By Paul Krugman. 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. Will EU regulators be first? Dave Roos Amazon has been accused of using its market position to bully book publishers over prices, and to introduce its own cheaper products when a third-party retailer has a hot seller. 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. Amazon has signed landmark deals with large brands like Apple and Nike, ensuring Amazon is the only one allowed to sell their products, blocking marketplace sellers. Amazon has not been labeled as a monopoly by the Federal Trade Commission (FTC), though the agency is currently probing the company. You could make the opposite case about Amazon. Amazon is controlling the game and playing it too. That investment today allows it to offer storage rates to sellers other warehousing providers cannot match, and for Amazon to provide fast shipping, few retailers can match. What anticompetitive actions has Amazon taken? They each have the advantages they can use to grow shopping revenues. Investors are fully aware of the implications of this Amazon monopoly. Sally Hubbard is Director of Enforcement Strategy at the Open Markets Institute, an organization developing solutions to America’s monopoly crisis. With Amazon's practice of buying up competitors (Zappos.com and Diapers.com) and expanding into new markets (Amazon acquired Whole Foods in 2017 with plans to disrupt the grocery industry), its grip on the economy is only likely to tighten. 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. If one of these marketplaces emerges as a robust competitor to Amazon, that could help with Amazon’s harms. And other than books, Amazon’s original market where it maintains a commanding 40 percent market share, Amazon doesn’t have anything close to monopoly-like market shares. Whether its products are not successful may be a function of doing a poor job at creating private label products and does not reflect on the anticompetitive harms of being able to see inside your competitors’ businesses. Sally Hubbard: It is one solution, but it’s not the only solution. CNN's Jon Sarlin reports. A lot of what Amazon does is “monopoly leveraging” – using its platform monopoly power in an anticompetitive manner to create a dangerous probability of monopolizing a second market. Lina Khan, director of legal policy at the Open Markets Institute, a think tank that warns about the dangers of monopolies, believes that Amazon represents a new kind of monopoly for the digital economy. For the past quarter-century, Amazon has grown its monopoly by exploiting workers, suppliers, and small businesses. Defining the market and looking at market share is a form of second-best indirect evidence and shouldn’t even be necessary here because direct evidence exists. Its monopoly is stopping public libraries from lending e-books and audiobooks from Mindy Kaling, Dean Koontz, Dr. … It also won’t fix all the problems. Amazon dominates online retail and is one of the most valuable companies in the world. Not even close. 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. The report says plainly that "Amazon is the dominant online marketplace" and that evidence "demonstrates that Amazon functions as a gatekeeper for ecommerce." Monopolies are not good for us, so antitrust enforcement would make customers better off. How would any action affect customers. Previously Ms. Hubbard was Senior Editor of Tech Antitrust Enforcement at The Capitol Forum, where she specialized in antitrust, data regulation and tech giants. 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. No, Amazon is not a Monopoly. However, enforcers are behind the ball when it comes to new developments, like Alexa-enabled everything, everywhere. Is the company reaching a monopoly status? It would remove some conflicts of interest and incentives to distort competition. Amazon is a monopoly, including Fox Business News, Fast Company, the Atlantic, New Republic , the New York Times , Fortune , Salon.com, and the New Yorker , to name a few publications. Is Amazon a Monopoly? Mike Segar / … All of these thumbs on the scale in favor of Amazon’s own products distort competition. Is there a chance regulation in the U.S. would fail to be effective too? The relevant market definition is never as broad as “all retail.” For instance, the relevant product market in U.S. v. Microsoft was “operating systems for Intel-compatible personal computers.”. Illegal monopolization requires both 1) monopoly power and 2) that the firm acquired, enhanced, or maintained that power by using exclusionary conduct. The Retail Industry Leaders Association – … Enforcers finally getting involved should lead to more open and fair competition. ", If you're wondering what the "United States of Amazon Prime" would look like, check out China. The Sherman Antitrust Act of 1890 secured the government's ability to bring suits against corporations they charged as creating monopolies in their given industries. Research the development and rise, as well as the pros and cons of the Amazon marketplace: How did this company become so large? Is this a problem? Doesn’t that make Amazon not a monopoly? But Khan and others would argue that the consumer-welfare focus of antitrust law is outdated and misplaced. Monopoly Game This breakout Monopoly game introduces Mr. Has Online Shopping Changed How Much Cardboard We Use? The Simple Reasons Why Amazon is Not a Monopoly Now, a couple of those hits were links to the Amazon.com product page for the Monopoly board game we all grew up playing as kids. Amazon.com is an example of an oligopoly. Sally Hubbard: That is one solution that could help solve a lot of problems. Robinson Meyer June 16, 2017. Another type of anticompetitive conduct by Amazon is the actual exclusion of competitors by kicking third-party sellers off of particular listings through its brand-gating practices and through exclusive agreements with brands. WIFI, chocolate chip cookies, bullet proof vests and the list goes on! Amazon is a monopoly. What needs to happen in the U.S., perhaps in terms of government changes, for inventions to move to actions? Amazon Is a Monopoly, an Interview With Sally Hubbard. 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. Walmart and other retailers have been successfully releasing owned brands for decades, what’s unique about Amazon private label brands? Rather than counterfeits being the reason for such agreements, counterfeits appear to be the stick that Amazon uses to get brands to agree to sell to it directly. Meaningful privacy legislation could help decrease Amazon’s competitive advantage that is based on collecting data about the consumer. Could a Corporation Have Its Own Entire City? The antitrust laws should also have been enforced against Walmart, which has used a number of anticompetitive practices. Other types of exclusionary conduct Amazon has reportedly engaged in include most favored nation clauses and predatory pricing. The problem with accusing Amazon of being a monopoly is that it doesn't quite fit with the prevailing definition of monopoly that's been used by courts and the Federal Trade Commission since the 1970s. Advisor to other startups and entrepreneurs. Surely all of them have similar issues? Sally Hubbard: Yes, monopoly power is defined as the power to control prices or exclude competition. Monopoly's niece, a self-made investment guru, here to update a few things! Amazon is big, and it’s getting bigger every day, but it’s not a monopoly. More and more market power and influence is being consolidated in the hands of one company. 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). One issue that came to light recently is an agreement between Apple and Amazon to remove re-sellers of Apple products from the platform. The Federal Trade Commission is holding a series of hearings on whether it needs to take a more aggressive stance toward today's emerging monopolies, like Google, Amazon and Facebook. Ms. Occasional speaker at conferences. But being a monopoly on its own is not illegal under the antitrust laws. The behemoth’s acquisition of Whole Foods is making some wonder whether the firm is just too big. Exclusive agreements are a form of exclusionary conduct that can support a monopolization case. The problem is not only that Amazon commands such a huge share of all online sales — 43 percent in 2016 — but that so much of the rest of the digital economy is dependent on Amazon's technology platform. It would create a more level playing field for competition. 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. 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. "There has to be actual anti-competitive conduct that occurred for someone to be convicted.". If you are a retailer, a brand, or a seller on Amazon how one should think about the future of antitrust and Amazon? You consent to our cookies if you continue to use our website. In fact, they are the exact opposite. The game celebrates women inventors as players move around the board collecting iconic things that wouldn’t exist without women. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you’ve provided to them or that they’ve collected from your use of their services. Should Amazon be forced to pick being a retailer or a platform? Based on your experience, what do you see as likely outcomes? Is this a problem? 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. Because of Amazon's e-commerce dominance, smaller retailers feel compelled to sell on Amazon's third-party Marketplace platform. "Why Is Amazon Not Considered a Monopoly?" It’s the same idea behind net-neutrality – just because Amazon controls the infrastructure, it doesn’t mean it should be able to pick the winners and losers of commerce. Sally Hubbard: I don’t think any one action or regulation is going to fix Amazon’s competitive harms, but rather the cumulative effect of many enforcers and regulators approaching the harms from different angles will ultimately have an impact. If instead they have sue Amazon, antitrust cases can take 5-10 years. It’s only the maintenance, growth or acquisition of monopoly power through anticompetitive conduct that is problematic. Stacy Mitchell knew that taking on a trillion-dollar company would be a lopsided fight. ... Netflix could be considered a monopoly because … We found that it has exclusive marketing channels other brands and sellers don’t and has access to more data than platform members too. Amazon dominates online retail and is one of the most valuable companies in the world. Sally Hubbard: We’ve had a huge problem of under-enforcement of the antitrust laws for the last 2-3 decades, which is why we’ve now arrived at this monopoly moment. Faster relief could come in the form of regulation. 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. The potential risks? Yes, consumers love low prices, but at what cost? The 2020 election will matter because it will determine what actions the DOJ and FTC take after their investigations and what laws could get passed to address platform harms. Two of China's biggest online retailers, Alibaba and Tencent, are poised to swallow the whole economy. If switching occurs, only those companies that are substitutes are included in the relevant product market. "That isn't how antitrust law works. Pick a side on whether or not you think Amazon is a monopoly, make sure to backup your answer with facts and research. They said yes. As Amazon Rises, So Does the Opposition. 1. Instead, Amazon's critics are always warning about what might happen in the future, like leverage Whole Foods' 450 locations to push out competition in the grocery delivery business. 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. Amazon’s Monopsony Is Not O.K. How big is too big? Those sellers often can’t easily sell elsewhere, because their inventory is stored in Amazon warehouses. Some have argued that Amazon’s relevant market is all of retail, that puts the company at single-digit percent market share. But are consumers harmed by Amazon's low prices? 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. There seems to be an increase in activity around this topic. Monopoly is the absolute control of the entire supply of goods or services with no close substitutes by one seller in a certain area or market. 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 spent decades investing tens of billions of dollars into physical infrastructure, including warehouses. It can pick and choose what markets it wants to take over, like beauty or batteries or top-selling branded items. Is Amazon a Monopoly? Sally Hubbard: One category of Amazon’s anticompetitive conduct falls under what I call platform privilege – the incentive and the ability of tech platforms to prioritize their own goods and services over those of competitors. "Economists don't know enough about how all this works and where it's going and how fast it can change to be able to change the whole legal landscape — intelligently, anyway," says Hessler. If regulated companies circumvent the rules, then regulators need to do something about it - either by suing the companies or by reforming the rules. Who is that competition? This was done to reduce counterfeits per an official company statement. We have published an in-depth report analyzing Amazon’s private label brands. Amazon’s most powerful feedback loop revolves around customers joining Prime, increasing demand for Prime products, making sellers offering Prime more successful and thus forcing other sellers to offer Prime through joining the FBA service, which grows Prime value making more customers join. When Does Amazon Become a Monopoly? Additionally, there are concerns that Amazon can start to offer personalized pricing based on its knowledge of the consumers’ ability and willingness to pay. Amazon.com, the giant online retailer, has too much power, and it uses that power in … Currently DOJ and FTC are reportedly investigating Amazon. During the pandemic, Amazon’s abuse … it doesn't quite fit with the prevailing definition of monopoly This means 3rd party sellers lack bargaining power, and Amazon can dictate the terms of dealing, including the fees it takes. 59% of in-store shoppers and 52% of app shoppers think Amazon has a monopoly. But the pandemic has not only made Amazon … Sure, Amazon's Changed Shopping, But Retailers Can Still Compete, Information about the device's operating system, Information about other identifiers assigned to the device, The IP address from which the device accesses a client's website or mobile application, Information about the user's activity on that device, including web pages and mobile apps visited or used, Information about the geographic location of the device when it accesses a website or mobile application. Directions: After watching the CNN Video “Is Amazon a Monopoly?” (Slide 11, Chapter 5) answer the following questions. Sorry, Amazon won’t let you. See, times have changed. I have not seen concrete evidence of this occurring, but it is something enforcers will be looking out for. Key Points 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 … You've got a very complex relationship," says Rossman. And, it makes sense. "Three years from now," predicted a Chinese venture capitalist in the Financial Times of August 28, 2017, "90 percent of Chinese people will use either WePay [now Tenpay] or Alipay, they will sign up for Tencent or Alibaba Cloud, they will get their news from either WeChat or Weibo [now in effect controlled by Ali] and if they need funding they will take it from Ali or Tencent.". For monopoly power to exist in the long run, there would be several barriers to prevent new firms from entering the industry. It only means that under current laws, Amazon is safe from being labeled a monopoly. 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. How Amazon Is Changing the Whole Concept of Monopoly The acquisition of Whole Foods reveals the e-commerce giant’s ambitions to literally be the Everything Store. Didn’t Amazon achieve e-commerce dominance by investing heavily while competing retailers watched on the sidelines? For Amazon, the biggest online seller in the world, the subcommittee said it found the company has monopoly power over most of the millions of smaller sellers it hosts on its site. 11 December 2017. If they reach settlement with Amazon after their investigations, we could see changes in business practices in a couple of years. Let’s play with the numbers a little. Ms. Hubbard has published her views in media outlets like CNN and The New York Times. Is Amazon controlling prices in other ways? Sally Hubbard: It’s hard to say how these marketplaces will shake out. We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. The types of conduct that are exclusionary and illegal when a firm has monopoly power are not illegal when a firm does not have monopoly power. A signage at the Whole Foods Market store in San Ramon, California announces the acquisition of Whole Foods Market by online retailer Amazon, Aug. 28, 2017. The online retailer is so wildly popular with American consumers — 1 in 4 U.S. adults (63 million) are Amazon Prime members — precisely because of its low prices and (mostly) free shipping. The issue isn't "bigness," says Marc Scribner of the Competitive Enterprise Institute, a free-market libertarian think tank, but consumer welfare. The technical term for this is predatory pricing, and it’s actually illegal under U.S. antitrust laws. 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. When can we expect actions to be taken? Could it make things worse short-term? However, most of its products are not successful, rendering these advantages smaller. 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. With Amazon’s stock splurging more than 42,000% since its initial public offering 20 years ago as well as its dominance in various markets, it is not far-fetched to predict that the e-commerce giant can evolve into a world-changing monopoly that will either change the economy for the better— or the worse. This is a sign of competitive harm. I am concerned about Instagram vertically integrating into purchases, for example, because it further concentrates the internet. (Despite its size, Amazon currently makes up only 3.6 percent of annual retail revenue in the U.S. Walmart is still much larger). Please copy/paste the following text to properly cite this HowStuffWorks.com article: Copyright © 2021 HowStuffWorks, a division of InfoSpace Holdings, LLC, a System1 Company. Antitrust enforcers study actual switching rates – not just what companies could possibly be alternatives but rather which companies consumers actually switch to in significant numbers when prices go up a small amount. Amazon ties the ability to be a 3rd party seller with the payment of FBA fees, largely by making those sellers who do not use FBA not discoverable on its platform. But are consumers harmed by its low prices? Is it ok for Amazon to use aggregate data on the platform? "Any general principles that are established in Amazon's case will be applied across the whole digital economy and nobody knows what sort of effects those would have. In the words of Chamath Palihapitiya, a tech venture investor, Amazon is “a trillion-dollar monopoly operating right under our nose”. Oct. 19, 2014. But interestingly, he had to change his statement and had to make good comments instead. It could support a case against Amazon for tying, which is a type of exclusionary conduct. Both companies have circumvented regulation so far and continue to grow. Other retailers including Walmart and Target as well as social platforms like Facebook and Instagram and search engines like Google are adding marketplaces. Sally Hubbard: Monopoly power can be proved by direct evidence: the actual exercise of control over price or the actual exclusion of competition. However, Congress has the power to enact new laws, and … Curt Hessler, a former economist with the Carter administration and a lecturer in antitrust law at the UCLA School of Law, says that Amazon's business model is unprecedented, and we simply don't know enough about them to rewrite the antitrust laws. Sally Hubbard: Customers benefit from robust competition, open markets, and a de-concentrated economy. This likely violates Section 1 of the Sherman Act, which prohibits agreements that restrain trade. Fair competition in such a scenario is not possible. There's no question that Amazon dominates e-commerce — in 2016, its online sales were six times greater than Walmart, Target, Best Buy, Nordstrom, Home Depot, Macy's, Kohl's and Costco combined — but is Amazon's incredible success bad for consumers and the economy? So, it was NBD that Amazon was the king of eCommerce. John Rossman, a former Amazon executive and managing director at the Seattle consulting firm Alvarez & Marsal, doesn't see Amazon's behavior as monopolistic, just a classic example of "coopetition," a combination of competition and cooperation. Amazon has as large a market share in the entire book business as Standard Oil did in 1911, right before it was broken up into 34 companies as a result of an antitrust action brought by the federal government. Elizabeth Warren, for example, has made proposals that would impact Amazon if she were elected. How would this increase competition? Sally Hubbard: The competition would be other brands and third-party sellers, who would not have to compete against the company that controls the platform. 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. Sally Hubbard: Antitrust investigations take time, usually a year or two. U.S. regulators could learn from the lesson in India and prohibit such circumvention. Ms. Hubbard served as an Assistant Attorney General in the Antitrust Bureau of the Office of the New York State Attorney General under three administrations. On the seller side of the market, Amazon likely has monopsony power, which occurs when there is a dominant buyer (rather than a dominant seller as in monopoly). But what about updating the antitrust laws, as Khan has called for, to reflect the danger posed by a single technology company not only acting as a gatekeeper to the digital economy, but expanding its reach into the physical world? As the company faces increasing scrutiny from the White House and others, CNNMoney's Jon Sarlin reports on whether Amazon is a monopoly. There isn't an antitrust 'pre-crime'," says Scribner. It would be better if brands processed their own online purchases on their own websites than if Facebook/Instagram gets to extract a cut. Facebook and Google already have their own issues stemming from their dominance in social and search, mobile, online video, and digital advertising. "You're competing with Amazon, you're partnering with Amazon, you're using their services yourself, so you're a customer of them as an organization. Amazon has the power to do both. Based in New York City. Shopping on Amazon has so ingrained itself in modern American life that it has become something close to our unthinking habit, and the company has achieved a … Scribner says that there's no evidence that Amazon is using its market power to engage in anticompetitive practices right now. As Amazon has its own brand value, the company is able to set their own prices for many other different brands based on the demand of certain goods and services. Founder of Marketplace Pulse, Joe wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Want to borrow that e-book from the library? But again, does Amazon's rapid expansion and increasing market dominance mean that it's doing anything illegal? In India, the government has been trying to regulate both Amazon as well as Flipkart, owned by Walmart, to prevent them from running platforms at the same time as being retailers. That question has caught the attention of consumers and policymakers, many of whom have called for legislation to regulate the global goliath. Sally Hubbard: Regulators have to ensure that their regulations are effective. , he had to make good comments instead support a monopolization case 1 of the antitrust.! A lopsided fight, many of whom have called for legislation to regulate the global goliath interest and to... Are a form of regulation iconic things that wouldn ’ t easily sell elsewhere, it! Come in the form of exclusionary conduct Amazon has a monopoly company would be several barriers to prevent firms! 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