Amazon Antitrust Issues: Applying a Cost Benefit Analysis
If competitors wince at Amazon’s ambitions, consumers are mostly delighted by its speedy delivery and low prices. They stream its Oscar-winning movies and clamor for the company to build a second headquarters in their hometowns. Few of Amazon’s customers, it is safe to say, spend much time thinking they need to be protected from the Amazon antitrust issues.
In 2017, Lina M. Khan published an article in the Yale Law Review entitled “Amazon’s Antitrust Paradox” (January 2017, Volume 126, Number 3, pp. 710-805) in which she argued that current antitrust law is inadequate to address the e-commerce giant’s threat to competition.
Ms. Khan contends that “[w]e cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through pricing and output…the current doctrine under appreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive.” (p.710) Further, she argues that online platforms pose special challenges for antitrust law.
Amazon antitrust issues … critical issue
The issue Ms. Khan’s article brought to the fore is this: Do we trust Amazon, or any large company, to create our future? In think tanks and universities, the battle has been joined.
“It’s one thing to say that antitrust enforcement has gotten far too weak,” said Daniel Crane, a University of Michigan scholar who doesn’t agree with Ms. Khan but credits her with opening up a much-needed debate. “It’s a bridge much further to say we should go back to the populist goal of leveling playing fields and checking ‘bigness.’ ”
Amazon monopoly.
The resistance is fierce and prominent. Herbert Hovenkamp, an antitrust expert at the University of Pennsylvania Law School, wrote that if companies like Amazon are targeted simply because their low prices hurt competitors, we might “quickly drive the economy back into the Stone Age, imposing hysterical costs on everyone.”
Historical perspective
A.&P. essentially invented the modern supermarket in the 1920s. With its low prices, a wide range of products and penchant for disruption, the chain became the leading retailer of its era. It owned 70 factories and eliminated middlemen, which allowed it to keep costs down.
Mr. Muris and Mr. Nuechterlein wrote, “A.&P.’s very popularity triggered a backlash.” The government pursued A.&P. on antitrust grounds during the 1940s, egged on by competitors that could not compete. After decades of decline, A.&P. Shut its doors for good in 2015.
The benefits of Amazon
The analogies with Amazon are explicit. Don’t let the government pursue Amazon the way it pursued A.&P., Mr. Muris and Mr. Nuechterlein warned.
“Amazon has added hundreds of billions of dollars of value to the U.S. economy,” they wrote. “It is a brilliant innovator” whose “breakthroughs have in turn helped launch new waves of innovation across retail and technology sectors, to the great benefit of consumers.”
Amazon itself could not have made the argument any better. Which isn’t surprising, because, in a footnote on the first page, the authors noted: “We approached Amazon Inc. for funding to tell the story” of A.&P., “and we gratefully acknowledge its support.” They added at the end of footnote 85: “The authors have advised Amazon on a variety of antitrust issues.”
“We operate in a diverse range of businesses, from retail and entertainment to consumer electronics and technology services, and we have intense and well-established competition in each of these areas,” the company said. “Retail is our largest business today, and we represent less than 1 percent of global retail.”
Amazon antitrust issues … the competition
What you should understand is that where the antitrust people tend to see monopoly everywhere, the business people and the financial people and the tech community tends to see oligopoly everywhere, oligopoly competition.
So these companies are very often in competition with each other, even though they are not operating in the same market. Google is in search, Facebook is in social networks, Amazon is in online retail, but the three companies tend to exert a competitive restraint on the other and against each other — even though in antitrust we don’t see that, we just see a very large dominant company.
And so I try to say maybe both are right. There is a certain sense in which there is some oligopoly competition. So what I try to do in the paper, and I’m writing a book about this now, is understand how much competition these tech companies at the firm level take from other companies.
But what’s more important is that a company like Google in its oligopoly faces competition from more distant sources. So, for instance, you could think a company like Google is starting to take on competition from companies like AT&T which initially were not searching or internet companies.
There’s a lot of consumer benefits, and hence there should be no regulation, no antitrust, nothing. So it’s an illusory way to say the goods are free, output expands, let’s not look into that.
And of course, the problem with that vision is that if there is something very special about these companies. Something completely new.
We’re missing it because by definition we have excluded it by relying on an old-fashioned tool which only looks at price and output as proxies for welfare. That’s one way to do it.
Amazon antitrust paradox.
The costs analysis of Amazon
Rather than pocketing the profits from this creation, Amazon has plowed revenue into bettering itself—into the construction of well-placed fulfillment centers that further hasten the arrival of its packages, into technologies that attempt to read our acquisitive minds and aptly suggest our next purchase.
Shopping on Amazon has so ingrained itself in modern American life that it has become something close to our unthinking habit, and the company has achieved a level of dominance that merits the application of a very old label: monopoly.
That term doesn’t get tossed around much these days, but it should. Amazon is the shining representative of a new golden age of monopoly that also includes Google and Walmart. Unlike U.S. Steel, the new behemoths don’t use their barely challenged power to hike up prices.
They are self-styled servants of the consumer and have ushered in an era of low prices for everything from flat-screen TVs to paper napkins to smartphones.
In other words, we’re all enjoying the benefits of these corporations far too much to think hard about distant dangers. Besides, the ideology of Silicon Valley suggests that we have nothing much to fear: If these firms no longer engineer breathtaking technologies, they will be creatively destroyed.
That’s why Peter Thiel, the creator of PayPal, has argued that the term “monopoly” should be stripped of its negative connotation. A monopoly, he argues, is nothing more than a synonym for a highly successful company. Insulation from the brutish spirit of competition even makes them superior organizations—more beneficent employers, better able to both daydream and think clearly.
In Thiel’s phrasing: “Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.”
Thiel makes a critical point: The Internet-age monopolies are a different species. They challenge our conventional ways of thinking about corporate concentration.
They have proved especially elusive to those who ponder questions of antitrust, the discipline of law that aims to curb threats to the competitive marketplace.
Is Amazon so successful, is it getting so big, that it poses a threat to consumers or competition? By current antitrust standards, certainly not.
Here is a company known for disrupting and turbocharging competition in every market it enters, lowering prices and forcing rivals to match the relentless efficiency of its operations and the quality of its service.
That is, after all, usually how firms come to dominate an industry, and there is nothing illegal about that.
Under the antitrust law, once a firm is dominant, its actions and business practices become subject to more rigorous scrutiny, to make sure it is not abusing its dominant position. And like all dominant firms, Amazon disputes its dominance.
What to do
In confronting what to do about Amazon, first, we have to realize our complicity. We’ve all been seduced by the deep discounts, the monthly automatic diaper delivery, the free Prime movies, the gift wrapping, the free two-day shipping, the ability to buy shoes or books or pinto beans or a toilet all from the same place.
But it has gone beyond seduction. We expect these kinds of conveniences now as if they were birthrights. They’ve become baked into our ideas about how consumers should be treated.
Predatory pricing is a key determinant of monopolistic behavior. Monopolists would often cut prices to drive out competitors and then jack up prices again, squeezing consumers.
U.S. antitrust law has been focused on what we call consumer welfare, which means that the dominant thrust of antitrust policy is toward low prices.
Low prices benefit consumers, but they frequently harm competitors. Hence the crux of the issue.
The bottom line
I can’t tell you exactly at what point the government should step in to block Amazon from buying another company or curtail some of its business practices.
I am, however, fairly confident in saying that it ought to be well before Amazon achieves a 40 percent market share in books, groceries, clothing, hardware, electronics, and home furnishings.
And it ought to be before Amazon pulls even with UPS in shipping, Oracle in computing and Comcast in media content.
Khan’s reasonable insight is that if we don’t yet have the tools to identify when companies have reached that competitive tipping point, then someone ought to invent them.
Need some help in finding ways to grow your customers? Such as creative ideas to help the differentiation with potential customers? Or perhaps finding ways to work with other businesses?
Call today for a FREE consultation or a FREE quote. Learn about some options to scope your job.
Call Mike at 607-725-8240.
So what’s the conclusion? The conclusion is there is no conclusion. There is only the next step. And that next step is completely up to you. But believe in the effectiveness of collaborative innovation. And put it to good use in adapting to changes in your business environment.
It’s up to you to keep improving your learning and experience with innovation and creativity efforts. Lessons are all around you. In this case, your competitor may be providing the ideas and or inspiration. But the key is in knowing that it is within you already.
All you get is what you bring to the fight. And that fight gets better every day you learn and apply new lessons.
When things go wrong, what’s most important is your next step.
Try. Learn. Improve. Repeat.
When things are not what you want them to be, what’s most important is your next step. Call today.
Are you devoting enough energy to improving your continuous learning for yourself and your team?
Digital Spark Marketing will stretch your thinking and your ability to adapt to change. We also provide some fun and inspiration along the way. Call us for a free quote today. You will be amazed at how reasonable we will be.
Check out these additional articles on business and its performance at our library:
7 Surprising Things to Know About the Zillow Business Model
10 Lessons for Successful Entrepreneurs You Need to Know
Mike Schoultz is a digital marketing and customer service expert. With 48 years of business experience, he consults on and writes about topics to help improve the performance of small business. Find him on G+, Facebook, Twitter, Digital Spark Marketing, and LinkedIn.
