Amazon Bites Off Even More Monopoly Power

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From The New York Times:

Amazon on Friday announced plans to acquire Whole Foods, the high-end grocer. If approved by antitrust enforcers, the $13.7 billion deal would give Amazon control of more than 400 stores, an extensive supply chain and a new source of consumer data.

Amazon will argue to federal authorities, most likely the Federal Trade Commission, that the deal should be blessed because the combined entity’s share of the American grocery market will be less than 5 percent.

But antitrust officials would be naïve to view this deal as simply about groceries. Buying Whole Foods will enable Amazon to leverage and amplify the extraordinary power it enjoys in online markets and delivery, making an even greater share of commerce part of its fief.

The company has established its level of dominance because of the failings of our current antitrust laws. To understand why, you first need to understand the scope of Amazon’s power. It has captured 43 percent of all internet retail sales in the United States, with half of all online shopping searches starting on Amazon. In 2016, it had over $63 billion in revenue from online sales in the United States — or more than the next 10 top online retailers combined. It controls 74 percent of e-book sales, is the largest seller of clothes online and is set to soon become the biggest apparel retailer in the country.

. . . .

 Think of Amazon as a 21st-century version of the 19th-century railroads that connected consumers and producers. Because of their gatekeeper role, railroads had power to discriminate, both among users and in favor of their own wares. These middlemen could tax the farmers and oil producers who depended on their rails — or deny them a ride and sink their livelihoods.

. . . .

In several key ways, Amazon uses its power as the railroads did. By integrating across business lines, Amazon now competes with the companies that rely on its platform. This decision to not only host and transport goods but to also directly make and sell them gives rise to a conflict of interest, positioning Amazon to give preferential treatment to itself.

The vast troves of information it collects enable it to self-deal with great finesse. News accounts tell how Amazon exploits data collected on the businesses using its platform to go head-to-head with them.

And like the railroads of yore, Amazon dictates terms and prices to those dependent on its rails. During negotiations with the publisher Hachette over e-book pricing, Amazon showed its might by effectively disabling sales of thousands of Hachette’s books overnight.

. . . .

Antitrust laws, which were passed by Congress to prevent these kinds of concentrations of private power, have been largely reduced to a technical tool to keep prices low. The change in thinking traces back to the Chicago School revolution of the 1970s, which ushered in decades of mergers and consolidation.

Embodying this “consumer welfare” regime, Amazon has largely avoided government scrutiny by devoting its business strategy and rhetoric to reducing prices. The company has marched toward monopoly by exploiting the defects of contemporary antitrust law.

Preventing Amazon from concentrating even more control will require that antitrust enforcers block the company’s bid for Whole Foods. But lawmakers and officials should go even further, embracing the original goals of antitrust law and adopting a competition policy fit for the digital age. Unless we recover our antimonopoly tradition, Amazon will centralize exceptional control.

Link to the rest at The New York Times

Somehow, PG has problems with the logistics of “embracing the original goals of antitrust law” while “adopting a competition policy fit for the digital age.”

Consider the dates the principal antitrust statutes came into being: the Interstate Commerce Act – 1887, the Sherman Act – 1890, the Clayton Act – 1914, the Federal Trade Commission Act – 1914, and a newcomer, the Robinson–Patman Act – 1936.

These laws were passed primarily to deal with market abuses by railroads and oil companies. The classic problem this legislation was designed to solve was a farmer in Iowa who, in the absence of any network of reasonable roads, had only one railroad available to ship corn to market. If the railroad raised shipping rates, the farmer had to pay those prices or not sell the corn.

So, Amazon is exactly like a railroad because, when you open your web browser, the only place where you can buy anything online is Amazon. Walmart is completely inaccessible. So is Google Shopping. And Apple? Forget about it. It’s absolutely impossible to buy anything from them. Ebay, Rakuten, JD.com? Not a chance. The internet train tracks don’t run there. How about Alibaba, whose 2016 profits were 55% greater than the combined profits of  Wal-Mart, Amazon and eBay. They can’t sell anything because Amazon.

The author of the OP is a “legal fellow” (is that sexist?) at “the Open Markets Program at New America.” From a quick visit to their website, the fellows appear to dedicate themselves to Amazon bashing.

And this “New America” organization?

New America was founded in 1999 to nurture a new generation of public intellectuals—scholars, policy experts, and journalists who could address major social, economic, and political challenges in ways that would engage the public at large—and to provide a set of blueprints for American renewal in an era of globalization and digitization. The initial challenge, which continues today, was to find the minds and foster the debates needed to guide American renewal in an era of profound, exhilarating, but often threatening change.

Further, “New America is a 501(c)(3) non-profit organization and all donations are tax deductible”, which means that, unlike Amazon, New American pays no income taxes and is excused from paying lots of other taxes as well.

But nurturing a new generation of public intellectuals doesn’t come cheap.

New American receives most of its funding from other organizations that also don’t pay any taxes. The minority of listed donors who do pay taxes includes Google, Walmart (plus the Walton Family Foundation), Netflix, Comcast, DISH Network Microsoft (plus the Bill and Melinda Gates Foundation) and Facebook.

If you identified any competitors of Amazon among New America’s donors, you would be correct.

By mere coincidence, neither Amazon nor Jeff Bezos are listed as donors. Perhaps if Jeff wrote a check, New America would discover that Amazon’s business practices fit perfectly into “a competition policy fit for the digital age.”

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40 thoughts on “Amazon Bites Off Even More Monopoly Power”

  1. I think it would have been appropriate for the NYTimes to have run a notice with this opinion piece: to remind readers that Jeff Bezos owns a controlling interest in a competitors of theirs, THE WASHINGTON POST.

    I clicked through to the full-length article and they did not.

  3. How are they getting a monopoly by buying one grocery chain? Are there no other stores to shop at? Will it become illegal to guy cheaper food somewhere else?

    As far as I can see, there’s nothing stopping anyone from competing with Amazon for anything. Some sites claim to be trying, but I’m not seeing much real effort. Sucks to be them, I guess, but they’re still able to do it. Heck, if I had the money, I’d start a store like Amazon and blow their socks off.

    • How are they getting a monopoly by buying one grocery chain?

      They aren’t. But, there is no really cool word for a “great big store that sells lot of stuff.” Use monopoly and ecosystem in the same sentence for bonus points.

    • Ah, but as Mr Doucette pointed out above, Amazon is buying the chain *they* shop at.

      If they’d bought Krogers or Target (like some suggested) they wouldn’t be half as offended. How dare Amazon force them to choose between their delights and their pretend-principles!

  4. I love your snarky style, PG – love when you provide your opinion on an article you read. Makes my day! And yes, I think you are spot on.

  5. Microsoft, Google, WalMart – all accused of doing the same things as Amazon. Same solution, too. If I get fed up with Windows (that is coming), I can switch to any of a dozen flavors of Linux. I actually don’t use Google except very rarely (different biases in search engines). WalMart foods instead of Frys (Kroger to easterners) – myself, only when it is much cheaper (which is actually only a very few odd things, like the wife’s ice tea mix).

    • > If I get fed up with Windows (that is coming), I can switch to any of a dozen flavors of Linux.

      you can, and thanks to anti-trust actions, you actually have the ability to buy a computer to run Linux on without having to pay for a copy of windows (the situation with laptops is not as good)

      There was a time when this wasn’t the case.

      Amazon, Google, and the other tech companies all started off as underdogs compared to the giant tech companies of the time. There is no big barrier to entry to prevent a new tech company from starting off to compete with them (Amazon and Google will even run their servers for them if they need to scale suddenly). It’s easier than ever t start a new company. The problem (as always) is having a good enough idea to compete.

    • Good solution.
      Don’t like them, don’t use them.

      Only problem is it doesn’t solve the problem of others using them. The only truly final solution is to destroy everything you don’t like so that nobody else can choose to use them.
      Then all will be well in the world.

  6. There are two “Whole Foods” in my state, and they’re sparse in most of the adjacent states. It’s a brand I’ve only heard of by passing mention on the web.

    Looking them up, they seem to be located almost exclusively in major urban areas.

    • Yes, in the better-demographic’d neighborhoods of the major urban areas where most of the money is. Those are the places where Amazon will soon have 400+ stores but more than that, bases of operation for local deliver distribution, showrooms for other products, etc. The leverage is huge (and I’m not against them having it). In fact, I look forward to having them make Whole Foods into a retail experience I’m more likely to participate in more often.

  8. I’m really amazed at the backlash this is generating…

    http://www.thedailybeast.com/amazon-eats-up-whole-foods-as-the-new-masters-of-the-universe-plunder-america

    It seems like there must be a huge overlap between ADS sufferers and WF shoppers. This purchase has them hysterical, even though (imo) not much is likely to come out of it. Whole Foods is what it is, and I would be surprised to see it change all that radically. It certainly isn’t going to affect WalMart – there is no overlap at all between the customer base of the two companies.

    • I live close to a Whole Foods. A few years after it opened, Walmart opened a grocery right across the street. Best of all worlds. All the produce in town comes from the same wholesale market. Walmart made sure their produce was the same quality as found across the street, but at lower prices.

    • “there is no overlap at all between the customer base of [Walmart and Whole Foods]”

      I think you might be surprised there. A lot of people shop at Walmart — including many of those who bash it. It’s like Amazon that way.

      Just because a person will pay 3x the price for Certified Double Secret Organic kale doesn’t mean the person wants to pay 3x the price for paper towels.

      • Yep. We get our butter from Whole Foods, because the brand we like is cheapest there. We buy our 14-yo son’s blue jeans from Walmart, because they fit him well, are inexpensive, and don’t wear out before he grows out of them.

        • The very thought of buying fresh meat/produce from Walmart grosses me out. But I do go there occasionally and get a good deal on blu rays or electronic or cheap furniture, that sort of thing. Basically anything where you’re going to buy a certain packaged, mass-produced item (rather than something where the quality varies like with produce), it’s all about price and convenience. Most people will take price and convenience for stuff like that over even if it irks them to patronize a certain store, because most people who say corporations are evil don’t tend to want to sacrifice anything (time/money) for that viewpoint. I have no problem with the people who say certain corporations are evil and then go out of their way/pay more to avoid patronizing those corporations. At least they’re putting their money where their mouth is.

          • I miss my old Walmart’s extensive produce section. Especially in quince and persimmon season. Yum… quince….

            Of course, if you find a store carrying quinces, you usually have to be very aggressive about buying your supply. Otherwise, the Hispanic ladies will buy the place out to make various membrillo yummies.

    • I think you’re on to something. Whole Foods + East Coast Elites + Amazon Hatred – an understanding of how hard it is to get to a bookstore outside of a major metropolitan area = this madness we’re seeing right now.

      I live in Cambridge, and I believe we have four Whole Foods here. I cannot tell you how many “but what don’t you like about Amazon?” conversations I’ve had here.

  9. So many “deep thinkers” who are intent on protecting me!

    A line from The King and I keeps running through my mind: “Might they not protect me out of all I own?” Sung by the king of Siam/Thailand about all those big empires eager to “protect” his little kingdom.

    Thank you, Oscar Hammerstein III.

  11. Railroads were hardware infrastructure networks, which required land and rights of way. The Internet is a virtual railroad that even I can establish with little money. No comparison.
    And Bezos better start paying “protection” money, if he wants to stay in business.

    • Bezos is one of the nation’s primary anti-Trumpers, and he has dragged Amazon into the fight. He has staked out his position. It will be great fun to watch how Amazon does as the cultural and political battle escalates.

      • Trump cannot do anything against Bezos. But the congress can. That’s were the “protection” money must be paid.
        Bottom line the Russians did it.

        • There are all kinds of things regulatory agencies can do. Note the use of the IRS over the last few years. As elections roll on, they can be used to reward or punish. Right now, DOJ is gearing up to look at the Whole Foods thing.

          Congress has ceded so much power to agencies, they don’t know what is happening.

          • Congress has ceded so much power to agencies…

            Too true, alas. And regulatory agencies don’t answer so directly to the voters. Which means that when they go wrong…they can go really wrong.

  12. The whole Amazon antitrust push is starting to remind me of the lynching of microsoft, circa 1995, for not making enough political contributions.

    Bezos had better beef up his DC lobbying team.

      • He’s quoting the author of the OP so he’s obviously drinking her kool-aid.
        And he talks about wanting more expansive antitrust. In other words, redefining antitrust so that it produces the desired outcome regardless of the facts. Which he quotes and dismisses.

        Wouldn’t hold my breath.

        • What I love about this ADS joker and others like him are that they can’t figure out that any new rules/laws that hurt Amazon will also hurt the ones they think they’re trying to help with those new rules.

          Let’s see, we hear the whine that Amazon discounts books too much to speed up killing off those poor little bookstores, so make a law that you can’t discount books more than 20%, that’ll fix Amazon – right? Oh wait – then B&N (and all other bookstores) can’t discount more than 20% too! Oops, that didn’t go as planned – did it? As an added bonus that would kill qig5 deep discount sales of unsold books to third parties for resale.

          And any law they try to make ‘just’ for Amazon will be thrown out as illegal.

          • Another example would be the demands that Amazon pay state and sales taxes, whether they have any physical presence in the area or not.

            It doesn’t seem to have occurred to these folks that if Amazon has to pay the taxes anyway, Amazon might as well open a physical store in the area. Oops.

            • And all other online/mail order companies, and figuring state/county/city/zip code taxes can tie all but the really big boys in knots.

              Heh, even Walmart would have issues if they had to online tax where the buyer lives and not where their nearest store is. 😉

    • Except Microsoft was in a monopoly position, and was using their position to block/limit their competitors.

      Their actions to explicitly test for DRDOS and refuse to run if it was present, or to deliberately break competitors software with Windows 95 are well documented examples of them abusing their monopoly.

        • It was “a monopoly” because to define the “relevant market” the judge excluded real-time OSes, mobile OSes, server OSes, Solaris, Irix and other Workstation OSes. He also excluded non-x86 desktop OSes like MacOS, AmigaDOS, and ATARI TOS.

          Yeah, if you exclude all competing players, anybody can have a monopoly.

          The judge went into the proceedings looking for an excuse to break MS up. In all the “bargaining” sessions he refused all MS offers, even getting out of the browser business. When he found none (his verdict had to be “no harm done, thus innocent” or he would have been overturned) so he had to settle for the un-appealable “finding of fact” that they were a monopoly so the roadkill could tie MS in lawsuits for a decade.

          And all because MS dared to embed a browser in their OS (instead of charging $40 a pop to developers, like Netscape did to Britannica).

          Just like IBM, just like Apple, just like Linux, and just like every OS under the sun since then. But it was Microsoft. They had to be cut down to size to let the little folks thrive!

          (Yeah, right.)

          If Bezos isn’t careful, they’ll do the same to Amazon to try to get them out of the book business so they can kill ebooks. I’m thinking they’re waiting for B&N to fold Nook so they can claim Amazon killed it. Once they 80% they’ll strike

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