Amazon and Antitrust Issue

Grace Nguyen

01766813

MBAMGT 660

Term Paper

16 December 2018

Amazon and Antitrust Issue

Recently, the Silicon Valley giants are the most controversial concern regarding non-market issues. Amazon, one of the Silicon Valley giants, has also been considered by both government, media, and interest groups. The company uses unique, successful strategies to develop its business. Thus, Amazon is also facing non-market issues; one of those is antitrust laws as well as its dominance. This term paper will review Amazon’s success, analyze its antitrust case, and offer recommendations to address the issue. This paper also pays attention to the antitrust issue on the global as pro-active.

In 1994, Jeff Bozos found Amazon as an online bookstore, and the headquarter has been located at Seattle, Washington since. Although Amazon sold the only book at that time, it expanded widely to sell other products such as videotapes, software, apparel, beauty products, gourmet food, groceries, health and personal-care items, industrial & scientific supplies, jewelry, tools, automotive items, games, houseware, electronics, toys, clothes, furniture, equipment. Consumers become to love Amazon because of its customer's service. Not only offering a lower price, but Amazon also runs Amazon Prime which gives customers better services such as same-day delivery, free delivery, free return, and others. In 2011, the number of users increased significantly. It is estimated that half of US household will enroll the program (Frommer, 2015). In 2015, surpassing Walmart as the most valuable retailer in the United States by market capitalization, Amazon became the largest e-commerce retailer (Shannon, 2015). In addition, Moore (2015) noted that nearly 50 percent of all online buyers go to Amazon.com directly first to search for its products. In 2016, the Reputation Institute named the firm the “most reputable company in America” for the third year in operation (Strauss, 2016). Comparing to other technology companies, only Apple can beat them in the most valuable companies ranking.  After over 20 years of innovation, Amazon.com Inc. operates in 16 countries, owns plenty of subsidiaries around the world, and has over 560 thousand employees (Fortune 500, 2018). The corporate capture 49.1 percent of the US retail e-commerce sales in 2018 from 43.5 percent of the market last year. It also means the company commands more than 5 percent of the total U.S. market (Walter, 2018). The significant increase of Amazon also names their CEO, Jeff Bezos, as the wealthiest man in the world with over 150 billion dollars in the latest research of Bloomberg Billionaires Index. Amazon has a stable stand in people’s mind, so it is predicted to be the next trillion valuation giant of the world. The successful phenomenon raises criticism regarding Amazon’s dominance and antitrust concerns.

Interests include Amazon, other retailers, publishers, independent businesses who are selling through Amazon platforms, authors, Amazon’s competitors, trial lawyers, and consumers. Institutions include Congress, government officials, U.S president Donald Trump, and his administration, regulators, judiciary, United State Department of Justice, Federal Trade Commission, and European Commission.

Why is Amazon facing antitrust criticism? The underlying causes are Amazon is more and more powerful, and it may drive competitors out of business at its unfairly low prices. Moreover, critics also see online platform markets and control over data as new forms of anticompetitive activity. As we know, Amazon has a strong market positioning which is low prices as well as excellent customer services. While consumers have a pleasure to Amazon’s services, other interest groups assume it is the predatory price. Congress and legislatures see predatory pricing as a tool to drive competitors out of business Based on the Sherman Act Section Two, the Court in Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) interpreted that a firm engages in predatory price when it sets a price below an appropriate measure of its costs and would recoup its short-term losses by eventually leveraging its resulting market power. However, it is impossible for the plaintiff to prove that Amazon is using predatory price. For example, Flood (2016) explained that Amazon does not use predatory price in the e-book market because selling e-books below cost will promote sales of the Kindle. It is a loss-leading strategy when a firm runs a below price to incentivize customers to purchase other products. Furthermore, the lower price is not necessarily attempted as predatory price; it would be price competitive. The cost is associated with shifts in demand as week as output changes of other firms.

Besides lower prices, another market strategy is an acquisition. Amazon acquires many companies such as Ring, Zappos, Twitch, PillPack, Body Labs, Graphiq, Immedia, GameSparks, so on; the most recent company is Whole Foods Market in a deal valued at $13.7 billion. Many critics worry about these companies are more powerful to control economic power. Critics predicted that Amazon starts toward “domination of online grocery delivery” (Bartz, 2017). Sherman also said that regulators could bring a “monopolization case” against Amazon (2018). However, the Federal Trade Committee refuted that Amazon’s Whole Foods acquisition was not an antitrust violation because fostering competition is the best way to promote low prices and high quality (Reed, 2017). It means the acquisition does not harm consumers and prevent competition.

Aside from being retailers, Amazon is also conducting multiple business lines such as a marketing platform, a delivery, and logistics network, a payment service, a major book publisher, a producer, a hardware manufacturer, a provider of cloud server and computing power. Thus, economists, politicians, Trump administration, and competitors pay more attention to Amazon’s practices and consider whether Amazon is too much power. In 2018, Amazon signed a 5-year contract with the United States Post Office to improve delivery service. This relation may fear other rivals and drive out of small merchants (Shear, Wingfield, and Kang, 2018).

        Last, many Amazon critics recently argued that Amazon uses its online platform in favor of its products. Amazon provides online infrastructure as a marketplace for third sellers sell their products. Statistic estimated that Amazon has over five million marketplace sellers across all Amazon marketplaces in which nearly 1.8 million sellers have products listed for sale. In 2012, Bensinger gave an opinion that Amazon seems to use its Marketplace “as a vast laboratory to spot new products to sell, test sales of potential new goods, and exert more control over pricing” (Steiner, 2018). Recently, Amazon Basics, Amazon's equivalent of a store brand, has attracted heavy criticism. On 17 September 2018, European authorities opened a preliminary antitrust investigation into Amazon over the e-commerce giant’s treatment of smaller merchants on its website. EU wonders if Amazon as an online host platform for third-party sellers collects data from those merchants to make its own “cheaper copycat products to market” (Reid, 2018). Therefore, Amazon Basics, another market strategy is a subject of activists as well as potential evidence for anticompetitive behavior (Sateriano, 2018).