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European regulators are looking into antitrust concerns at Amazon

20 September 2018

From The Washington Post:

Europe’s antitrust regulators have opened a preliminary probe of Amazon.com to see whether the e-commerce giant has stifled smaller competitors who sell clothing, toys and other goods through its website, marking the region’s latest inquiry into the business practices of a U.S. tech giant.

The concern at hand is whether Amazon’s use of sales data from third-party merchants gives it a leg up in selling its own products, said Margrethe Vestager, the European Union’s competition chief, on Wednesday. More than half of Amazon’s sales now come from third-party merchants that do business on the company’s site, as the retailer aggressively recruits small and medium-size sellers to join its marketplace. (Jeffrey P. Bezos, the founder and chief executive of Amazon, owns The Washington Post.)

“The question here is about the data,” Vestager said at a news conference. “If you as Amazon get the data from the smaller merchants that you host … do you then also use this data to do your own calculations on what is the new big thing? What is it that people want? What kind of offers do they like to receive? What makes them buy things?”

Link to the rest at The Washington Post

PG says if governments punish successful companies, they may find fewer of them appear and last.

One of the reasons Amazon offers consumers such great prices and selection is because it does a superb job of giving them what they’re looking for at a price they like.

PG suggests Amazon got where it is today because it has always paid more intelligent attention to its customers than anyone else. That’s why Walmart’s stock has advanced about 40% over the past decade, while Amazon’s stock increased nearly 2,200% in value. On Fortune magazine’s list of most-admired companies worldwide, Amazon is #2 (right behind Apple) and Walmart is #26.

On Fortune’s top-50 list, PG saw BMW, Adidas, Unilever and Nestlé as the only companies headquartered in the EU, which is a larger market than the US. PG wonders whether EU-style regulation of competition is hurting far more people and organizations than it helps.

Ms. Vestager seems to be unfamiliar with how Amazon makes money. It does sell its own products, but it sells far, far more products from other businesses. And Amazon almost certainly makes far more money helping other businesses sell their goods than Amazon makes from selling its own goods.

As an organization, Amazon is so successful in part because it shares the wealth – with its own customers by offering low prices plus great selection and service, with third party sellers because it allows them to sell on the most sophisticated online website known to human kind and even a large number of indie authors by paying them far more money than they could earn by trying to deal with stone-age traditional publishers.

 

Amazon, Non-US

22 Comments to “European regulators are looking into antitrust concerns at Amazon”

  1. Richard Hershberger

    “PG says if governments punish successful companies, they may find fewer of them appear and last.”

    John D. Rockefeller used to say the same thing about Standard Oil. A monopoly is by definition a successful company. That is not the point. The Gilded Age monopolies are long enough ago that people forget how unbeloved they were at the time. For a modern equivalent, consider your cable provider, and how much better it is in areas with genuine competition.

    “Ms. Vestager seems to be unfamiliar with how Amazon makes money. It does sell its own products, but it sells far, far more products from other businesses.”

    The first sentence is a strange assertion, as Ms Vestager’s discussion is about those third party sellers you think she is unfamiliar with.

    I am repeatedly struck by the “Amazon can do no wrong” attitude in some self-publishing circles. Remember a while back when Amazon was putting audible books up on KU without the authors’ permission and without paying them? Until it got caught that is. Amazon is moving toward holding a near monopoly on the ebook market. This is Not a Good Thing for authors.

    • Perhaps I didn’t word my initial commentary well.

      According to the OP, Ms. Vestager’s investigation is based, at least in part, on a concern that Amazon uses sales data from third-party merchants who sell on Amazon to gain an advantage over those merchants when Amazon sells its own competing products.

      My suggestion is that Amazon likely earns a higher profit margin when it sells merchandise from third-party merchants than when it sells its store brands. I seem to remember reading that somewhere, but it makes sense to me in that Amazon avoids product and inventory costs when it sells third-party merchandise.

      From its behavior, it appears that Amazon’s pricing policy for its own brands is that Amazon brands will price-match or underprice comparative third-party merchandise or come close to doing so. This policy makes for skinny margins or even potential losses on Amazon’s house brands. The risk of a product not selling as expected or being returned is all on Amazon.

      When selling third-party brands, the third parties are financing product development, manufacturing, inventory and other costs of owning the merchandise that is sitting in Amazon’s warehouses. Amazon gets its cut regardless of whether the third party makes a profit on its sales or not. When processing orders for third-party merchandise that will be fulfilled by third parties, a tiny fraction of the computing power of Amazon Web Services is pretty much Amazon’s only cost.

      My point is that it is in Amazon’s commercial interests to keep third-party sellers happy. If third-party sellers thought Amazon was causing any material harm to them because the third parties were selling on Amazon, those sellers could reduce or eliminate sales on Amazon.

      As far as Gilded Age monopolies are concerned, their standard practices were to cut prices below cost in a given geographic area to drive competitors out of business, then raise prices higher than they were before and move to a different geographic area to repeat the practice.

      There was a strong regional basis for many monopolies because the US transportation system was quite primitive across most of the country. The monopolies were based upon physical products that were difficult, if not impossible, to transport very far – oil production and refined products, steel, railroad rights of way and tracks, electricity generation and distribution systems.

      Given world-wide shipping capabilities provided by companies like UPS and Fedex, internet-based commerce has few, if any, meaningful geographic constraints. An internet-based merchant in Los Angeles can compete with an online merchant in New York for New York customers for the types of products Amazon typically sells. For electronic products like ebooks, digital music and movies, there are no geographical constraints other than language and the limits of the internet itself.

      While I believe that Amazon does a great many things right, I’ve never contended that Amazon can do no wrong.

      If anyone listened in on some phone calls between Amazon’s attorneys and myself or reviewed related email exchanges, they would quickly be disabused of any impression that I think Amazon can do no wrong.

      • Standard Oil is often accused of forcing firms out of business. It’s not that simple.

        They usually bought the companies, expanding their own business. The owners who sold were so happy with the sales, they moved down the road and did the same thing again, and sold out to Standard again.

        And monopolies? A monopoly is considered detrimental to consumers because it curtails supply and increases prices. The monopolist can’t control the demand curve, but he can choose the most profitable position to operate on that curve. It is always at a supply level lower than would exist under competition, and at a higher price.

        Amazon does the exact opposite of a monopolist. It increases supply and lowers prices. Both are beneficial to consumers.

  2. I am so glad I don’t live in Europe, where the governments seem so intent on protecting their small businesses, they’re forgetting about the people who buy from them.

    One of the things Amazon does with the data on third-party sellers is decide whether to stock those products in its own warehouses. If they do, the seller gets the profit from the sale (for a fee, I’m sure), and I get two-day shipping on my order.

    Last year, I had a problem with an order from a third-party seller. I was charged almost immediately because the item had “shipped.” It didn’t arrive within a week. I contacted the seller but didn’t get much of a response, if any. Since I didn’t have an immediate need for what I’d ordered, I waited. I know it was over a month, probably more like two.

    Eventually, I contacted Amazon directly about the problem. They not only refunded my full purchase price, they kicked the seller off Amazon. (I assume I wasn’t the only customer who had this happen.)

    Now, if I’d ordered this item directly from the seller, what recourse would I have had? I could have contacted my credit card company, but it’s not something that occurred to me at the time. Besides, the charge was from Amazon, not from the seller.

    I now am careful to look for the “fulfilled by Amazon” tag on merchandise I order from third parties.

    • “Fullfilled by Amazon” is a requirement for me as well. I prefer to purchase from the Third Party stores (I often get better deals), but I won’t touch it without the “Fulfilled by Amazon” tag, because the Third Party agrees to abide by Amazon’s return policies, and utilize Amazon’s customer service.

    • Shipped from Amazon and no other ‘shipping charges’ are a must on all my orders. 😉

  3. This again? Must be a slow news day or ‘Washington Post’ wants us to watch this instead of something else.

    The EU and Trump sound like broken records with their ‘We’re gonna – we’re gonna – we’re gonna’ but they never actually do. Just idle noise to keep people talking and thinking that Amazon is doing them wrong.

    The ‘truth’ (which Trump and the EU have never let get in their way) is that Amazon is doing nothing wrong – it’s just playing by the laws of the land.

    Trump’s cries that Amazon is screwing the USPS is laughable because the rates Amazon is using were already in place and used by many large companies (and with two brothers working for the USPS, I can tell you USPS ‘loves’ the extra business Amazon is bring them!) If Trump tried to get things changed he would be hurting those other companies, so he helpless to do anything but act like a twit and tweet away.

    The EU wants to protect their own little companies, but once again Amazon is playing by ‘their’ rules, so any rule/law change to hurt Amazon will also hurt the very companies the EU is trying to protect. As that ‘EU Copyright Directive’ proves, the EU has no idea what they’re doing or how it will affect others, so they might try an anti-Amazon law – and blow off their other foot. 😉

    • Since the editor-in-chief of the Washington Post actually reports directly to Jeff Bezos in the corporate org chart, I highly doubt this constitutes an anti-amazon piece. Just actually reporting EU legislative news.

      • Sorry, I wasn’t trying to imply it was an anti-amazon piece, but rather it was a slow news day as the EU is shooting at Amazon almost daily, or it was better to offer this than something else going on in the world. 😉

    • Remember, the EU bureaucrats have a reputation to uphold.
      They did force the creation of the first software package purposefully intended for value-reduction. (Windows XP N edition.)

      Considering it cost the same as the full version, that is a hard act to follow. (Even Forrest Gump went, huh?)

      https://support.microsoft.com/en-us/help/886540/description-of-windows-xp-home-edition-n-and-windows-xp-professional-n

      (The background story is a long and ridiculous example of clueless protectionism.)

      • At the rate they’re going there won’t be any EU group – all the member states will be running away as fast as they can! 😛

    • Trump’s cries that Amazon is screwing the USPS is laughable because the rates Amazon is using were already in place and used by many large companies

      The economic argument is that these rates are screwing the first class mail users. The special rates are profitable at the margin because they cover all their direct costs and generate a surplus. But that means the substantial USPS overhead is borne by first class users.

      It’s another case of financial vs cost accounting, and there is nothing laughable about that contrast. Zillions of companies deal with it everyday.

      • Lots of companies operate under constant civil war between cost centers and profit centers because of cost accounting.

        In the USPS case, a lot of the griping about Amazon comes from carriers. Defense of Amazon’s contract comes from middle management and higher.

        And lets not forget USPS is a union shop.

        Not at all simple.

        • One of my brothers is a USPS carrier and he doesn’t mind Amazon at all. He has to check every box on his route whether he has something for them or not, so he has no problem with having to drop things off (and getting enough/too much means added overtime or making new routes.) The ‘unions’ may have issues with Amazon, but the rank and file just see Amazon as extra money in their paychecks.

  4. So, another billion dollar fine incoming for successfully dragging another sector kicking and screaming into the 21st century?

    “Birds gotta fly, fish gotta swim… ”
    …and unelected bureaucrats gotta protect their “sponsors”.

    Nothing new.

    • While the brusselcrats fret over protecting tiny old businesses, smarter people are busily building entirely new *big* businesses and raking in the money.

      One example in the news today is Amazon’s ALEXA business that currently counts 20,000 different products (it started the year with 4000) supporting it. And it currently counts 50,000 skills accessible through the system.

      The entire smart home category is projected to hit over $300Billion in five years.

      https://www.zdnet.com/article/alexas-next-move-amazon-unwraps-its-latest-device-news/?ftag=TRE-03-10aaa6b&bhid=19901053397699750196500774529668

      And that is just one of the many new business categories growing in Amazon’s shadow.

      Amazon makes a lot of its money helping others make money.
      Merchant services, KDP, AWS, Alexa, etc. Which is also true of Microsoft and Google, the other targets of EU shakedown.

      • I’m waiting for Jeff to get tired of all this and say ‘fine’.

        Amazon’s EU links would start showing two prices, one which Amazon happily offers non-EU members for the product/service, the second what it has to charge in order to get the brusselcrats off their back.

        Wonder how many might want to remove themselves from the EU pain …

        • It won’t matter.
          The people behind these moves aren’t elected and they aren’t accountable to the citizenry.

          Their power is three levels away from anybody accountable to ordinary citizens.

          It is an old subject with it’s own buzzword: democratic deficit.

          The economist had a pretty good prescriptive piece last year:

          https://www.economist.com/special-report/2017/03/23/how-to-address-the-eus-democratic-deficit

          • God Bless Brexit, for it is just the first.

            • Maybe.
              The EU negotiators are trying to make it as painful as possible to discourage others.

              Of course, if they make the EU into a Hotel California it might provide ammo to the euroskeptics. And not just in eastern europe, where the Brusselcrats are being compared to the Soviets.

              The EU is in danger of sliding into a state like David Weber’s Solarian league of Tyranny by Delegation. The further power moves from elected officials, the more autonomous it becomes.

              • I was thinking the same thing – you don’t think their using those books as a guide do you? The Solarian league was going to fall to a tiny banana republic. 😉

                As far as pain, a short quick pain might be preferred to a long drawn out one. (Thinking getting an infected tooth pulled to putting up with the pain.)

                • Modern democracies aren’t good at accepting pain. Witness the ongoing (and spreading) fiscal crises all over.
                  Costa Rica is the latest inching that way.

                  It may be time for world builders to consider post-democratic futures to figure out how to craft non-dystopias.

                  As for Weber’s Solarian League, they held on to the “Quantity is a Quality all its own” strategy too long and, much like the Legislaturists of Haven, got too fancy trying to wage war on the cheap. Because their (nominal) democracies weren’t good at accepting pain.

                  Weber is a historian and he is drawing inspiration from the present as well as the past. Makes his worldbuilding politicians hit a little too close to home. Even the ones not named Robert Stanton Pierre. 🙂

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