In this edition of Thesis Corner I sat down with Sean Wong-Westbrooke to talk about his findings about Amazon and Antitrust laws.
To understand Antitrust laws in the United States it’s important to start from a historical perspective. Standard oil had an overwhelming majority of the oil market during early 20th century and started using its size to fix prices and political influence to force deals. This eventually lead to the enforcement of Antitrust Laws and the company subsequently broke up into several segments, birthing companies like ExxonMobil. The perceived benefits of the break-up were essentially rendered void when an oligopoly later formed, but that’s not to say there were no benefits. Just that the benefits like new discoveries were not variables taken into account. Eventually these laws grew to deal with anything impeding on inefficiency or gouging customers.
This shifted the focus from producers to the consumers as the laws sought to protect consumer welfare instead providing an even playing field for competitors. Meaning that so long as consumers are receiving good prices, monopolies remain legal. Only if a business obtains status as a monopoly through legal means does it become illegal, which is where Amazon comes in.
It is clear Amazon is using Antitrust policy to its advantage by maintaining good prices for consumers to build up its market share and later charge higher prices to profit. People are beginning to realize that the company is using its size to leverage state and city benefits, as seen most obviously the cities’ incentives for H2Q in the form of tax credits, subsidies, etc… More quiet are Amazon’s legal efforts in affairs like managing to kill a tax bill focused on aiding homeless as it would have increased their cost of doing business. The company has also thrown money towards lobbying, which then raises the question of whether or not Antitrust laws can appropriately respond to tech companies.
One method of Antitrust crackdown is through fines, as seen in Google’s case. The company was fined $8 billion over pre-loading apps on android phones yet generated 136 billion dollars of revenue during 2018. This would suggest that Antitrust laws as they stand lack effectiveness, which is backed by the fact that such laws may change from one U.S. administration to another.
The biggest idea is, like for Standard Oil, to separate Amazon from retail services with the idea of increasing competition without hurting investors. Like standard oil, this will likely have unforeseen consequences a benefits. The question remains, if fines don’t work and break-ups only semi work, what does actually work?
With about half of all shopping searches starting on Amazon and 100 million prime users worldwide, the company makes sense for the U.S. economy. This may present Amazon as a natural monopoly where it is more efficient to have one company operate as an entire industry and not necessarily be government owned. This of course begs Antitrust clarification.
With Amazon now providing server space and developing transport infrastructure, it is hard to see how a company could hope to compete. How Antitrust laws come into play is yet to be seen, but would without a doubt yield interesting results.