Amazon: A New Kind of Antitrust Risk(diff.substack.com)
diff.substack.com
Amazon: A New Kind of Antitrust Risk
https://diff.substack.com/p/amazon-a-new-kind-of-antitrust-risk
42 comments
Do you extend this to store brands?
Should Kroger be able to offer Kroger Private Selection alongside other brands?
-edit-
Here's another one. Should Amazon be forced to let Kroger sell Kroger Private Selection in their Whole Foods stores (and vice-versa)? Why or why not?
Should Kroger be able to offer Kroger Private Selection alongside other brands?
-edit-
Here's another one. Should Amazon be forced to let Kroger sell Kroger Private Selection in their Whole Foods stores (and vice-versa)? Why or why not?
The difference is that when you go to Kroger you search the shelves with your own eyeballs. When you go to Amazon, their opaque algorithm does the searching for you, and it could be (and probably is) prioritizing Amazon brands or "Amazon's choice" over other brands. I suppose an argument could be made about the layout of store shelves serving a similar purpose to the prioritization inherent in search engine algorithms, but I don't think it's a perfect parallel since the shopper arguably has more agency in determining what products they see and when in a meatspace store versus online.
>The difference is that when you go to Kroger you search the shelves with your own eyeballs. [...] I suppose an argument could be made about the layout of store shelves serving a similar purpose to the prioritization [...] the shopper arguably has more agency in determining what products they see and when in a meatspace store
For example of Kroger or any other retail store, the shopper doesn't have full visibility of buying options because the curation also happens before any product gets stocked on the shelf. E.g. the hidden retail-corporate-buyer-and-vendor relationships. Kroger example[1]. Costco example[2].
Because shoppers are not sitting in grocery chain's corporate headquarters to see what products the company rejects/prioritizes, they will still be influenced by self-interest of the retailer. Those are private negotiations of vendor contracts that influences what shows up on shelves so they can be as opaque as Amazon's recommendations algorithms. If Kroger wants to remove Kraft Macaroni & Cheese from the shelves and just promote their own-store-brand Kroger Macaroni & Cheese[3], the shopper doesn't really have any more agency.
[1] https://www.thekrogerco.com/vendors-suppliers/become-a-suppl...
[2] https://www.costco.com/vendor-inquiries.html
[3] https://www.kroger.com/p/kroger-original-macaroni-cheese/000...
For example of Kroger or any other retail store, the shopper doesn't have full visibility of buying options because the curation also happens before any product gets stocked on the shelf. E.g. the hidden retail-corporate-buyer-and-vendor relationships. Kroger example[1]. Costco example[2].
Because shoppers are not sitting in grocery chain's corporate headquarters to see what products the company rejects/prioritizes, they will still be influenced by self-interest of the retailer. Those are private negotiations of vendor contracts that influences what shows up on shelves so they can be as opaque as Amazon's recommendations algorithms. If Kroger wants to remove Kraft Macaroni & Cheese from the shelves and just promote their own-store-brand Kroger Macaroni & Cheese[3], the shopper doesn't really have any more agency.
[1] https://www.thekrogerco.com/vendors-suppliers/become-a-suppl...
[2] https://www.costco.com/vendor-inquiries.html
[3] https://www.kroger.com/p/kroger-original-macaroni-cheese/000...
Those are excellent points that I had not considered (or even been aware of). Still, though, while the set of brands and products available at a brick-and-mortar store is predetermined in a way that the customer has little to no influence over, it's at least much more visible if I go into Kroger one week and there's a full selection of different brands of mac & cheese, and then come back the next week and it's all Kroger brand with no sign of any other brand; whereas if I go to Amazon and search for, say, AA batteries, or Lightning cables, and all I see is AmazonBasics batteries and AmazonBasics Lightning cables, is that because Amazon stopped stocking Energizer batteries and Anker cables entirely, or because Amazon forced them to a later page of results to bolster sales of the AmazonBasics brand?
That's a really good question. There aren't many ways to distinguish the two cases except maybe this: on Amazon's platform, Amazon takes zero risk in hosting other sellers. They don't buy inventory that they don't know will sell, and they don't pay to market products to customers, and they don't even need to hold the inventory at their own expense. They can just sit back, collect data, and enter high-reward markets while letting sellers do all the hard work of finding them. It's not quite so easy for a supermarket to do the same.
Maybe stores shouldn't be allowed to do this either?
I suppose if Amazon can't, then it would make sense that competitors like Target, Walmart and Kroger shouldn't be able to either.
I suppose if Amazon can't, then it would make sense that competitors like Target, Walmart and Kroger shouldn't be able to either.
Sure. My goal here was to just call it out and ask the question for others to consider. I don't see a meaningful distinction between physical stores or online stores in this context.
No, because stores like Kroger aren't building a marketplace platform, they are building a single thing to sell their products -- this is evident in the fact that there's aren't grocery monopolies. A single market is not a marketplace.
The distinction here is that Kroger doesn't allow 3rd party retailers to sell in its stores. Amazon allows 3rd party retailers to sell in its stores (it may or may not handle fulfillment for them). Totally different scenario.
I think OPs point is that online platforms are natural monopolies. Physical stores are not.
Ok. Why are they natural monopolies? What do you mean by natural monopoly?
I'm not OP, and probably doesn't share their opinions.
But you can make a "network effect" argument that for online platforms, the biggest will always be the best, and thus be impossible to compete with.
"Natural monopoly" is an established Economics concept: https://www.investopedia.com/terms/n/natural_monopoly.asp
But you can make a "network effect" argument that for online platforms, the biggest will always be the best, and thus be impossible to compete with.
"Natural monopoly" is an established Economics concept: https://www.investopedia.com/terms/n/natural_monopoly.asp
I think something along these lines would be great. The problem with Amazon competing in their own marketplace is that there is far too much information asymmetry -- they know about how their marketplace sellers are setting prices and they know the cumulative sales of all items and trends, whereas the marketplace sellers only see their end of things. Amazon then has the ability to just cut those sellers out as it wishes (either through undercutting, making their own Amazon-branded versions, or even just kicking the seller off the platform with no recourse.
This provides Amazon with the ability to do what financial marketplaces are forbidden: front-running, insider trading, etc with their own "stock" of merchandise.
This provides Amazon with the ability to do what financial marketplaces are forbidden: front-running, insider trading, etc with their own "stock" of merchandise.
This is a nice-ish idea. But... does that mean that Apple and MS would not ve allowed to make any apps if they make the OS?
It would, but would that be the end of the world? So they'd spin off Office into a separate company. What would that hurt?
[deleted]
This is possibly going to happen due to the anti-trust investigations into Apple, Amazon, Google and Facebook:
> One possibility is what he described as a Glass-Steagall law for technology platforms. That Depression-era law separated commercial and investment banking until it was repealed during the Clinton administration. For tech companies, it would mean prohibiting them from running a platform and competing on it at the same time.
> That’s a common complaint about Amazon in particular because it both runs a marketplace and competes with third-party sellers with its own line of products.
https://www.bloomberg.com/news/articles/2020-08-26/house-ant...
https://www.macrumors.com/2020/08/26/antitrust-investigation...
> One possibility is what he described as a Glass-Steagall law for technology platforms. That Depression-era law separated commercial and investment banking until it was repealed during the Clinton administration. For tech companies, it would mean prohibiting them from running a platform and competing on it at the same time.
> That’s a common complaint about Amazon in particular because it both runs a marketplace and competes with third-party sellers with its own line of products.
https://www.bloomberg.com/news/articles/2020-08-26/house-ant...
https://www.macrumors.com/2020/08/26/antitrust-investigation...
This feels a lot like when JP Morgan and Morgan Stanley were separated. The combination of commerce layer and infrastructure layer turn out to be too important when combined, and too hard to assail in a free markets sense.
Unfortunately, anti-competitiveness regulations can only go so far.
A better step, albeit a much more controversial one, is to address the problem at an earlier level.
Before companies have the ability to engage in sustained anti-competitive behavior, they have to grow to a certain size.
This allows them to use their heft to squeeze out competitors. Amazon and Walmart, for instance, have enough cash that they can consistently underprice smaller competitors until they go under. And what happens next? The Wal-Mart Effect, where people who otherwise might have been able to own and sustain small businesses now need to become employees with no ownership stake, allowing the mega-corps to continue growing larger and squeezing out more competitors. And that has major public-welfare implications.
So how would we address this problem at an earlier stage?
It would involve pulling a lot of levers -- taxes probably being the biggest one -- to make it harder for mega-corps to compete purely on size, rather than on innovation or quality.
It would also involve a major mindset shift. We need to recognize the hidden negative consequences of an economic environment in which massive conglomeration is widespread and encouraged, while small-business and cooperative ownership is disincentivized.
A better step, albeit a much more controversial one, is to address the problem at an earlier level.
Before companies have the ability to engage in sustained anti-competitive behavior, they have to grow to a certain size.
This allows them to use their heft to squeeze out competitors. Amazon and Walmart, for instance, have enough cash that they can consistently underprice smaller competitors until they go under. And what happens next? The Wal-Mart Effect, where people who otherwise might have been able to own and sustain small businesses now need to become employees with no ownership stake, allowing the mega-corps to continue growing larger and squeezing out more competitors. And that has major public-welfare implications.
So how would we address this problem at an earlier stage?
It would involve pulling a lot of levers -- taxes probably being the biggest one -- to make it harder for mega-corps to compete purely on size, rather than on innovation or quality.
It would also involve a major mindset shift. We need to recognize the hidden negative consequences of an economic environment in which massive conglomeration is widespread and encouraged, while small-business and cooperative ownership is disincentivized.
Progressive corporate tax would be perfect for this. Lobbyists insist that corporations are people. So we should tax them like people
Progressive taxation is a really interesting idea, but it must take into account ownership structures and concentration of control of those corporations. It's not an easy thing to do.
I'd much prefer zero corporate tax, reverting to a passthrough taxation model, with capital gains and dividends taxed as income. The corporate tax, being a profit tax, inherently has infinite forms of tax avoidance because expenses must be accounted for and expenses can be creatively structured to avoid paying taxes.
Personal income taxes do not have that inherent susceptibility to avoidance.
Perhaps more importantly, corporations effectively form "unions" for wealthy people, which are an effective unit for lobbying. Jeff Bezos, for example, only owns something like 15% of Amazon...but he gets to use 100% of Amazon's resources to lobby the government and try to sell government representatives on the idea that what's good for Jeff is also good for Amazon's employees and the American public. Shift those taxes to personal income, and all of a sudden that sales pitch becomes a lot less convincing.
Perhaps more importantly, corporations effectively form "unions" for wealthy people, which are an effective unit for lobbying. Jeff Bezos, for example, only owns something like 15% of Amazon...but he gets to use 100% of Amazon's resources to lobby the government and try to sell government representatives on the idea that what's good for Jeff is also good for Amazon's employees and the American public. Shift those taxes to personal income, and all of a sudden that sales pitch becomes a lot less convincing.
There's a problem with taxing money extracted from the business as well. Business owners can just go on "company" vacations, drive corporate cars, etc. This already happens to an extent.
Without corporate tax, wealthy business owners probably won't pay any tax at all. They'll just pay themselves with absurd benefits from company accounts.
Or perhaps, just endlessly take out loans against their ownership stake. No taxes if you never pay them back
Without corporate tax, wealthy business owners probably won't pay any tax at all. They'll just pay themselves with absurd benefits from company accounts.
Or perhaps, just endlessly take out loans against their ownership stake. No taxes if you never pay them back
But the laws can be structured to deal with those issues, much as they are today.
> We need to recognize the hidden negative consequences of an economic environment in which massive conglomeration is widespread and encouraged, while small-business and cooperative ownership is disincentivized.
This doesn't seem likely. It's pretty fundamental to much of tech growth that founders and investors see the possibility of a monopoly.
Some investors like Thiel explicitly advocate for building a monopoly.
This doesn't seem likely. It's pretty fundamental to much of tech growth that founders and investors see the possibility of a monopoly.
Some investors like Thiel explicitly advocate for building a monopoly.
Underneath the monopoly problem is the nationstate problem. The issue is about power and how to limit it with rules, but rules are too exploitable at multiple layers unless all the players agree to play by them. So first we need the world governments to consolidate (which is happening – USA federal level growing in power relative to individual states, EU growing in power relative to countries, and of course 1000 years ago power was much more dispersed than today).
This sort of position is part of the reason why monopolies are such a hard problem to address.
At one end, it's all inherent in capitalism. We can't address anything without transcending capitalism, the nation state, etc. At the other end, it's all inherent in capitalism. We can't address anything without destroying capitalism, the nation state, etc.
At one end, it's all inherent in capitalism. We can't address anything without transcending capitalism, the nation state, etc. At the other end, it's all inherent in capitalism. We can't address anything without destroying capitalism, the nation state, etc.
[deleted]
Those both sound like the same position.
Your also ignoring the third position (which is the best one)! Accepting nothing matters and allowing capitalism to control the world and that megacorps are eventually going to steamroll all of us. At least then we'll have cool bladerunner cities (probably kinda awful for all the human beings, but at least we don't have to question the status quo)
Your also ignoring the third position (which is the best one)! Accepting nothing matters and allowing capitalism to control the world and that megacorps are eventually going to steamroll all of us. At least then we'll have cool bladerunner cities (probably kinda awful for all the human beings, but at least we don't have to question the status quo)
Well, nothing matters but I don't like to get steamrolled.
Also, it's kind of interesting how in our circles it's legitimately easier to imagine the world ending than for capitalism to end.
Also, it's kind of interesting how in our circles it's legitimately easier to imagine the world ending than for capitalism to end.
I'm saying that we just have to wait. Governments have been consolidating and will continue to consolidate and society will become resilient to these problems like it is resilient to everything else, & probably in time for your kids to see it. In the meantime, hard problem is hard.
EU is fantastic to watch
Agencies that havent been captured yet trying to muscle multinational companies
Its like completely new opportunities for my generation! I can watch basically every corporate regulatory capture conspiracy documentary and use them as an instruction manual on how to place my people in European institutions.
Agencies that havent been captured yet trying to muscle multinational companies
Its like completely new opportunities for my generation! I can watch basically every corporate regulatory capture conspiracy documentary and use them as an instruction manual on how to place my people in European institutions.
What you're describing is Walmart consistently selling cheaper goods than any competitor can.
This is good for consumers.
Anti-trust laws should protect consumers, not competing companies.
This is good for consumers.
Anti-trust laws should protect consumers, not competing companies.
It is only good for consumers in the short term, when there are many other options.
But over the long term, why would a company need to compete on price if it's already squeezed out all its competition?
There is also the effect on labor to consider. Is it really a net positive if consumers can save X dollars on products at Walmart if its moving into a community drives down wages by X dollars?
But over the long term, why would a company need to compete on price if it's already squeezed out all its competition?
There is also the effect on labor to consider. Is it really a net positive if consumers can save X dollars on products at Walmart if its moving into a community drives down wages by X dollars?
If the big company raises prices later, it leaves room for competitors to undersell them.
I know the popular story is that then they lower prices again, and crush these competitors again, etc. It's an intuitive story, but from what I've read about economists studying this, that "common sense" effect isn't how the real world works.
I know the popular story is that then they lower prices again, and crush these competitors again, etc. It's an intuitive story, but from what I've read about economists studying this, that "common sense" effect isn't how the real world works.
Is it really that good for consumers? I don't buy a lot of things at Walmart because I find that it's generally low-quality. Since they've run many smaller businesses out of the local area, it's now more expensive and time consuming for me to find higher quality items.
Also, even if Walmart is selling cheaper good than their competitors, what's stopping them from raising prices once they've decimated the competition? More options is almost always better for the consumers.
Also, even if Walmart is selling cheaper good than their competitors, what's stopping them from raising prices once they've decimated the competition? More options is almost always better for the consumers.
It's very generous of you to assume that this isn't garden variety dumping. Once the competition is gone we're reliant purely on Walmart's generosity and have zero assurance they won't do the sane business move of recouping their previous losses.
Wow it’s really creepy that there is a subscribe button that is prefilled with my email address. I realize that sub stack has this information, because I’ve subscribed to other newsletters, but I don’t associate myself with having an account with substack or with that any of my personal information or credentials should somehow cross the barrier between newsletters. Also, I’m just super paranoid I might accidentally click subscribe while scrolling.
[deleted]
https://conversationswithtyler.com/episodes/jason-furman/
Jason furman, a well known economist, argues that Amazon is not really a risk as they compete with Walmart and basically all retail (he doesn't break out the book segment).
A bigger monopoly risk are firms which grow by buying competitors. Looking at you facebook.
Jason furman, a well known economist, argues that Amazon is not really a risk as they compete with Walmart and basically all retail (he doesn't break out the book segment).
A bigger monopoly risk are firms which grow by buying competitors. Looking at you facebook.
Right. In addition to Walmart, I think Shopify also has a chance at taking on Amazon, from a different angle. More broadly, all big retailers seem to target Amazon as a common enemy.
Make it illegal to compete on your own platform.
Amazon would no longer be allowed to sell products on Amazon. Google would no longer be allowed to promote its own services on Google. etc..
It's pretty obvious to me that platforms are natural monopolies: the best platform experience is where there's just one and it has all the inventory.
I wonder what the side-effects of a law like this would be? Would it create new problems I'm not thinking of?