Why The Justice Department Probably Won't Go After Amazon

Paul Krugman is attacking Amazon because of its hardball tactics, just weeks after renowned authors called for the Justice Department to investigate the online behemoth for allegedly having an illegal monopoly.

But it's unlikely Amazon will get in trouble with US antitrust authorities, which regulate corporations to make sure they're competing fairly and not cheating consumers.

"Some antitrust analysts believe that it is premature to go after Amazon at this stage," attorneys Hollis Salzman and Meegan Hollywood recently wrote in Law360, "and the general consensus among most is that U.S. regulators are not likely to intervene."

The crusade against Amazon is focused on its battle with the French publisher Hachette over the price of e-books. Amazon has been accused of "punishing" Hachette after it refused to lower the price of most of its e-books to $9.99. Following the dispute customers could no longer pre-order many Hachette books on Amazon, and it took weeks for them to be delivered.

The authors calling for the Justice Department investigation argue that Amazon has way too much power in the book market, and that its abuse of power is hurting writers, The Wall Street Journal has reported.

In the US, it's illegal to have a monopoly that's obtained through sketchy, anti-competitive behavior, such as price-fixing (where competitors meet in a windowless room to agree to sell their goods at the same price).

Amazon probably wouldn't qualify as a monopolist, Herbert Hovenkamp, a widely recognized expert on antitrust law told me, noting that it has major competitors in the e-book market and only 65% market share. Moreover, Amazon's efforts to keep the prices of e-books low could be seen as benefiting consumers. This gives Amazon a promising defense to claims that it's violating antitrust law, antitrust William Markham has written on his blog.

"Namely, it seeks only to obtain for itself the lowest possible prices that the market will bear, and it passes along these prices to its customers," Markham wrote.

In his recent column, Krugman concedes that Amazon isn't a monopoly. However, Krugman calls Amazon a monopsony, which refers to a large buyer or seller that controls a big part of the market and makes prices lower. An illegally obtained monopsony may technically violate antitrust law, but as the Law360 article pointed out, no US court has ever found a single company guilty of an illegal monopsony. This doesn't bode well for US antitrust action against Amazon.

Amazon may end up facing an antitrust investigation in Europe, which sometimes goes after companies for "abuse of dominant position." (That claim doesn't exist in US antitrust law.) And in Europe, potential monopolies can have a lower market share than monopolies in the US, according to Hovenkamp, the antitrust expert we spoke to. "Amazon is not out of the woods," he said.

An Amazon spokeswoman declined to comment for this article.

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.