get every piece of the fucking pie? It's just incredible greed. I've never seen greed like this in my life. Cory Doctorow Amazon is the largest online retailer in the world. Today, by some estimates, as many as 56% of North Americans looking to buy something start their search on Amazon. You shop on Amazon. I shop on Amazon. Michael Wiesel We all shop on... I'm a fucking Zon. I'm a fucking Zon. Cory Doctorow It may ([Time 0:00:50](https://share.snipd.com/snip/254f9a13-d44b-4a5d-b96b-6be73ae3e01b)) - **Bork's Consumer Welfare Shift** - Robert Bork transformed U.S. antitrust enforcement around consumer welfare, focusing mainly on lower prices as the measure of harm. - This shift reduced regulation against monopolies unless they raised prices, assuming market self-correction would follow. Transcript: Lina Khan I was a law student and I had spent years doing research and interviews with the businesses that sell on Amazon and had come to conclude that Amazon as a company had certain properties Of what we traditionally understood to be a monopoly. Cory Doctorow That American tradition of monopolies can be traced way back. Okay, ever notice that in the game of Monopoly, there's this recurring railroad motif? There's a historical reason for that. The original monopolists were rail barons. During the late 19th century, railroads had changed the face of society and of commerce. You could now ship things across the country. Soon, everyone relied on railroads for just about everything. And this was a huge opportunity for farmers especially, because they could now get their livestock and produce into and out of rural America. Lina Khan But that technological advance had also consolidated significant power. And so oftentimes a single railroad could determine whether a farmer sank or swam or whether people could earn a livelihood. Cory Doctorow Because the railroads were so powerful, they could and did screw these farmers over in a million ways. Two farmers could end up paying vastly different prices from one another or from one day to the next and on vastly different terms, even though they were contracting with the same railroad Company just because. Lina Khan And that arbitrary power that was so consolidated felt unfair and unjust to these farmers. And so alongside many others, they ended up pushing for Congress to act. Cory Doctorow A senator named John Sherman? He did. Lina Khan John Sherman was a member of Congress, a Republican Party, and he ended up being one of the main authors of what was known as the Sherman Act. This was a law passed in 1890, the first federal antitrust law in the United States. Cory Doctorow Antitrust is what Americans call their anti-monopoly laws. Those laws are grounded in the idea that businesses that get too powerful can crush competition, that they can just screw their customers, workers, and suppliers, everyone who relies On them, without worrying about any of them getting poached by a rival who might treat them better. Because there are no rivals. Lina Khan Monopoly power and its abuses are not just some abstract issue. This is about whether people can keep their businesses afloat, whether they can keep supporting their families, or they have to kind of wake up in the middle of the night worrying that A monopolist is arbitrarily going to turn off the spigot just because it can. Cory Doctorow The Sherman Act aimed to curb that power by making it illegal to form or maintain a monopoly. When Senator Sherman was stumping for this law on the floor of the Senate, he let fly with a hell of a quote. If we would not endure a king as a political power, we should not endure a king over the production, transportation, and sale of the necessaries of life. Lina Khan And so in the same way that in the United States we overthrew a monarch, there was a recognition that we didn't do that just to be ruled by a different form of sovereign power. Cory Doctorow Antitrust laws were there for the little guy. And no company was allowed to get too big, too consolidated, or too powerful. No company was allowed to become too much like a king. And for most of the next century, right up until the 1980s, that was how antitrust worked. That is, until Robert Bork came along. When I first started at Yale, I really thought the situation of the law was hopeless, that the intellectual content of antitrust was corrupt beyond redemption and would be kept that Way by political forces hostile to the free market. Robert Bork was also at Yale Law. Not that he and Lena crossed over there or anything. He died in 2012. Bork started teaching at Yale in 1962. That same year, the Supreme Court invoked antitrust law, ruling that a shoe company couldn't buy a chain of shoe stores, lest they then kick all the other brands out of their chain. In 1966, a California grocery store was blocked from buying another grocer in case that led to too much consolidation in the local market. In 1967, a frozen pie company wasn't allowed to sell frozen pies in Utah because that might undercut a local pie company that sold fresh pies. And some people thought, OK, sure, there were a few cases where maybe the application of these laws was going too far. But the laws themselves were fundamentally good. And the way the Supreme Court was applying antitrust was fundamentally right. Bork did not agree. Lina Khan He, alongside a group of other academics, ended up critiquing the antitrust laws and said the way that these laws are enforced, the way that Congress wrote them doesn't really make Any sense. And we really need to focus on a single value known as what he ended up calling consumer welfare. Cory Doctorow For Bork, consumer welfare essentially boiled down to one thing, lower prices. Will this shoe store acquisition, this grocery merger, ([Time 0:06:15](https://share.snipd.com/snip/bd21d24f-9e8f-4ff4-b8d7-c01b2ff85ebf)) - **Amazon's Diapers.com Tactic** - Amazon drove Diapers.com out of the market by selling diapers below cost in a brutal price war. - Once Diapers.com was gone, Amazon raised diaper prices, illustrating predatory monopoly tactics. Transcript: Cory Doctorow Of Amazon's relentless pursuit of dominance stuck out for her. The story of Diapers.com. Lina Khan So Diapers.com was this innovative upstart. They recognized that there was a need in the market to make sure that parents of young kids could get diapers quickly. And so they started this online commerce business. Cory Doctorow Mark Laurie and Vinny Barrara started diapers.com in 2005. That first year, the company sold $2.5 million in diapers and formula. It made sense. Diapers delivered right to your door? Families with young children loved it. And guess who else was paying attention? Lina Khan Amazon was tracking diapers.com quite closely and realized that this was a market that they wanted to be in and wanted to excel in. Cory Doctorow At first, Amazon tried to buy diapers.com out, but Diapers' parent company was like, no thanks. So Amazon tried another tactic. Lina Khan They ended up engaging in a ruthless pricing war with diapers.com, where they were undercutting the price of diapers to the extent that they were actually losing money on the diapers With the sole goal of driving diapers.com out of the market. Cory Doctorow Amazon started selling diapers significantly below cost. So low that reports from The Times said that Amazon was on track to lose $100 million in just three months in order to undercut diapers.com. And they could. Lina Khan Because Amazon, of course, has so many different lines of business and so many different forms of revenue that it's not just dependent on how much it's making on diapers to stay afloat. Cory Doctorow It was all too much for diapers.com. They couldn't keep up. They got driven out of the market. Diapers' parent company was forced to sell. Now, both Amazon and Walmart made bids. Walmart actually had the better offer. But by this point, Diapers' owners had grown so afraid of Amazon that they sold to Bezos for less than they would have gotten from Walmart. Okay, so surely this was anti-competitive behavior, right? Surely aggressively running a competitor out of business, followed by a hostile takeover, would set off some antitrust red flags? Well, it was a big enough acquisition that it had to go in front of the Federal Trade Commission. And the FTC? They waved it right on through. And then, then... Once ([Time 0:16:35](https://share.snipd.com/snip/20ae072d-690f-4e12-93ea-3a12d776d4cc)) - **Sellers' Fear Under Amazon** - Sellers on Amazon live in fear as their visibility can be arbitrarily changed with no explanation. - Amazon controls all platforms, forcing sellers to lower prices and accept destroyed margins to compete. Transcript: Cory Doctorow Measurement was a flop. Lina Khan The consumer welfare standard has failed to promote consumer welfare. In market after market, we actually see people paying higher prices. Cory Doctorow So is Jeff Bezos now an autocrat of trade? Is he the king over the necessaries of life? Lina Khan Well, look, you should talk to some of the businesses that have to sell on Amazon. And what was really eye opening for me was just how much these businesses live in fear that one day they could wake up and their seller page could been delisted or they could have fallen In the search rankings from the first page to the seventh for some arbitrary reason. That's a black box. They're calling to find out why they can't get an answer. And meanwhile, they're bleeding sales and are worried about going bankrupt. Cory Doctorow Which is, of course, exactly what happened to our kid's lip balm maker, to Mike Weisel. Michael Wiesel I'm thinking, how the fuck am I going to support my family? I'm going to go out of business. I start to get into fucking panic mode. Cory Doctorow Mike doesn't know how he would have caught on to Amazon's scheme, buying and underselling his own products if he hadn't gone scrolling that day. I mean, obviously, he would have figured it out when Amazon sent him that next payout. Michael Wiesel My sales went to one quarter of what they were before, and my margin went basically to zero. Cory Doctorow Mike got his distributor to stop selling to Amazon. But Amazon wasn't done with him. Michael Wiesel They started to charge all these fees like for advertising, huge amounts that just crept up. Cory Doctorow And the long shadow Amazon cast didn't merely fall upon Mike's Amazon listings. It affected every online sale he made. Michael Wiesel They will monitor prices on other websites like Target, Walmart. So unless you are selling from less than that, you will not even be seen. And the only way you'll see yours is if you drop your price enough. So what I had to do was lower my price. So all our profits got basically wiped out. Cory Doctorow The part that is perhaps the most ([Time 0:19:30](https://share.snipd.com/snip/00a7d139-54bf-4800-b09c-04efd956f6ac)) - **Monopoly Growth via Acquisition** - The tech industry's monopolies grew unchecked due to antitrust enforcement paralysis based on Bork's ideas. - Big platforms buy competitors rather than compete, diminishing consumer choice and stifling innovation. Transcript: Cory Doctorow Laws were interpreted and applied by generations of lawmakers. Clive Thompson, the internet culture writer, saw up close what that meant, not just for Amazon, but for the internet at large. The government had been completely asleep at the till on antitrust for the longest time. And I think the abandonment of antitrust has been pretty disastrous for the internet that we use today. And that's largely because it allowed all these internet companies, all these social media companies, all these providers of online tools to grow huge and then to thwart any serious Competition by simply buying any competitor that came along. One of Bork's articles of faith was that once monopolies started to throw their weight around, new companies would rush into the market to compete away their power. We hear so about buzzy startups, maybe that feels like what's going on. But those startups almost never seriously challenge the big entrenched tech monopolists. Not because their products aren't good, and not because their users don't love those products, but because dethroning big companies is no longer the point. Today, the point is to get bought by the big companies. Facebook buys Instagram. They see it growing like mad. They see it becoming something exciting. They buy it. They see WhatsApp growing as a way to chat. They buy that. In 2012, when Facebook bought Instagram, Mark Zuckerberg sent an email that explicitly said that he was doing it just because he didn't want the competition. But the FTC, they waved that deal through. Google did build its legendary search technology in-house, but it bought almost everything else. Android, G Suite, Maps, Satellite, Waze, YouTube. And the more power they amassed, the less they had to care about what their actual users really wanted. They could now focus on squeezing more money out of the overall ecosystem. And that, to me, is a really strong part of what took this amazing promise of software as kind of like a liberating tool, as a wonderful tool for expression, and turned it more into a tool For control. I don't think anyone, you know, was even paying attention to how much power each of these companies was amassing. Except for Lena Kahn. ([Time 0:23:20](https://share.snipd.com/snip/9b1b8195-e9b3-4fd0-a1ff-73c6a4fe2169)) - **Restore True Antitrust Values** - Law and policy must protect against market autocrats to preserve freedom and competition. - Effective antitrust enforcement revives foundational values beyond just lowering prices for consumers. Transcript: Cory Doctorow Except for Lena Kahn. Lina Khan There is a lot of just raw frustration and anger, candidly, including at the government for decades of inaction. So that's the thesis of the piece and what I ended up writing. Cory Doctorow In 2017, in her last year at Yale, Lena Kahn published her paper. In a cheeky reference to Bork's book, she called it Amazon's antitrust paradox. Lina Khan I used Amazon as a vehicle to tell a broader story about antitrust and how this consumer welfare paradigm had become the Achilles heel, where firms, especially in digital markets, Could sing the tune of consumer welfare to monopolize in ways that was entirely antithetical to what the law is about. Cory Doctorow And something very out of the ordinary happened with Lena's paper, something that does not usually happen with law review articles. It went viral. Lina Khan It was quite surprising, honestly. I mean, I'd been a law student, you know, toiling away on this, was just excited to be done and that it had gotten published. So ([Time 0:25:50](https://share.snipd.com/snip/543f472c-088e-47db-910f-9f2afc943dec)) - **Lina Khan Leads FTC Fight** - At only 32, Lina Khan became FTC Chair and prioritized breaking up monopolies like Amazon's. - She moved antitrust enforcement beyond price to address broader anti-competitive harms digitally. Transcript: Michael Wiesel President Biden will nominate Lena Kahn to serve as a member of the Federal Trade Organization. Cory Doctorow The youngest person to ever chair the Federal Trade Commission, the Senate-approved 32-year Lena Kahn. President Biden's pick is a prominent critic of big tech. Tech companies might be a little nervous about this news. Lina Khan It has been a bit of a whirlwind. Cory Doctorow In 2021, when Lena started as the chair of the FTC, she made it her mission to get back to the basics of the Sherman Act. No more corporations with the power of kings. From now on, the FTC was going to be about a hell of a lot more than just price go down. And there was a lot to clean up. Lina Khan The FTC ended up studying acquisitions by big tech companies and found that there had been, you know, over 600 that had just flown below the radar and not a single one was challenged by Antitrust enforcers. Cory Doctorow It was time to enforce the law and big ([Time 0:27:37](https://share.snipd.com/snip/1fcf9124-2c53-4039-a421-3730b64a9f69)) - **FTC Targets Amazon's Monopoly** - The FTC sued Amazon for punishing sellers who use other platforms and degrading platform quality to raise prices. - Antitrust laws protect free competition across the entire internet, not just a single marketplace. Transcript: Cory Doctorow Lawsuit against Amazon. Lina Khan They accused the company of illegally using its market power to raise prices and exclude competition. Cory Doctorow And that's how Lena became a star. Lina Khan Joining us right now is FTC Chair Lina Khan. Thanks, Andrew. Good to see you. In your lawsuit, you say... Cory Doctorow The FTC's lawsuit against Amazon took on many of the complaints of sellers like Mike, like steadily hiking the fees sellers have to pay to access customers. Lina Khan Sellers who now pay one out of every $2 to Amazon, so this is effectively a 50% tax that businesses pay to Amazon to reach shoppers. Cory Doctorow It nailed Amazon for punishing sellers when they sell on a different platform. And then there was this big one. Lina Khan Amazon has also deliberately degraded the quality of its platform. Cory Doctorow Yeah, that's right. And shitification strikes again. Lina Khan So this lawsuit is fundamentally about protecting free and fair competition. And the U.S. Antitrust laws prohibit firms from using their monopoly power to punish or preclude or prevent competition. And that's what our lawsuit lays out that Amazon has done. And that in turn inflates prices for consumers, not just on Amazon's own site, but actually across the internet. Cory Doctorow And Lena was looking across the entire internet. The FTC launched lawsuit after ([Time 0:28:55](https://share.snipd.com/snip/15c88044-d588-4abb-a2b7-fda370e9e33d)) - **Khan Faces Powerful Opposition** - Lina Khan's antitrust actions face intense backlash from powerful media and industry interests. - Her expertise on Amazon made her a target yet also a key figure in the antitrust revival. Transcript: Cory Doctorow I always say there's a grease slide to get into a subscription and a grease pole you got to climb to get out of it. Well, Lena, she degreased the whole thing. Lina Khan It felt very satisfying at the end of the day to be able to file something so that we could really vindicate the rights of the American people and the businesses and the consumers that Have been harmed for years. Cory Doctorow Of course, Lena wasn't popular with everyone. Between 2021 and 2024, Rupert Murdoch's ([Time 0:30:50](https://share.snipd.com/snip/361e191e-e76d-4091-aa6d-b5c81e3698de)) - **Antitrust Spurs Bipartisan Support** - Both conservatives and liberals recognize the dangers of unchecked monopolies and support antitrust enforcement. - Protecting economic freedom requires bipartisan commitment to rein in autocratic corporate power. Transcript: Lina Khan That if we really believe in freedom, that has to involve protecting ourselves from autocrats of trade as well as creating safeguards in our political sphere. Cory Doctorow As we record this, a federal courthouse in D.C. Is hosting two historic antitrust trials. A remedy trial to figure out how Google will be punished for its monopoly over search, and a historic antitrust case against Meta. If Meta loses, they could be forced to sell off Instagram and WhatsApp. Google has lost three U.S. Antitrust trials in the past two years. Now, Google is fighting to keep from being ordered to sell off Chrome, maybe Android. Apple, meanwhile, is facing criminal sanctions for allegedly lying to a federal judge about its monopolistic payment processing system, which takes 30 cents out of nearly every Dollar collected in an app. Antitrust wonks have a name for this moment. Antitrust Woodstock. ([Time 0:32:10](https://share.snipd.com/snip/8bfdca14-0283-4d9b-9169-cd2dcf75c208)) - **Markets Reflect Policy Choices** - Market concentration results from policy choices, not inevitable economic forces. - Vigilance is necessary to prevent monopolists from evading antitrust enforcement through cozy political relationships. Transcript: Cory Doctorow Cook, that we're just like in an era of oligarchy and that's just going to be the way it is? Lina Khan Well, look, I'm somebody who doesn't subscribe to that type of inevitability, right? The markets that we have, the economy that we live in, that's not just the product of these inevitable market forces. It's really the result of policy choices and the legal regimes that we choose. Cory Doctorow Well, last November, the American people ([Time 0:33:50](https://share.snipd.com/snip/0b73f470-0fa0-4b38-af2d-0f567bf89ef9))