With the stapling changes taking effect from November 1 this year, the complete picture will take some time to emerge. We believe it is well intended to stop the proliferation of accounts, though we will see changes in terms of the profile of member accounts among funds going forwards.

Funds should consider how to engage with employers in relation to the changes and will need to emphasise the value of superannuation as an employee benefit, with the future of tailored employment arrangements unclear. We also expect meaningful engagement with a disengaged member base to be challenging.

Camille Schmidt: Market Insights Manager, SuperRatings

Following a rigorous review of 530 major superannuation products SuperRatings 2022 ratings have been finalised. Some of the key themes we are interested in this year include how well funds are harnessing their scale and how are funds able to measure the benefits of member engagement.

Kirby Rappell, Executive Director, SuperRatings

Across the financial services industry there are a number of key themes that are ongoing and emerging, including regulatory and legislative change, challenges of a pandemic environment, distribution channels and the rising focus on ESG and sustainability considerations.

In this panel session we will discuss the strategic considerations associated with the rising adoption of net zero by 2050 commitments by asset owners and investment managers. The challenges will be discussed by leading super funds and investors and they will share their thoughts on how our industry can progress towards this target.

Lonsec hosted this panel as part of the Fund of the Year Awards 2021.

Issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec). Warning: Past performance is not a reliable indicator of future performance. Any advice is General Advice without considering the objectives, financial situation and needs of any person. Before making a decision read the PDS and consider your financial circumstances or seek personal advice. Disclaimer: Lonsec gives no warranty of accuracy or completeness of information in this document, which is compiled from information from public and third-party sources. Opinions are reasonably held by Lonsec at compilation. Lonsec assumes no obligation to update this document after publication. Except for liability which can’t be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the document or any information. ©2021 Lonsec. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited. 

Lonsec and SuperRatings have announced the winners of this year’s Fund of the Year Awards, which were held virtually for the second year in a row.

The Lonsec Manager of the Year was awarded to First Sentier Investors in recognition of their strong investment approach right across their suite of products.

“First Sentier Investors has a strong track record, not just in performance, but also driving positive change with their investment products, having integrated ESG across their business.” said Lonsec Research Executive Director, Lorraine Robinson.

“Congratulations to First Sentier Investors and all the other winners and nominees in this year’s awards.”

First Sentier Investors CEO, Mark Steinberg, commented “First Sentier Investors has always had a focus on delivering sustainable long-term outcomes for our clients. We are very proud to receive this award as recognition of that commitment.”

The SuperRatings Fund of the Year went to UniSuper, recognising their strong assessments across the main judging categories, with strong performance, competitive fees and an ongoing focus on members.

“UniSuper has continued to deliver strong net benefit outcomes over the past twelve months, due to competitive fees and strong performance. Coupled with a clear focus on supporting and servicing members, with a range of advice services embedded into their offering, UniSuper demonstrates the benefit of consistent excellence across all aspects of their offering.”

“It is an honour to continue to recognise the best in the superannuation sector and award those funds who, in the last year, have helped their members to navigate a very difficult time.” said SuperRatings Executive Director, Kirby Rappell.

UniSuper CEO, Peter Chun, said “We’re so proud to have won SuperRatings Fund of the Year award. UniSuper is committed to delivering greater retirement outcomes for our members so it’s an honour to be recognised for offering the very best in investment performance, value, and member services, especially now we can welcome all Australians to our fund.”

Full List of Winners

 

Lonsec Manager of the Year

First Sentier Investors

 

Lonsec Multi-Asset Fund of the Year

BlackRock Tactical Growth Fund

 

Lonsec Active Equity Fund of the Year

Hyperion Australian Growth Companies Fund

 

Lonsec Passive Fund of the Year

VanEck MSCI International Quality ETF – ASX: QUAL

 

Lonsec Active Fixed Income Fund of the Year

Pendal Short Term Income Securities Fund

 

Lonsec Property and Infrastructure Fund of the Year

Australian Unity Healthcare Property Trust

 

Lonsec Alternatives Fund of the Year

Partners Group Global Value Fund

 

Lonsec Emerging Manager of the Year

Sage Capital

 

Lonsec Innovation Award

Robeco SDG Credit Income Fund (AUD Hedged) – Class B

 

SuperRatings Fund of the Year Award

UniSuper

 

SuperRatings MySuper of the Year 

AustralianSuper

 

SuperRatings MyChoice Super of the Year

Hostplus

 

SuperRatings Pension of the Year

QSuper

 

SuperRatings Career Fund of the Year 

HESTA

 

SuperRatings Momentum Award

TelstraSuper

 

SuperRatings Net Benefit Award

AustralianSuper + HESTA

 

SuperRatings Smooth Ride Award

QSuper

 

SuperRatings Infinity Award

Australian Ethical Super

 

Release ends
For more information, contact:
Rob Hardy
Robert.Hardy@lonsec.com.au
1300 826 395

Lonsec and SuperRatings are pleased to announce the nominations for this year’s Lonsec and SuperRatings Fund of the Year Awards. With 18 categories, the awards emphasise Lonsec and SuperRatings’ commitment to recognising the best providers across the managed fund and superannuation sectors.

Lonsec CEO, Mike Wright, comments, ‘As the pandemic has posed ongoing challenges across investment markets and operating environments, it is important that we recognise the contributions of strong funds that are helping their clients and members navigate this uncertainty.’

For the first time, Lonsec will present a full suite of nine managed fund awards, including an overall Lonsec Manager of the Year. Lorraine Robinson, Executive Director of Lonsec Research explains, ‘In previous years, the SuperRatings Awards have been a much-anticipated event and we decided it’s time that Lonsec Research further recognised the outstanding contributors to the managed fund market.’

This year’s awards will be the nineteenth for SuperRatings, recognising the best superannuation funds. Kirby Rappell, Executive Director of SuperRatings comments, ‘It is an honour to continue to recognise the best in the superannuation sector and award those funds who, in the last year, have helped their members to navigate a very difficult time. While this year’s event will be held virtually, the awards continue to be very real.’

An overall SuperRatings Fund of the Year winner will also be announced on the day. The full list of nominees for all categories is available at the bottom of this release.

The awards will be held at 3.00pm on Thursday, 28 October in a 1.5-hour online session to be enjoyed from the comfort of your home or office. As part of the awards program, Lonsec and SuperRatings will host a panel session, On the Road to Net Zero by 2050, to discuss the strategic considerations associated with the rising adoption of net zero by 2050 by companies and governments and what this means for investment portfolios.

The nominations for the Lonsec awards are:

Lonsec Manager of the Year

Finalists

First Sentier Investors
Franklin Templeton
Pendal Group

Lonsec Multi-Asset Fund of the Year

Finalists

Atrium Evolution Series – Diversified Fund AEF 9
BlackRock Tactical Growth Fund
PineBridge Global Dynamic Asset Allocation Fund

Lonsec Active Equity Fund of the Year

Finalists

GQG Partners Emerging Markets Equity Fund – A Class
Hyperion Australian Growth Companies Fund
T. Rowe Price Global Equity Fund

Lonsec Passive Fund of the Year

Finalists

BetaShares Asia Technology Tigers ETF – ASX: ASIA
ETFS Physical Gold – ASX: GOLD
VanEck MSCI International Quality ETF – ASX: QUAL

Lonsec Active Fixed Income Fund of the Year

Finalists

Ardea Real Outcome Fund
Macquarie Income Opportunities Fund
Pendal Short Term Income Securities Fund

Lonsec Property and Infrastructure Fund of the Year

Finalists

Australian Unity Healthcare Property Trust
ClearBridge RARE Infrastructure Income Fund (Hedged)
Quay Global Real Estate Fund

Lonsec Alternatives Fund of the Year

Finalists

Hamilton Lane Global Private Assets Fund (AUD)
Man AHL Alpha
Partners Group Global Value Fund

Lonsec Emerging Manager of the Year

Finalists

Daintree Capital Management
Eiger Capital
Sage Capital

Lonsec Innovation Award

Finalists

iShares Core Corporate Bond ETF (ASX: ICOR)
Magellan FuturePay
Robeco SDG Credit Income Fund (AUD Hedged) – Class B

 

 

SuperRatings Fund of the Year Award

Announced on the day.

 

 

 

 

 

SuperRatings MySuper of the Year 

Awarded to the fund that has provided the Best Value for Money default offering.

Finalists
AustralianSuper
Aware Super
CareSuper
Cbus
Equip
HESTA
Hostplus
QSuper
Sunsuper
UniSuper

SuperRatings MyChoice Super of the Year

Awarded to the fund with the Best Value for Money Offering for engaged members.

Finalists
AustralianSuper
Aware Super
CareSuper
Equip
Hostplus
Mercer Super Trust
QSuper
Sunsuper
UniSuper
Vision Super

SuperRatings Pension of the Year

Awarded to the fund with the Best Value for Money pension offering.

Finalists
AustralianSuper
Aware Super
Cbus Super
HESTA
Hostplus
QSuper
Spirit Super
Sunsuper
TelstraSuper
UniSuper

SuperRatings Career Fund of the Year 

Awarded to the fund with the offering that is best tailored to its industry sector.

Finalists
Cbus Super
HESTA
Hostplus
Mercy Super
TelstraSuper
UniSuper

SuperRatings Momentum Award

Awarded to the fund that has demonstrated significant progress in executing key projects that will enhance its strategic positioning in coming years.

Finalists
Active Super
Cbus Super
CSC
Equip
Hostplus
TelstraSuper

SuperRatings Net Benefit Award

Awarded to the fund with the best Net Benefit outcomes delivered to members over the short and long term.

Finalists
AustralianSuper
CareSuper
Cbus Super
HESTA
Hostplus
UniSuper

SuperRatings Smooth Ride Award

Awarded to the fund that has best weathered the ups and downs of the market, while also delivering strong outcomes.

Finalists
Aware Super
BUSSQ
CareSuper
Cbus Super
HESTA
QSuper

SuperRatings Infinity Award

Awarded to the fund most committed to addressing its environmental and ethical responsibilities.

Finalists
Active Super
Australian Ethical Super
Aware Super
Christian Super
Future Super
HESTA

Release ends
For more information, contact:
Rob Hardy
Robert.Hardy@lonsec.com.au
1300 826 395

The assessment of performance of superannuation funds has gained traction over the past month, with the release of the government’s first superannuation performance test findings. When deciding to switch funds, it is easy to be swayed by investment returns, but there are other considerations that are as important. SuperRatings CEO Kirby Rappell says ‘Superannuation is bigger than just returns. It’s a good idea to consider a variety of factors such as fees, investment choices and insurance when deciding whether a fund is right for you.’

SuperRatings suggests you consider fees and returns in tandem as focussing solely on fees may mean that you miss out on higher account balances if a fund invests in more costly assets to generate greater returns. You should also look at total fees, which include both administration and investment fees to make sure you are comparing like with like.

Another key thing to consider when comparing super funds is investment choice. Mr Rappell says ‘make sure the funds you’re considering have investment options that suit you. This can range from ensuring the fund has an investment option that suits the level of risk you’re comfortable with to checking if there are specialist investment options such as a socially responsible option.’

One of benefits of super for many is the insurance available via a fund. As with any insurance product, it is important to work out what you want covered, the level of cover you need and if that cover is available in your comparison funds. Fees and returns, investment choice and insurance coverage all should be considered when deciding to move super fund. We suggest using the tools and calculators offered by funds to see what meets your needs and the impact switching funds could have – particularly on your insurance cover.

To ensure you have access to sufficient information to drive the best retirement outcomes, we suggest contacting your superannuation fund to find out what advice services are available to you. If wish to find a financial adviser, the Government provides information on how to select a financial adviser through the MoneySmart website.

Looking at returns, SuperRatings has seen balances continue to grow in August. The typical balanced option returned an estimated 1.6% over the month and 18.2% over the year.  The typical growth option returned an estimated 1.9% for the month and the median capital stable option also increased 0.7% in the month.

Accumulation returns to August 2021

  Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 1.6% 18.2% 8.0% 8.6% 8.1% 9.0%
SR50 Capital Stable (20-40) Index 0.7% 7.8% 4.6% 4.6% 4.8% 5.5%
SR50 Growth (77-90) Index 1.9% 22.1% 9.3% 9.9% 9.1% 10.1%

Source: SuperRatings estimates

Pension returns were also positive in August. The median balanced pension option returned an estimated 1.7% over the month and 19.7% over the year. The median pension growth option returned an estimated 2.0% and the median capital stable option also increased an estimated 0.7% in the month.

Pension returns to August 2021

  Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 1.7% 19.7% 8.6% 9.3% 8.7% 9.9%
SRP50 Capital Stable (20-40) Index 0.7% 8.5% 5.1% 5.3% 5.2% 6.1%
SRP50 Growth (77-90) Index 2.0% 23.9% 10.0% 10.8% 9.9% 11.3%

Source: SuperRatings estimates

Release ends


Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

Reflecting on the current environment, we are thinking of everyone who is currently in lockdown and hope everyone is staying safe and well.

With uncertainty an ongoing theme, we are turning our minds to market dynamics and the future outlook as we consider the introduction of the Your Future Your Super reforms, particularly the performance test and stapling, with DDO now also on the horizon.

Kirby Rappell: Executive Director, SuperRatings

Our new insurance survey has just been released. Drawing on a unique & broad dataset, this tool was created to meet demand from both Trustees and insurers for specialised benchmarking in this area. It enables us to provide key insights around claims and underwriting assessment and management, use of technology, staff resourcing and benefit design and pricing support.

  • Bill Buttler: Senior Manager, Consulting, SuperRatings
  • Luke Guns: Business Development Manager, SuperRatings

With half the country in what seems never ending rounds of lockdowns and pandemic fatigue setting in, one of the last things most Australians want to do is look at their Superannuation balances and investment options. That is, however, exactly what SuperRatings is wanting us to do, as neglecting your super or responding to short term market moves can have a detrimental effect on your super balance.

SuperRatings Executive Director Kirby Rappell says, ‘We looked at the impact of switching out of a balanced or growth option and into cash at the start of the pandemic and found that those with a balance of $100,000 in January 2020 and who switched to cash at the end of March would now be around $22-27,000 worse off than if they had not switched.’

This effect of switching into cash as a response to market turmoil is also seen when looking at returns over the past 15 years. In this period, a typical balanced Super option has risen substantially, with a balance of $100,000 in July 2006 accumulating to $247,557, more than doubling in size. Those members investing in a growth option have experienced an even stronger result, with a similar starting balance growing to $254,006. Share focused options have delivered the highest returns, with the median Australian shares option growing to $276,099 and the median international shares option growing to $271,051, though these types of options involve greater risks. Over the same period, a $100,000 balance invested in cash would only be worth $151,158 today.

When considering your Super options, you don’t need to go it alone as many Super funds provide advice and tools to their members. Says Mr Rappell, ‘Most funds will offer scaled advice for free or at a low cost, with members able to get advice on topics such as contributions, investment options, insurance in the fund and the transition to retirement.’ Scaled advice is general in nature so you will need to check if your situation and goals align with the advice.
Continues Mr Rappell, ‘For members who want more tailored advice, some funds will offer comprehensive advice that will also take into account your financial assets outside of superannuation.’ While there will be a cost associated with this comprehensive advice, most funds will allow the cost of the advice to be deducted from the superannuation account, just make sure you check any costs and how they can be paid before agreeing to get the advice.
Looking at more recent returns, balances continued to grow in July. The typical balanced option returned an estimated 1.3% over the month and 18.5% over the year. The typical growth option returned an estimated 1.3% for the month and the median capital stable option also increased 0.9% in the month.

Accumulation returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 1.3% 18.5% 7.9% 8.4% 8.0% 8.6%
SR50 Capital Stable (20-40) Index 0.9% 7.8% 4.5% 4.5% 4.8% 5.3%
SR50 Growth (77-90) Index 1.3% 22.7% 9.2% 9.5% 8.9% 9.6%

Source: SuperRatings estimates

Pension returns were also positive in July. The median balanced pension option returned an estimated 1.3% over the month and 20.0% over the year. The median pension growth option returned an estimated 1.5% and the median capital stable option also rose an estimated 0.9% in the month.

Pension returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 1.3% 20.0% 8.4% 9.1% 8.5% 9.5%
SRP50 Capital Stable (20-40) Index 0.9% 8.6% 5.2% 5.2% 5.2% 5.9%
SRP50 Growth (77-90) Index 1.5% 24.4% 9.7% 10.3% 9.8% 10.6%

Source: SuperRatings estimates

Release ends


Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

With the growing dominance and potentially anticompetitive nature and conduct of big tech multinational players of the likes of Amazon, Facebook, Apple and Alphabet, there is bipartisan support behind the need for antitrust reform. US President Joe Biden’s appointment of staunch antitrust reform advocate Lina Khan as Chair of the Federal Trade Commission in June this year, reinforces the Biden administration’s firm intent to seek to address the broad range of antitrust concerns. In her role as Chair, Lina Khan will work with Congress on bills to limit the power of big tech companies, collaborate with European regulators on antitrust issues, and will be involved in deciding whether to launch antitrust investigations and court cases.1 Amazon is currently being investigated by the FTC for past acquisitions, treatment of third party sellers and its cloud services business. As evidenced by recent flurry of capital outflows in response to significant regulatory change targeting the technology and education sectors in China, regulatory and ESG risks can have a material impact on stock markets. This article discusses the rationale behind the need for antitrust reform which has been articulated by Khan and other advocates in the area, using the example of Amazon, to capture the reality of the anticompetitive risks that big tech companies present to society.

Amazon has an undeniably impressive long-term track record as a growth company. It has a substantial and growing addressable market, with promising businesses in AWS and Alexa, as well as value-add opportunities in Amazon Prime, grocery delivery and healthcare. As a result, it is often a ubiquitous and prominent holding in the portfolios of growth investment managers, which has proven to be a multi-bagger stock, and then some. AWS is a “scale as a service” platform, which delivers IT infrastructure services online. It has been transformational in making cloud computing more accessible and affordable to smaller companies, and its scale has enabled Amazon to invest more in the development and management of services than what would have otherwise been possible.2 Following Congressional hearings last year, the US House of Representatives’ Antitrust Subcommittee established that Amazon has “significant and durable market power in the US online retail market”, with monopoly power over third party sellers on its platform and suppliers.3 Amazon have developed a valuable service for vendors and consumers, built a strong market position and are entitled to a return on their substantial investment and innovation over the years. They have acted on a strategy of heavy reinvestment and research and development to produce a more competitive offering for consumers. However, there is growing recognition of the need for sufficient checks and balances to ensure that anticompetitive hazards are mitigated.

Theoretical Underpinnings of Antitrust Law

There has been a shift in approaching antitrust from economic structuralism toward consumer welfare. The current approach was introduced by Judge Robert Bork and supported by the University of Chicago Law school through the Chicago School of Antitrust framework. This approach narrows the scope and application of the law to focus solely on consumer welfare, specifically consumer prices, rather than the entire spectrum of market participants and implications to market power dynamics in the economy. Antitrust laws are centred on the objective of maximising consumer welfare, measured primarily through prices. Furthermore, the view is that consumer welfare is best achieved through market efficiency, in which firm size, structure and concentration are a result of market forces.4 Consistent with this theory, Amazon as a profit maximising actor, has a large market share and integrated supply chains. Its concentrated structure enables it to achieve lower prices and thereby maximise consumer welfare. This approach overlooks risks Amazon poses to competition and other market participants, and the multitude of other ways it can exploit market power. Market efficiency lies on the premise that rational economic actors will maximise profits by combining inputs in the most efficient manner. However, economic actors do not always act rationally and unchecked and without proper oversight have opportunities to act unfairly for the ultimate detriment of consumers. Monopolies and oligopolies increase barriers to entry, risks of collusion and price fixing, and lowers the pricing power of consumers, suppliers and even employees.5 Amazon has barriers to entry that assist the durability of its market power, including high switching costs for consumers to shop outside Amazon’s ecosystem and its fulfilment and delivery advantage through a large logistics network.6 In addition, network effects and data collection that cannot be easily replicated by new entrants, further increase these barriers.7 As Congresswoman Pramila Jayapal stated when questioning Jeff Bezos in the antitrust Congressional hearings in 2020, Amazon can monitor third party vendors on their platform so there is a risk competitors don’t get big enough so that they can never essentially compete.

Antitrust ideology in the 1960s centred on the theory of concentrated economic structuralism, which takes the view that concentrated market structures promote anticompetitive conduct. Markets with several small and medium sized companies are more competitive in structure than where it is concentrated among a few large players. Thus, the application of antitrust law was broader and took into consideration the interests of these stakeholders, including suppliers, employees, and competitors. Even if current interpretation of antitrust is correct in its focus solely on consumer welfare, consumer prices are only one measure of consumer welfare. This approach ignores the totality of consumer welfare including product quality, variety and innovation.8 These are best fostered through open markets and competition, rather than concentrated market structures with a few, large powerful companies.9 The aim of antitrust law should be to promote market competition and ensuring market power is appropriately distributed to achieve this, rather than consumer welfare.10 Practically, however, it is difficult to envisage that the application of this approach should result in the break-up of big tech companies. In the case of Amazon, the economies of scale arguments hold true, the vertical integration of business provide cost advantages to consumers that could not otherwise be achieved. However, closer regulatory oversight of big tech companies to prevent infringement upon interests of other stakeholders may be warranted.

There is broad support for the view that the Supreme Court’s interpretation of legislative intent behind the Sherman Act as a consumer welfare prescription is inaccurate. The genesis of antitrust was based on several aims, including to control and distribute the power of large industrial trusts and ensure that they did not impinge upon the opportunities for newer entrants in the market.11 In fact in the 1960s the Supreme Court specifically highlighted that the legislative intent of antitrust was to prevent concentrations of economic power,12 which reduced economic competition and gave rise to the potential for significant political control.13 Congressional debates by Senator Sherman himself highlighted one of the purposes of Congress during the 1890s was to protect an industry structure of small units which effectively compete with each other.14 Whilst this was the legislative intent of the 19th and 20th centuries, intent of Congress is an important basis for courts in interpreting and applying legislation.

Predatory Pricing

Whilst companies are entitled to competitively price and discount goods and services, predatory pricing to eliminate competition is illegal. However, the distinction between the two can be difficult to determine. In 2009, Quidsi, a growing e-Commerce business declined Amazon’s acquisition offer. Amazon subsequently aggressively reduced prices on product categories sold by Quidsi including diapers and baby products. Amazon used its data advantage, with pricing bots monitoring and following any price cuts made by Quidsi. Amazon’s product manager admitted to a strategy to match prices no matter what the cost.15 Ultimately, this resulted in the sale of the business to Amazon, after which Amazon raised the prices on products that were previously discounted. Arguably Amazon used its market power to undermine competition. Advocates may argue that this is the type of conduct which the Clayton Act was designed to prevent, as articulated in Congressional debates ‘by the use of this organized force of wealth and money the small men engaged in competition with them are crushed out; and that is the great evil at which all this legislation ought to be aimed.’16 On the other hand, it may be argued that this is an example of competitive pricing. Companies often compete on prices to attract and gain customers. Amazon thus could at best be said to have engaged in a pricing war with Quidsi on similar products, which ultimately resulted in Quidsi’s sale. In a general sense mergers and acquisitions can aid platforms in achieving scale, gain functionality to provide to its large user base as well as obtaining talent and resources for innovation.17 However, even if we are to look at antitrust through the lens of the consumer welfare standard, Amazon’s conduct significantly reduced the degree of competition and choices in the market when in Amazon’s own view it believed that Quidsi was its largest short term competitor.18 This seems to meet the FTC’s guidance on predatory pricing in that it harmed consumers by allowing a ‘dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time.’19

Amazon’s significant size and influence enables losses from aggressive pricing strategies to be offset and recouped through other avenues, including charging publishers higher fees for services.20 In an incident termed the “Gazelle Project”, small book publishers, dependant on Amazon for sales, were subjected to unfavourable treatment if they did not agree to more favourable terms during contract negotiations.21 Similar instances were highlighted by the US House of Representatives’ Antitrust Subcommittee, such as Amazon threatening retaliation if publishers would not accept contractual terms that limited their ability to work with Amazon’s rival e-book retailers.22 Publishers are at a structural disadvantage in negotiations not only because they rely on Amazon for distribution and marketing, but also because Amazon is vertically integrated into publishing and may promote its own content over external publishers.23

Advocates argue that predatory pricing laws should be more strongly enforced to reflect the uncertainty surrounding predatory pricing. Predatory pricing cases are rarely brought in the US. The Clayton Act of 1914 prohibited large companies from reducing prices below the cost of production to eliminate competitors and make their business unprofitable, and with the aim of becoming a monopoly.24 Similarly, the Robinson-Patman Act of 1936 aimed to prevent conglomerates and large companies from using their buying power to obtain discounts from smaller companies to destroy competition.25 However, the Supreme Court has adopted the view that rather than predation, there is a greater risk of price competition being misclassified as predation (Matsushita Electric Industrial Co v. Zenith Radio Corp). This is because the success of predation schemes of predatorily low prices is uncertain in the long-term. The Chicago School’s critique of predatory pricing was that below cost pricing is irrational, unsustainable and rarely occurs.26 Economics is not an exact science and the Chicago School’s argument is not an unbreakable principle of law.27 The Chicago School undermined the idea that price discrimination could be used to create monopolies, which they argued was the premise of the Robinson-Patman Act. Indeed, Amazon uses below cost pricing as a systematic and highly effective strategy, and whilst prima facie irrational, below cost pricing can nonetheless prove to be sustainable in the long term and enabler of gaining market share. This is not necessarily conclusive that Amazon engages in predatory pricing but evidences the outdated thinking behind predatory pricing and the need for this to be revisited.

Amazon have developed a valuable service to consumers, third-party vendors and publishers on its eCommerce platform. As a result of significant and continuous reinvestment into the company it has earned its strong market position and are entitled to a return on investment. However, the dominant business structure and power imbalances of third-party vendors elevates risks of anticompetitive harm. Closer regulatory oversight may be needed to protect the interests of these broader groups of stakeholders albeit the market will be very wary of the impact such regulations may have on the earnings power of Amazon and other big tech companies.

Author: Asha Rahman, Associate Analyst
Approved by: James Kirk, Manager – Global Equities & Alternatives


1. The Economist, ‘Joe Biden appoints Lina Khan to head the Federal Trade Commission’, 19 June 2021 < https://www.economist.com/united-states/2021/06/19/joe-biden-appoints-lina-khan-to-head-the-federal-trade-commission>.
2. Baillie Gifford, Portfolio Construction Forum 2021.
3. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations (2020) 254.
4. Lina M Khan, ‘Amazon’s Antitrust Paradox’ (2017) 126 Yale Law Journal 710, 720.
5. Ibid.
6. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, above n 3, 260.
7. Khan, above n 4, 772.
8. Ibid 737.
9. Ibid 739.
10. Ibid 737.
11. Ibid 740.
12. Greenfield B Leon, Lange A Perry and Nicole Callan, ‘Antitrust Populism and the Consumer Welfare Standard: What are we Actually Debating?’ (2019) 83(2) Antitrust Law Journal, 2.
13. Darren Bush, ‘Consumer Welfare Theory as an Ethical Consideration: An Essay on Hipsters, Invisible Feet, and the “Science” of Economics’ (2018) 63 The Antitrust Bulletin 509, 511-12.
14. Ibid 513.
15. Sarah Oh, ‘Is there evidence of antitrust harm in the house of judiciary committee’s hot docs?’ (2021) 37 Santa Clara High Tech Law Journal 193, 199.
16. Sandeep Vaheesan, ‘The Profound Nonsense of Consumer Welfare Antitrust’ (2019) 64 The Antitrust Bulletin 479, 481.
17. D Daniel Sokol and Marshall Van Alstyne, ‘The Rising Risk of Platform Regulation’ (2020) 62(2) MIT Sloan Management Review, 3.
18. Ibid.
19. The Federal Trade Commission, ‘Predatory or Below-Cost Pricing’ <https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost>.
20. Khan, above n 4, 765.
21. Business Insider Australia, ‘Sadistic Amazon Treated Book Sellers “The Way a Cheater would Pursue a Sickly Gazelle”’, 23 October 2013, <https://www.businessinsider.com.au/sadistic-amazon-treated-book-sellers-the-way-a-cheetah-would-pursue-a-sickly-gazelle-2013-10?r=US&IR=T>.
22. Subcommittee on Antitrust, Commercial and Administrative Law of the Committee of the Judiciary, US House of Representatives, above n 3, 269.
23. Khan, above n 4, 766.
24. Ibid 723.
25. Ibid 724.
26. Ibid 727.
27. Bush, above n 13, 511.

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