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Amazon, the Monopolist?

Does the government need a more robust regulatory response to the online retailer?
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Amazon warehouse

Employees dispatch items in an Amazon warehouse on November 28th, 2013.

In the summer of 2014, a very loud dispute emerged between Amazon, the ubiquitous online retailer, and Hachette, the publisher of books by such well-known authors as Malcolm Gladwell and Paul Ryan.

The exact details of the feud were never publicly revealed, but reports say it centered on e-book pricing. At the same time the blow-up was taking place, Amazon engaged in a variety of negotiating tactics meant to disadvantage the publishing house: eliminating next-day or two-day shipping for Hachette (Hachette books took two to five weeks to ship), declining to make Hachette books available for pre-order, and allegedly fiddling with its algorithm to make it difficult for customers to find Hachette books on an Amazon search.

Hachette’s writers were outraged. One group of authors announced plans to request an inquiry by the Department of Justice into Amazon’s business practices. Others publicly lamented Amazon’s behavior. Franklin Foer, the then-editor of the New Republic penned an impassioned piece calling the online retailer “the shining representative of a new golden age of monopoly that also includes Google and Walmart.” In August of 2014, Paul Ryan, who’s not known for his affinity for government regulation, told CNBC, “clearly Amazon is making kind of a power play here.” While Amazon quickly changed its policy around Ryan’s book, others were still subject to shipping delays until November, when the two companies finally resolved the dispute. But the spat left a blemish on the technology giant’s largely friendly image (and reportedly even hurt its bottom line). It also served as a warning of Amazon’s willingness to use its power to play dirty.

Two years later, the company’s growing clout and its swelling ambition continues to provoke anxiety. In the run-up to the 2016 election, antitrust policy, particularly with respect to big tech companies, emerged as an interesting new battleground in the progressive political movement. In a now-infamous speech on antitrust policy, Elizabeth Warrenfocused specific attention on Amazon, saying the company “uses its position as the dominant bookseller to steer consumers to books published by Amazon to the detriment of other publishers.”

While the unexpected outcome of the 2016 election may have dampened liberal momentum on the issue, it’s not just Democrats paying lip service to a more aggressive antitrust policy. During the campaign, President-elect Donald Trump frequently complained about Amazon’s business practices, saying that the company has “a huge antitrust problem because [Jeff Bezos is] controlling so much.” (Trump’s interest in the company’s business practices may not be pure of heart: Bezos owns both Amazon and the Washington Post, the latter of which aggressively investigated Trump throughout the campaign.) One thing is certain: Amazon is making more than a few politicians nervous.


Amazon’s increasing market power is tough to deny.

According to a new report from the Institute for Local Self-Reliance, a non-profit research shop that advocates for sustainable community development, Amazon will capture 46 percent of online retail sales in 2016, up from just 22 percent in 2011. The company’s market capitalization surpassed Walmart’s for the first time in 2015 (Walmart’s revenues are still much higher than Amazon’s).

Amazon will capture 46 percent of online retail sales in 2016.

“Today, half of all U.S. households are subscribed to the membership program Amazon Prime, half of all online shopping searches start directly on Amazon, and Amazon captures nearly one in every two dollars that Americans spend online,” ILSR researchers Olivia LaVecchia and Stacy Mitchell write. “Amazon sells more books, toys, and by next year, apparel and consumer electronics than any retailer online or off, and is investing heavily in its grocery business.”

The rise of both mega-stores (such as Walmart) and e-commerce has clearly hurt small brick-and-mortar retailers who struggle to compete with low prices (and in the case of Amazon, lack of sales tax). The ILSR report details some of these effects, arguing that industry consolidation (Amazon, in particular) is damaging competition and entrepreneurship, destroying small businesses, contributing to the prevalence of low wage jobs with poor working conditions, and weakening communities by leaving behind vacant storefronts and smaller tax bases.

While few would disagree that Amazon’s ascendance has been bad for its competitors, it’s less clear whether the company is harming consumers. After all, it delivers excellent consumer service and has millions of satisfied customers. In fact, Amazon mostly uses its market power to demand lower prices for consumers, the opposite behavior of what one would expect from a traditional monopolist.

Still, its dominanceconcerns progressives. Here’s how New America’s senior fellow Barry Lynn, who has been highly critical of Amazon’s business practices, explains (via email) the threat posed by Amazon:

What we have is a single company that stands in between all the authors and all the readers. When it comes to books, Amazon has 50/60/70/100 control over the books in different sectors. And all those books … must pass across Amazon. And Amazon uses its power in ways that actively manipulate and alter and warp the flow of that information between the author and the reader. It does this in a number of different ways … it offers different pricing, it offers different terms of carriage to different people, it has the ability to kind of take certain books and certain authors and certain publishers and shove them aside…. They can promote whatever they want, and shunt aside whatever they want.

Outside the publishing industry, Amazon lacks the kind of market power that characterizes monopolies, as quitea few people pointed out at the time of the Amazon/Hachette dispute. The company’s fiercest critics worry it’s just a matter of time before that changes.

Recent critiques of Amazon, however, have also focused on something else: the danger posed by the company’s aggressive vertical integration. Today, Amazon is both a producer and a retailer — it sells Amazon products (including) alongside competing products on the website. Critics argue that the company uses its outsize platform power to unfairly direct consumers to its own products.

“For other businesses, if you’re a manufacturer, you’re another retailer — you face this really difficult decision,” Stacy Mitchell says. “Do you continue to hang your shingle out on the Web where there’s less and less consumer traffic that’s likely to find you? More and more businesses are having to make a difficult decision to use Amazon’s platform, and that creates this incredible conflict of interest for Amazon.”

It’s not yet clear if the incoming administration actually has any interest in a more robust antitrust policy. Despite the president-elect’s rhetoric during the campaign, he appointed Joshua Wright, a lawyer who’s argued against more trust-busting, to lead Trump’s federal trade commission transition team.

If, however, Trump does decide to embrace a new kind of antitrust policy, progressives point to several choices the administration could consider. For starters, Mitchell says, the government could begin to more aggressively investigate the company for predatory pricing practices or price discrimination.

“We have policies on the books that bar companies from predatory pricing … and we have other policies around price discrimination,” Mitchell says. “But we have radically altered how we view and enforce these policies in the last 35 years. We need to go back to an earlier way of looking at those policies and we need to step up enforcement of them.”

A number of liberal scholars have also advocated a set of other, more radical reforms: treating Amazon (as well as other big tech companies) like a utility or “common carrier,” which would effectively bar the company from discriminating between different producers, and forcing the company to break up its retail and platform businesses.

“When you vertically integrate, when you have the utility vertically integrating into a line of business with the people that depend on you to get to market, that creates discrimination,” Lynn says. “If you’re going to be the platform on which the book market is made, you cannot be in the business of publishing books. What we’re doing right now with Amazon is a violation of the American way.”

Amazon’s competitors, many of whom struggled in 2016, are no doubt hoping that the president-elect’s call to investigate Amazon is one campaign promise he keeps.