AMAZON DOESN'T HAVE AN ANTITRUST PROBLEM: AN ANTITRUST ANALYSIS OF AMAZON'S BUSINESS PRACTICES.

Author:Myers, Ashlyn
 
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  1. INTRODUCTION II. CURRENT EVENTS III. THE PURPOSE OF ANTITRUST LAWS IV. EVALUATING MARKET POWER A. Product Market B. Geographic Market V. MONOPOLIES VI. ANTICOMPETITIVE BEHAVIORS A. Prices B. Consumer Choice VII. CONSUMER WELFARE VIII. CONCLUSION I. INTRODUCTION

    Amazon is the world's largest online retailer. (1) Its credentials do not stop there: Amazon is also the world's third largest retailer, the third largest streaming media company, and the largest cloud-computing provider. (2) While Amazon started as an online book seller, it has quickly become a one-stop shop for a wide variety of items, such as clothes, movies, and deer-repelling wolf urine. (3) Consequentially, Amazon now captures nearly one out of every two dollars Americans spend online. (4) The Amazon Empire has continued to grow through a variety of acquisitions to expand its sales online and off. (5) Amazon's rising significance in the world economy has led to growing antitrust concerns from consumers, businesses, and economists. (6) Despite the public outcry, when evaluating Amazon under United States antitrust laws, it is difficult to find a problem.

    This note explores whether Amazon has engaged in anticompetitive behavior that would violate antitrust regulations, the purpose of American antitrust law compared to EU law, how market power is defined, and whether Amazon's practices harm consumer welfare. Ultimately, Amazon does not have an antitrust problem.

  2. CURRENT EVENTS

    Amazon's size has become a political debate. Donald Trump claimed in 2016 that Amazon has a "huge antitrust problem." (7) He is not the only one concerned with Amazon's size. An article from The New Republic proclaimed that Amazon had become a monopoly and "must be stopped." (8) Congress now has an Antitrust Caucus, which in December 2017 introduced a bill sponsored by democrat Keith Ellison that would require the Department of Justice and the Federal Trade Commission to conduct annual retrospective studies of how approved mergers impacted prices, jobs, wages, and local economies. (9) From both sides of the aisle, concern grows over whether Amazon and other companies are violating antitrust laws. (10)

    Amazon has been acquiring businesses since 1998. (11) Amazon purchased IMDb (less known by its full name the Internet Movie Database), Quidsi, and Zappos, an online shoe and apparel retailer. (12) Amazon has purchased websites that help drive consumers to their products, such as Goodreads, a book review website, and Twitch, a streaming platform where people watch others play video games. (13) In June 2017, Amazon acquired Whole Foods, marking its first reach into brick-and-mortar commerce. (14) Gene Munster, an analyst at Loup Ventures, predicted Amazon would next acquire Target in 2018. (15) He theorized Target would be an attractive choice to continue Amazon's move into physical stores and capture more parents as customers. (16) This theory reflects how analysts have come to regard Amazon: as a giant that will only continue to grow.

    E-commerce is not the only industry with an increasing concentration of wealth in one or more companies. In 2000, the U.S. beer market had twenty-two players. (17) In 2012, the number had reduced to four. (18) Together, they controlled three-fourths of all sales in the U.S., and almost half of beer sales globally. (19) Other industries are just as concentrated. In 2016, 90% of new online ad dollars went to Google and Facebook. (20) Eighty percent of airplane seats are sold by only four airlines. (21) Oxfam, an international confederation of twenty NGOs, released a report with an infographic showing that after a series of acquisitions, ten companies own almost every large food and beverage brand in the world. (22) To understand why nothing is being done in response, we have to understand the purpose and limits of antitrust.

  3. THE PURPOSE OF ANTITRUST LAWS

    Antitrust laws are the "Magna Carta of free enterprise." (23) Despite the lofty praise, laymen and judges misconceive what antitrust laws actually say. Antitrust law is the promotion of competition through restraints on unlawful methods, namely monopolies and cartels. (24) Antitrust law relies on the idea that "unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and greatest material progress, while ... providing an environment conductive to the preservation of our democratic political and social institutions." (25) In short, it is the theory that free competition leads to the best results.

    While antitrust law protects and promotes competition, it is inherently focused on consumer welfare; "[t]he touchstone is consumer good." (26) Antitrust law exists for "competition, not competitors." (27) It does not exist to make things easier for small businesses, nor does it exist to protect businesses from aggressive competition. The FTC plainly explains "competition is tough, and sometimes businesses fail" because "[t]hat is the way it is in competitive markets." (28) Consequently, antitrust regulators focus on eliminating anticompetitive behaviors, such as increased prices, reduced quality, or reduced consumer choice--all things that theoretically, should not happen in a free market. (29)

    Ironically, antitrust "regulation" really is not regulation at all. Its purpose is not to intervene and dictate what businesses do. Instead, it exists to restore the free market so it can continue functioning as its meant to: on its own, with little interference. (30) Adam Smith is the symbol of free market economics, yet he even seemed wary about leaving businesses to their own devices: "People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." (31) By preventing anticompetitive behavior, antitrust law is able to protect consumers from these conspiracies. (32)

    The European Union's competition law shares the objective of promoting consumer welfare; however, it is not the center stage as in America. (33) The EU's central goal is the integration of different nations into a common market. (34) The EU is more concerned about "fairness" for nation states and opportunities for small and medium-size companies. (35) While perhaps not the singular goal, the desire to protect consumers is still present in the EU, and explicit devotion to consumer welfare has grown in the past ten years. (36) The European Commission stated consumer welfare as the goal of competition law in both its Merger Guidelines and in its Article 82 Guidance. (37)

    "With regard to exclusionary abuses the objective of Article 82 is the protection of competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources." (38)

  4. EVALUATING MARKET POWER

    Antitrust analysis requires evaluating market power. (39) Market power is the ability of a firm, or group of firms, to raise prices above the competitive level without losing sales, all other things being equal. (40) Market power is bad when used to allow companies to take advantage of consumers. Competition is good because businesses lower prices to win sales from their competitors. When only one company is offering a necessary or coveted product, consumers are more or less forced to keep buying the product from that sole provider, even when the price rises. Antitrust policy is, therefore, designed to prevent companies from acquiring, maintaining, or using market power. (41)

    Market power, alone, is not illegal. However, once a firm begins to act anticompetitively--for example, by raising prices, limiting choices, or excluding its competitors and harming consumers in some other way--antitrust law has been violated. (42)

    Market power depends on a variety of factors. (43) A firm's market share in a precisely defined market can indicate market power; however, there is no number that proves a firm is too big. Some courts suggest a 30% market share is enough to infer market power; another has suggested 40%. (44) Market power also depends on the number of alternative, substitute products available to consumers (elasticity of demand) and the increase in output by competitor firms resulting from an increase in the price of the product (elasticity of supply). (45) If consumers can instead, switch to a different product when the price of their ideal purchase rises, the firm lacks market power. Firms also lack market power if a price increase will cause new companies to enter the market in the hope of making a profit. When a firm misuses its market power, consumers are taken advantage of, and other companies are unable to enter the market and improve the situation. Everyone loses, except the company running the show. (46)

    To define market share, antitrust regulators must define the relevant market. (47) The market is broken into product market and geographic market.

    1. Product Market

      One way to define relevant market is by product. Under this definition, all firms that sell interchangeable products are considered to be within the same product market. (48) The products do not need to be perfect substitutes, they just need to be reasonably similar so an increase in the price of one product would affect sales of the others. (49) This definition makes sense for companies that specialize in one type of product or service, such as oil, steel, or railway travel. It is more difficult to apply this concept to an e-commerce mega retailer like Amazon.

      The difficulty faced when applying these concepts to e-commerce retailers like Amazon is not the first time that a change in the retail landscape has made product market difficult to discern. The definition of a product market was the focus of FTC v. Staples. Office Depot and Staples entered into an agreement to merge, but the FTC challenged the deal. (50) The respondents argued the product market was the sale...

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