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Amazon and Antitrust

Amazon has seemingly taken over our lives, with the e-commerce website gaining a greater market share in all online purchases as the years go on. However, they have recently landed in a sticky situation with potential antitrust violations. Are these alleged violations justified against Amazon?



Image from: https://www.theverge.com/2019/8/2/20751482/ftc-amazon-apple-iphone-reseller-agreement-antitrust


Context



AMAZON AND RECENT ALLEGATIONS OF ANTITRUST VIOLATIONS


Amazon's market share in the e-commerce market has grown steadily, going from 30% in 2016 to 40% in 2019. Both the United States (US) and European Union (EU) are waging antitrust cases against Amazon, with CEO Jeff Bezos testifying in a congressional hearing about Amazon's business practices.

At the forefront of the congressional agenda was the question of whether Amazon had mined seller-specific data to help inform Amazon and assist them in developing their own competing line of products. Bezos did say that there is a policy prohibiting this practice, but he could not state if it had been violated or not. However, anonymous interview from former Amazon employees conducted by the Wall Street Journal revealed that this practice was commonplace at Amazon.



Laws



ANTITRUST LAWS


There are three core antitrust laws in the United States:

  1. Sherman Act (1890): This act prohibits monopolization and was passed amid concerns of the domination of large corporations in the US in the Gilded Age.

  2. Federal Trade Commission Act (1914): This established the Federal Trade Commission, which would be in charge of ensuring adequate competition in dealing with US trade.

  3. Clayton Act (1914): This act outlined unethical business practices and bolstered labor rights.

The most relevant legislation regarding Amazon's case deals with prohibiting exclusionary conduct. Exclusionary conduct, while ambiguously defined in the previous acts, is generally any business practice that seeks to exclude or eliminate the viability of competition. An example of this is Amazon using their dual-role as a product platform manager and product creator to position their products in some of the most viewed and coveted product slots.



Debate



WHAT IS THE GOAL OF ANTITRUST LEGISLATION?


Generally, antitrust laws are the legal "line of defense" that prohibits monopolistic trusts with two main goals:

  1. Promote and ensure a free market with adequate competition

  2. Protect more vulnerable parties, such as consumers and small businesses.

Let's walk through each of these goals and demonstrate how they relate to Amazon's antitrust case.


GOAL #1: PROMOTE AND ENSURE A FREE MARKET WITH ADEQUATE COMPETITION


Amazon can promote competition, in a sense. They use their resources and data to compete with other companies, and their controversial practices dealing with mining seller data can drive those sellers to other online selling platforms, thus promoting competition among online selling platforms.

On the other hand, Amazon's practices can be anti-competitive. Because Amazon has full control over ad placement, they can easily benefit their own brands over others, dampening competition.


GOAL #2: PROTECT VULNERABLE PARTIES, SUCH AS CONSUMERS AND SMALL BUSINESSES


In terms of protecting small businesses, Amazon can be perceived as helping small businesses because of their Fulfilled by Amazon system (FBA), which is used by 66% of the top 10,000 sellers on Amazon. However, their potential antitrust violations directly hurt small businesses, as Amazon entering a new market can squeeze small businesses out of that very market.

In terms of helping consumers, Amazon uses data to launch products that line up with consumer demands, which will presumably satisfy consumers. However, with the biased information and promotion of their own lines of products, Amazon intentionally does not present consumers with choice, which is not good for them.



Future: What's Next?



Here are several proposals that could potentially help small businesses:

  1. Enforce stringent policies to avoid abusing third-party data, possibly bringing in an independent group to make sure this is executed successfully.

  2. Increased transparency to third-party sellers -- let them know that they are agreeing for Amazon to use their data, potentially working out a compensation deal for their data.

  3. Government intervention: With the current investigations in the US and EU, there is a chance that antitrust laws could regulate Amazon's practices.


Discussion Questions


Does Amazon using third-party seller data benefit society more than not using this data?


Is this practice from Amazon different from how retail stores operate? If so, how?


What are the implications of government intervention in Amazon's data usage? How could this affect other industries?

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