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By Jeremy Newman
When talking about antitrust today, it’s hard for the conversation not to turn to Amazon. A 1990s online book selling start-up that seemed the epitome of the successful American business, Amazon grew over the past two decades until they were the dominant e-commerce platform. Now, many concerned about the company’s size and practices have sought to reinvigorate antitrust debate in hopes of finding a solution to the threat that Amazon may pose to our markets.
This issue gained prominence in 2017 with the publication of antitrust scholar Lina Khan’s “Amazon’s Antitrust Paradox” in the Yale Law Journal. Khan argues that the nation’s current antitrust legal framework, which operates through a lens of consumer protection and price control, is unable to appreciate the potential harms posed by a company like Amazon.
The online seller reached its dominant position through predatory pricing, Khan says, which is the practice of keeping prices low to pursue growth – sacrificing high profits to seek investor rewards. Rather than charge the outrageous high prices that characterize a first-year economic-textbook monopoly, Amazon charges low prices that consumers have cheered but that allows the company to foreclose competition and distort markets. If competition is shut down, Amazon would then be in a position to recoup losses by raising their prices.
While the risks posed by Amazon may not fully be captured by consumer price theory, the company has not completely evaded government scrutiny. Investigations by Federal agencies and Congress into the online retailer’s practices have recently begun, focusing not on Amazon’s effect on consumer prices, but rather on possible adverse effects on online merchants.
On September 11, Bloomberg reported that FTC investigators have been interviewing merchants who sell goods on Amazon.com, gauging their reliance on the company and how vulnerable they are to any policies Amazon implements. Though Amazon controls just 4% of the total U.S. retail market, it controls over 40% of the online market. In 2018 it was reported than nearly half of U.S. internet users start their product searches on Amazon, rather than on a search engine like Google. If merchants want to avail themselves of the large and growing field of e-commerce, they must rely on Amazon. In absence of competition, merchants say Amazon has been raising their fees, in turn, forcing them to raise their prices.
Many sellers get more than 90% of their sales off Amazon, and this necessary reliance can lead to harm when the company’s policies change. Jaivin Karani told Bloomberg that he lost 10% of his sales of video games and electronics after Apple and Amazon made a deal to limit who could sell Apple accessories on Amazon’s site – a deal between two dominant companies that hurt smaller merchants.
The Department of Justice has also launched an antitrust investigation into what it calls “market-leading online platforms,” which presumably includes Amazon. Not many details about the investigation have yet surfaced.
The legislative branch of the Federal Government has also raised an eyebrow at Amazon. Back in July, Amazon executives testified before the House Subcommittee on Antitrust as part of a wide-ranging investigation into Big Tech. On September 13th, the House Judiciary Committee sent information requests to 80 companies asking how tech giants, including Amazon, may have harmed their businesses. These moves are in line with Washington’s growing scrutiny of Big Tech firms, which include Facebook and Google. The House’s main question for Amazon is whether they are favoring their own products over those of other merchants.
Along with running the marketplace that merchants rely on for online sales, Amazon sells their own products on their platform. Through its more than 140 private labels, including AmazonBasics, Amazon sells shirts, batteries, diapers and various other consumer goods. Unlike other retailers, however, Amazon has the data from competitors’ sales, which it can use to price its own products and steer consumers toward them. It may also use its site to give its own products preferential promotion.
Taking advantage of data to prevent consumers from buying their competitors’ products is archetypical anticompetitive behavior, and has concerned lawmakers. More proceedings are likely to follow in the coming months.
Investigations may follow at the state level, too. A bipartisan group of 50 state attorneys general has recently come together to launch antitrust investigations into Facebook and Google. It may not be long until their Big Tech inquiry expands to include Amazon. Some groups, such as the American Booksellers Association, are urging the attorneys general to take a look at the company’s possible anticompetitive behavior.
While raising fees for merchants and using consumer data to preference their own products on their site may be typical anticompetitive behavior, they are not the only practices that have some wary of Amazon’s dominant size.
Frequent news stories comment on the employee conditions at Amazon’s Fulfillment Centers. Former employees have described expectations to maintain an untenable pace in picking items off shelves and packing them, and being written up if they don’t meet their ever-increasing quotas. To counter such stories, Amazon recently raised its minimum wage to $15 an hour; they’ve also tasked warehouse employees in defending the company on Twitter as “Amazon FC Ambassadors.” The company also released ads on YouTube, which became fodder for late night hosts.
Controversy also met the company at the end of last year with the announcement that Amazon would be opening two new headquarters in New York City and Washington, DC, promising around 25,000 new jobs at each location – but not without first using their influence to collect $2 billion in tax credits from the respective states. Many local leaders and activists decried using taxpayer money to subsidize one of the worlds’ wealthiest companies, and raised issue at the effect the building of corporate campuses would have on the community character of these areas. In February, Amazon responded to criticism by pulling out of the Long Island City location in New York, a decision that divided New Yorkers. The Washington, DC area headquarters moved forward (albeit with a new town name of Amazon’s choice).
Employment conditions and the power to negotiate for taxpayer subsidizes aren’t concerns traditionally in the foray of antitrust law. That hasn’t prevented some, including presidential candidates, to call for Amazon to be broken up.
A focus of democratic presidential candidate Elizabeth Warren’s campaign is rolling back the power that Big Tech firms have gained over the past decade by breaking up the companies. Warren would not only unwind recent mergers Amazon has with Whole Foods and Zappos, but would also separate AmazonBasics from Amazon Marketplace by classifying the latter as a platform utility. Companies would be banned from both owning the platform utility and participating on it, quelling the concern that Amazon gives preferential treatment to their own products.
Several other presidential candidates agree that the companies should be broken up, while Representative John Delaney believes there needs to be more regulation. A majority of the democratic candidates, including former Vice President Joe Biden, believes there needs to be more investigations before any moves are made.
The fact that presidential candidates are discussing what to do about Big Tech shows a change in antitrust reception, and a growing concern about the power of companies like Amazon. While the investigations by Federal agencies and the House are still in their beginning phases, it’s likely we can expect more hearings and proceedings, and possible court battles, in the near future. These won’t answer all the questions about Amazon’s size and power, but have the possibility of shifting the legal landscape of antitrust, and with it, the practices of Big Tech.
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