The Detroit Post
Sunday, 17 October, 2021

Is Amazon Monopoly

Daniel Brown
• Wednesday, 21 October, 2020
• 9 min read

Khan compares Amazon to a 19th-century railroad company that decides which oil drillers and wheat farmers can ship on its tracks, and at what cost. Amazon has been accused of using its market position to bully book publishers overprices, and to introduce its own cheaper products when a third-party retailer has a hot seller.

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The issue isn't “bigness,” says Marc Scribner of the Competitive Enterprise Institute, a free-market libertarian think tank, but consumer welfare. In general, a company can grow as much as it wants and control as much of the market as it wants as long as prices don't go up and consumers don't suffer.

As a global retailer, cloud services provider, and media production house, Amazon is the largest internet company in the world and the second-biggest employer in the United States. Economists say too much economic power held by one corporation stifles innovation, drags down wages, gives consumers fewer choices, and makes an economy less competitive.

Senator Elizabeth Warren, a Democrat from Massachusetts who is running for US president, has attacked Amazon ’s dominance in the e-commerce marketplace as part of her 2020 platform and called for the company to be dismantled. The European Union, meanwhile, cites similar concerns as Warren and is investigating the juggernaut’s dual role as a seller of its own products and a platform for its competitors.

It is possible that the company could be forced to operate as separate firms dealing with web services, retail, logistics, entertainment and life sciences. In such a scenario, each unit would not retain the advantages that Amazon currently enjoys, as a corporation straddling a wide variety of economic sectors.

Last year, Bezos told the Washington Economic Club, “It’s really important that politicians and others understand the value that big companies bring, and not demonize or vilify business in general”. The e-commerce behemoth has created an annual shopping holiday that attracts millions of buyers to its site in search of midsummer bargains.

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Known for prioritizing growth over profits, the company is able to provide such good deals by subsidizing its retail business with the impressive cash flow that comes from cloud computing. In a 2017 law journal article widely cited by Amazon ’s critics, antitrust expert Lina Khan argued that the company poses more of a threat as it accumulates more market share.

In the report, which also examined Apple, Google and Facebook's business practices, lawmakers argue Amazon has grown to be such a dominant force in the online retail market that it now has monopoly power over third-party sellers on its marketplace. The report recommended a wide range of remedies, including splitting different business units and forcing companies to prove mergers would be pro-competitive before allowing them to conclude.

The committee's report bucked industry figures estimating Amazon's controlling share of the e-commerce market. They said Amazon likely controls about 50% or more of the U.S. online retail market, which is higher than researcher marketer's estimate of 38%.

Amazon has also imposed barriers to entry for other voice-enabled device manufacturers by pricing its Alexa-enabled products below cost, lawmakers said. Amazon disputed the lawmakers' findings, saying that their recommendations would reduce competition, forcing “millions of independent retailers out of online stores” and resulting in less choice and higher prices for consumers.

One unnamed venture capital investor in the cloud market told lawmakers: “I think of Amazon as the sun. Lawmakers also found direct evidence that Amazon viewed Campos and Quids as “competitive threats prior to acquiring them,” citing documents reviewed by subcommittee staff.

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It has been a focus of antitrust investigators in the U.S. and abroad, who believe Amazon uses its power to squeeze the merchants that sell on its platform. Lawmakers concluded that Amazon's dual role selling products on its own website and running a marketplace for third-party sellers “creates an inherent conflict of interest” that encourages Amazon to exploit its access to competing sellers' data and information.

It noted that Amazon publicly describes these sellers as “partners,” but “behind closed doors, the company refers to them as 'internal competitors.'” Amazon has maintained that the buy box predicts the price consumers would most likely choose after reviewing competing products elsewhere.

Amazon also employs “strong-arm tactics” in negotiations with vendors who sell directly to the company, lawmakers said. The report references an exchange with an unnamed company, wherein Amazon leveraged its e-commerce dominance to force acceptance of certain terms and conditions.

During negotiations, Amazon “repeatedly referenced” its ability to restock the unnamed company's products on as a “bargaining chip to force terms” that were “unrelated to retail distribution.” Lawmakers argued that Amazon's scope, acquisitions, and pricing strategy have given it an unfair advantage in the voice enabled assistant market.

Amazon's Alexa Voice Service, which enables hardware makers to make their devices compatible with Amazon's Alexa digital assistant, is hosted on AWS, “allowing it to bind products and developers to its cloud platform.” Amazon has expanded Alexa's ecosystem quickly through acquisitions of complementary and competing technology, lawmakers said.

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The subcommittee found evidence suggested that AWS sought to build on its leadership position and keep existing customers from going elsewhere. Because Amazon is dominant in cloud computing and other markets, the company has a conflict of interest it can take advantage of, the subcommittee said.

“When a cloud customer chooses to build an application using Document they are tied to AWS's infrastructure,” the report said. People told the committee they thought the license changes could lead to lesser access to innovative software for groups that lack abundant financial resources.

The House Judiciary subcommittee on antitrust released a report on Tuesday that said Amazon's online retail dominance gives it monopoly power over third-party sellers on its marketplace. Lawmakers also estimate Amazon controls about 50% or more of the U.S. online retail market, which is higher than analysts' projections.

Democrats also uncovered evidence that Amazon's dominance in cloud computing potentially creates a conflict of interest where customers are forced to consider working with a competitor. In an interview with an antitrust expert Sally Hubbard, we discussed what makes Amazon a monopoly, how that affects consumers, businesses relying on Amazon, and competitors, as well as what actions and regulations antitrust investigations might bring in the future.

Sally Hubbard is Director of Enforcement Strategy at the Open Markets Institute, an organization developing solutions to America’s monopoly crisis. Ms. Hubbard has testified in the U.S. House of Representatives and before the U.S. Federal Trade Commission and regularly serves as an antitrust expert for national and global news programs.

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Ms. Hubbard has published her views in media outlets like CNN and The New York Times. Exclusionary conduct includes things like predatory pricing, exclusive agreements, refusing to deal with a company, most-favored nation clauses, designing your product or service in a way that excludes competition, and more types of anticompetitive behavior.

In any event, antitrust enforcers determine the relevant product market by looking at substitutes. If Amazon were to raise prices or decrease quality by a small amount, enforcers identify what are the substitutes that consumers switch to as alternatives.

Amazon gives its own private label products and first-party products an advantage over competitors in a number of ways, from algorithmic ranking, to the buy box, to premium advertising, to direct to consumer marketing, to exclusive customer reviews. All of these thumbs on the scale in favor of Amazon ’s own products distort competition.

It can pick and choose what markets it wants to take over, like beauty or batteries or top-selling branded items. This likely violates Section 1 of the Sherman Act, which prohibits agreements that restrain trade.

Other types of exclusionary conduct Amazon has reportedly engaged in include most favored nation clauses and predatory pricing. Many 3rd party sellers do not consider other online marketplaces to be viable alternatives to switch to if Amazon imposes prices or terms they don’t like.

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This means 3rd party sellers lack bargaining power, and Amazon can dictate the terms of dealing, including the fees it takes. We found that it has exclusive marketing channels other brands and sellers don’t and has access to more data than platform members too.

Sally Hubbard: It’s problematic for a dominant retailer, who is also a manufacturer, to be able to look inside the businesses of nearly all consumer brands. When a retailer that is not dominant has its own brands, like a local grocery store, it doesn’t violate the antitrust laws because it does not have monopoly power.

Other retailers including Walmart and Target as well as social platforms like Facebook and Instagram and search engines like Google are adding marketplaces. They will have similar issues if they grow dominant, but they could also fail (as they often do when the giants try to challenge each other in their core competencies).

Facebook and Google already have their own issues stemming from their dominance in social and search, mobile, online video, and digital advertising. Sally Hubbard: Amazon has ways to police counterfeits that are less restrictive to competition.

Sally Hubbard: In addition to controlling prices through brand-gating and becoming the exclusive seller of products, Amazon has required some brands sell to it first-party instead of selling their products themselves or through a 3rd party seller, which ultimately gives Amazon pricing control. Additionally, there are concerns that Amazon can start to offer personalized pricing based on its knowledge of the consumers’ ability and willingness to pay.

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Sally Hubbard: That many sellers don’t feel like they have an option to not join FBA is a problem. Amazon has spent decades investing tens of billions of dollars into physical infrastructure, including warehouses.

Didn’t Amazon achieve e-commerce dominance by investing heavily while competing retailers watched on the sidelines? Investing in warehouses will not make Amazon run afoul of the antitrust laws.

It’s only the maintenance, growth or acquisition of monopoly power through anticompetitive conduct that is problematic. So even if Amazon was broken up into parts, it would still be important to impose non-discrimination rules that would require it to offer the same terms and prices to all sellers and brands, including itself.

Sally Hubbard: Customers benefit from robust competition, open markets, and a concentrated economy. These are the principles behind capitalism and the American Dream, where the best rise to the top because of merit, not because powerful gatekeepers control who gets to succeed.

In India, the government has been trying to regulate both Amazon and Flipkart, owned by Walmart, to prevent them from running platforms at the same time as being retailers. It’s hard to say how long it will take, but the current state of affairs with Amazon being able to leverage its monopoly power to distort competition is unsustainable and destined to fall apart eventually.

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If they reach settlement with Amazon after their investigations, we could see changes in business practices in a couple of years. The 2020 election will matter because it will determine what actions the DOJ and FTC take after their investigations and what laws could get past to address platform harms.

The European Commission will probably be first because it began investigating Amazon before the U.S. did and it is a more aggressive enforcer of the antitrust laws. Sally Hubbard: Antitrust enforcers like the Federal Trade Commission, the Department of Justice, and State Attorneys General are finally taking a look at some of this anticompetitive conduct and could use your input about your experiences.

Massive surveillance through Alexa will create new opportunities for Amazon to tilt the scales in its own favor and will also create barriers to entry for potential competitors that do not have the massive amounts of data that Amazon has. Meaningful privacy legislation could help decrease Amazon ’s competitive advantage that is based on collecting data about the consumer.

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