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A Silicon Valley Congressman Takes On Amazon

Rep. Ro Khanna, D-Calif.

Rep. Ro Khanna, D-Calif. // Ben Margot/AP

When Amazon announced last week it intended to acquire the upscale grocery chain Whole Foods, it sent shockwaves through the grocery industry. Other grocers’ share prices plummeted. Analysts predicted Amazon would become a “top five” grocer within a few years. Synergies were imagined.

Within all the business chatter, however, a few policy wonks and at least one ally in Congress began to raise the antitrust alarm. They think Amazon is too powerful and might engage in anti-competitive practices.

On its face, and judged on the scale of recent jurisprudence, it’s not the most obvious antitrust situation. Amazon has a tiny slice of the grocery market. Whole Foods, large though it may loom in affluent cities, only has 1.2 percent market share. And while Amazon has a dominant position in e-commerce, e-commerce sales remain less than 10 percent of total retail receipts.

But freshman Congressman Ro Khanna, who represents the South Bay, including a big chunk of Silicon Valley, said the Amazon-Whole Foods deal shows why the government should think differently about mergers.

“This as a case study for how we think about antitrust policy,” he said. “It’s the particulars here.”

Khanna said recent antitrust cases have turned on the question of whether a merger would, in point of fact, immediately raise prices for consumers. Drawing on the work of Matt Stoller and Lina Khan at the New America Foundation, he traced that very narrow test to Robert Bork’s "The Antitrust Paradox," which was a move away from decades of more expansive thinking about industry concentration.

In this interview, Khanna calls for a “reorientation” of antitrust decision making to look at a much broader set of concerns, including the effect that a merger could have on jobs, wages, innovation, and small businesses. Whether he can get traction for this idea might be a bellwether for how well the populist wave in U.S. politics can translate into policy reprioritization.

This interview has been lightly edited and condensed.


Alexis Madrigal: Over the last few days, you’ve said that you’re “deeply worried” about the Amazon-Whole Foods deal. What’s drawn your attention to it?

Ro Khanna: I’m very concerned about it, especially the impact that it’s going to have on local grocers. The Wal-Marts and Targets already are putting pressure on grocers. And that is something in my district: For example, you have Felipe’s Produce in Sunnyvale and Cupertino. These local groceries have already faced so much pressure, and that’s gonna aggravate that situation. As you know, for many immigrant families, grocers are the route into the middle class and the path to wealth creation.

The second challenge to the merger is wages. Whole Foods has a record of paying people really well. One of their founders had a rule that the CEO shouldn’t be paid more than 20 times the average worker. Amazon has not had the same record. You could have downward pressure on wages. And Amazon is a large conglomerate and can leverage suppliers to lower prices, which creates downward pressure on suppliers’ workers wages, too.

If the only metric is “Is this gonna lower prices?”—if that’s the only criteria, that’s debatable. But we also need to consider the impact on local communities and the impact on innovation.

If you look across the economy, if you have multiple players in an industry, you have more customization, more innovation, greater choice for consumers. The more you have consolidation, the less likely you are to invest in innovation. It becomes all about driving down cost and mass production. And that’s not good for innovation in an industry.

Madrigal: The obvious counterargument that people have been making is that Whole Foods controls a teensy tiny fraction of the overall grocery market—1.2 percent, according to research firm GlobalData.

Khanna: Well, the question is more, what is the potential for it to become? If you look at the past history in Amazon, they were willing to have losses for years to grow their position with the industry. The concern is there could be predatory pricing where they are able to absorb huge losses, which threatens other grocers.

And this has to be viewed not just in its implications for the grocery vertical, but is this amplifying Amazon’s online dominance into the physical retail space? It shouldn’t just be viewed as limited to groceries, but should be viewed in the broader context and Amazon playing into brick and mortar retail.

What I’ve said is that all of that has to be reviewed by the Department of Justice and the Federal Trade Commission to see what is the impact of such a merger given the market share that Amazon does have in many industries.

Madrigal: Who are you thinking through all these issues with? It seems as if there is a group of people in and around D.C. who are rethinking antitrust policy.

Khanna: I think there is a group. There is [Minnesota Congressman] Rick Nolan, who is interested in starting a monopoly caucus in Congress. He’s very concerned about the concentration in industries and the concentration of economic power and what that means for jobs

I’ve talked with [Massachusetts] Sen. Elizabeth Warren in the context of defense contractors’ monopolization of the defense industry and what that means for prices.

Then [New America’s] Matt Stoller’s and Lina Khan’s work. Their work has gotten the attention of some of us in Congress that we need to reorient antitrust policy from the Robert Bork days, who made the whole thing a litmus test just about consumer prices, so that if something helps consumer prices, it can’t be an antitrust violation.

The problem is that there wasn’t a consideration of long-term price. Even if short-term consumers benefitted, long-term, there have been cases—airlines, ISP providers—where prices hurt consumers. And it didn’t consider the impact on wages and on local jobs and small businesses, who create most of the jobs. It didn’t take into account the impact on communities. I know what Felipe’s means to the family who created it and the community that it’s in.

Madrigal: Are there specific cases that show the way you think antitrust jurisprudence should be handled?

Khanna: There’s a 1966 Supreme Court case called United States v. Von's Grocery Co. The court blocked a merger between two grocery stores in Los Angeles to prevent a trend towards concentration. And the court said that the dominant theme in Congress was what was considered to be a rising tide of concentration in the American economy. It’s a Supreme Court case. Still good law. So, the courts have looked at economic concentration, particularly in grocery, and that’s a strain of jurisprudence that should be amplified. [From the decision: “The courts must be alert to protect competition against increasing concentration through mergers especially where concentration is gaining momentum in the market.”]

Madrigal: The argument that you’re making seems as if it could be extended to many other technology businesses. The online ad market, for example, is dominated by two companies, Google and Facebook. Are you pushing for tougher antitrust measures across the board?

Khanna: I think we need to have stronger antitrust enforcement. The biggest challenge in the internet space is the ISPs—AT&T, Comcast, Charter—and the fact that we’re paying fives times for access to the internet compared to Europe. There’s only five companies and not much choice because of the extraordinary infrastructure cost. And there is the airline industry. So, in general, we need stronger antitrust enforcement.

What makes the Amazon-Whole Foods deal so problematic is that they are going into an industry with large infrastructure, brick-and-mortar cost, and seeking to build consolidation where we already suffer from consolidation. It’s not like Walmarts and Targets have been good for wages or local grocery stores or niche producers. You already have a problem of concentration and this will just aggravate that.

Madrigal: But you’d like to see the antitrust decision-making overhauled.

Khanna: The big question that some of us in Congress are interested in is how do we reorient antitrust policy to consider all the factors of economic concentration. And consumer price and price discrimination is one factor. But there are also the loss of jobs, the impact on wages, the impact on local small businesses, and the impact on innovation within an industry.

And my point is that especially in a time with declining unionization, if you look at industries where they have numerous competitors and not a few big actors with high market concentration, there’s greater leverage for employees and wages, greater investment in innovation, greater leverage for suppliers, so less downward pressure on wages in supply chains. This is not universally true and there may be exceptions to that, but the FTC and DOJ need to consider all of these factors and make a holistic determination: Is a merger on balance helping wages, jobs, investment for innovation, and prices? Or is it, on balance, not?

And the problem of the current antitrust legislation is that it’s just a litmus test on prices and doesn’t consider all these other equally important factors. And that’s the really the philosophical debate between Brandeis and the consensus all the way from Theodore Roosevelt versus the shift to free-market absolutism that Robert Bork enabled.

Madrigal: Do have any hope that this kind of antitrust transformation will happen during this administration?

Khanna: I hope so. I hope the president is consistent with his campaign promises. He said he’d look at antitrust issues very seriously. Working families, or as he puts it, forgotten Americans, are being shafted by large banks and large corporations. And he campaigned as a populist on antitrust. No one is saying he should arbitrarily make a decision on antitrust, but he should put resources behind the DOJ and FTC to review these things. I have great confidence in the career civil servants at the DOJ and the FTC.

It’s my hope and I’m optimistic that there will be a review.

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