What market does Amazon monopolize?
Anti-bigness is not a competition policy
I have some giant thoughts on technology companies and antitrust enforcement, and as I’ve tried to write them down, they have become far too giant for one post.
So today’s item is going to limit itself to a single point which I think is relevant to all of these conversations but does not provide a satisfactory resolution of any of them — a politics that is opposed to bigness, as in the concentrated economic power of gigantic firms, is just not the same as a politics that is focused on competition policy, antitrust law, or busting monopolies.
Here I want to dissent a little bit from Ben Thompson, who has tried to gloss the same distinction as anti-monopoly vs. antitrust. But while it’s certainly true that the opponents of bigness throw the word “monopoly” around a lot, I think Matt Stoller got the order of considerations right in his book title “Goliath: The 100-year War Between Monopoly Power and Democracy.” Stoller is opposed to things that are big, not things that are monopolies.
“Monopoly” is just something people like Josh Hawley say when they are mad at Amazon and want to impose a rule that it “shouldn’t be permitted to buy anything else. Period.”
As I say, there are a lot of questions one can ask about Amazon in particular, the big tech companies in general, and themes of corporate power and bigness. But today, I just want to insist that whatever your problem with Amazon is, it’s not a “monopoly” in any normal sense.
Monopoly is about competition, not size
For a true monopoly, I would look to my electrical utility company Pepco, an Exelon subsidiary.
The thing about electricity is that providing it to your house requires stringing tons of wires all around everywhere. And the nature of that kind of big infrastructure project is that it is very cost-ineffective to have five parallel electrical grids running to everyone’s house. So instead, the normal situation is that you are connected to an electrical utility that has a monopoly over a given geography. As it happens, Exelon is a big company. Before Exelon bought Pepco back in 2014, it was a modest-sized company. But it was still a monopoly. The fact that another electrical utility provided service to some whole different city didn’t provide any meaningful competition for residents of Pepco’s terrain in D.C. and the Maryland suburbs.
For broadband internet, for similar reasons, I have two options — Comcast and Verizon. Again, those are big companies. But back when I was a kid, Bell Atlantic and NYNEX — the two phone companies whose merger created Verizon — were separate companies, and they were still monopolies. It’s just that NYNEX served one set of markets and Bell Atlantic some different ones.
It’s precisely because smallness is no guarantee of non-monopoly that we have the whole arena of utility regulation. If you could guarantee competition by crushing these companies into little bits, we would do that. But it doesn’t work.
Conversely, while Microsoft was in antitrust hot water once upon a time, today everyone seems to agree that they face major competition in all their markets. Windows competes with Apple’s Mac OS. Azure competes with Amazon Web Services and Google Cloud. Office mostly just competes with Google, but Apple has an office suite, and there’s OpenOffice and other things. But Microsoft is a really big company! Those are big businesses, and there’s even more that Microsoft owns or makes. They own Skype and LinkedIn. They make a video game console. They’re actually the second-biggest company in America by market capitalization — bigger than Amazon or Google and certainly bigger than Exelon.
But being big and having an uncompetitive monopoly are just different things.
Anti-bigness can be anti-competitive
Again, I hope I am not being too contentious when I say that today’s anti-monopoly activists are really just opposed to bigness.
Stoller’s newsletter is literally called BIG, so I don’t think it should be a huge surprise that he is focused on criticizing things that are big, like Amazon, rather than things that are anti-competitive, like state laws that prevent dental hygienists from competing with dentists. The ball is not really being hidden here at all.
But I do want to insist on my fussy semantic point, because anti-bigness politics can actually be anti-competitive. Before 1980, for example, it was common for states to have laws restricting banks’ ability to operate more than one branch. As of 1978, for example, the rule in Illinois was that a bank could operate one facility within 1,500 feet of the main office and another within 3,500 yards. This law may have had some good effects. But it was anti-competitive. If you owned a bank in Fairfield, Illinois and weren’t very good at running a bank then there was no way for a more skilled banker from Chicago or St. Louis or Peoria to open a branch in your town and drive you out of business.
Now again, that’s not to say there are no good reasons for anti-bigness policies. I think the Illinois unit banking rule clearly went too far, but I think there’s a good case that we should limit bank size beyond what antitrust considerations would dictate because it’s important for financial stability. It’s fine to have that argument in various industries, but I think it’s confusing to advance it by throwing around the word “monopoly.”
Amazon doesn’t monopolize its main markets
An article in the right-populist publication American Greatness just casually tossed off the idea last summer that “like most tech giants, Amazon operates as a monopoly, wields its immense power to crush the competition, and is thoroughly left-wing.”
But does it? Amazon’s biggest cash cow these days is cloud computing, where it is certainly a big player, but the market is hardly bereft of competition.
Hawley was specifically objecting to the acquisition of MGM Studios, which is being done to bolster Amazon Prime Video’s library with stuff like James Bond, the Rocky movies, and “Legally Blonde.” But Amazon is obviously not a monopoly in streaming video.
The big market that people concern themselves with is retail. If you’re old like me, you’ll remember when Barry Lynn — who is now the executive director of the Open Markets Initiative, which puts out a lot of anti-Amazon stuff — was complaining that we need antitrust action against Walmart. Since Walmart was successfully competed against by Amazon, that take doesn’t look so good. But Walmart’s continued existence (along with Target, Costco, Home Depot, etc.) is inconvenient for the story that Amazon is a monopoly. So we often hear of the idea of a monopoly “in e-commerce.”
This idea, to me, does not make a ton of sense. The last thing I bought on Amazon was bubble bath. Even if it were true that Amazon had a monopoly in selling bubble bath on the internet, I think that would give them very limited pricing leverage vis-a-vis consumers, because they sell bubble bath in CVS and all kinds of places.
But, of course, it’s also not true. I can buy bubble bath online from Walmart or Target or Bed Bath and Beyond or from former Weeds sponsor Grove Collaborative. A little company called Google has a Shopping tab on its website full of people eager to sell you some bubble bath.
What Amazon has is not a monopoly in e-commerce but a large market share in e-commerce because, in my experience, the other large general merchandise retailers (Walmart and Target especially) generally offer a worse online shopping experience. Now Amazon probably takes advantage of a certain amount of consumer laziness in that I did buy my bubble bath without first rigorously researching whether a better offering was available elsewhere. But this is how brick-and-mortar retail works too. If you live closer to a CVS than to a Rite Aid, then most of the time you need something, you probably just go to CVS and pay what it costs without comparison shopping. But if CVS got too egregious, then you’d switch to Rite Aid. But convenience and habit matter a lot in retail and always have.
If anything, though, online retail is more competitive than brick-and-mortar ever was because checking multiple websites is easier than driving back and forth between drug stores.
The monopoly question matters
I think this monopolization question is genuinely important because one thing that nobody can deny is that Jeff Bezos is a ruthless motherfucker, and Amazon has some sharp business practices.
But people often discuss these practices in naive (or perhaps faux naive?) terms that suggest little knowledge of the general retail marketplace. I’ve read a bunch of stories that accuse Amazon of, essentially, harvesting sales data from its platform to then introduce copycat store brand products (Amazon Essentials, Solimo, etc) that undercut the original. That is unquestionably mean. At the same time, it is absolutely true that Kroger and Giant and Safeway are harvesting sales data from their stores and using this information to inform their creation of store-brand products.
Because physical retail isn’t a sexy topic, people don’t write shocked exposés about the various kickbacks manufacturers need to pay retailers to get space on the shelf.
Costco’s whole business model is that they’ve proven their members will come to Costco stores and buy lots of stuff, even though Costco carries an abnormally small number of individual products at any given time. So because Costco is so very credible at saying “sorry, we won’t stock that,” they can make sure they get really good wholesale prices. Because they’re not a tech company, nobody cares. If they were, people would probably say Costco has a monopoly in “upscale membership club retail.” But that’s not a thing.
Stoller has a long recent anti-Amazon post that, when you strip away the rhetoric, comes down to this:
If a third party wants to become a Fulfilled By Amazon seller, it needs to pay Amazon’s relatively high fees and incorporate those fees into its retail price.
To get favorable listings on Amazon, an FBA seller can’t list a cheaper-than-Amazon price with some other merchant (including their own site).
The terms “forced” and “forces” recur multiple times in Stoller’s post. Which would make a lot of sense if Amazon were a monopoly. Imagine if Exelon would only deliver electricity to Exelon Prime outlets that were manufactured by Exelon and cost 50% more than anyone else’s electrical outlets. They’d be forcing me to use expensive outlets. But nobody is forced to become a Fulfilled By Amazon seller.
Amazon has lots of competition
I mentioned the whole shelf space thing in physical retail because it’s very relevant context for understanding third-party sales on Amazon. This became popular in the first place in part because Amazon’s logistics are good, but in part because the barriers to entry used to be so high.
One of the main reasons the landscape has these huge weird consumer packaged goods conglomerates (Proctor & Gamble owns Tampax, Crest, Tide, Old Spice, and other brands across diverse product categories) is because the easiest way to get a new product into a store was to leverage an existing brand relationship. One dude with his new whitening toothpaste would never get onto shelves. But if the makers of Crest come out with a new Crest With Whitening product, you have a fighting chance.
Amazon offers an alternative to that rigamarole. And it’s a good alternative. And, yes, to avail yourself of their alternative, they make you pay for it — just as a random new company trying to get on the shelves at Walmart would need to make a deal.
But it’s not like everyone is playing Amazon’s game. If you want to get West Elm furniture, you need to go to their website. Everyone says the ThermoWorks Thermapen is the best cooking thermometer. For what I assume are Stollerian reasons, there are no Amazon Prime options for Thermapen, but there’s a good deal right now on the ThermoWorks website.
So why doesn’t everyone eschew the lures of Amazon Prime? Well, because it is challenging to build up the kind of brand equity and reputation for quality that successful non-Amazon producers have. But that’s another way of saying that Amazon offers a valuable service — working with Amazon is a shortcut through various difficult processes. And, yes, that’ll cost you. Why wouldn’t it?
Competition is growing in e-commerce
When last I scrolled Instagram, the first three ads I saw were for reMarkable, Paper Republic, and Stuart & Lau, and it’s not a coincidence that none of those are long-established brands.
That’s because a big new trend in commerce is to launch a fresh new brand, use Shopify or WooCommerce to create a storefront, Stripe or PayPal to handle payments, and then USPS or UPS to deliver the product. No need for Amazon’s logistics capabilities at all. But how do people know you exist if you’re not going to pay your way onto Amazon’s virtual shelves or some traditional retailer’s physical ones? Well, you’re going to spend heavily on Facebook or Instagram ads.
Facebook knows through whatever nefarious means that I have been looking for a post-pandemic computer bag and also that I considered buying my wife a fancy notebook for her upcoming birthday. So I am getting ads for men’s bags and upscale notebooks. They’re not perfect, so they don’t seem to know I already went in another direction with the gift. But the direction I went did involve a purchase from a Shopify storefront of a relatively new brand rather than from Amazon or a longtime brand.
Even in e-books where Amazon really does have a comically dominant market share, I hardly think it’s right to say they have a monopoly. What they have is an e-bookstore where if you buy a Kindle book, you can read it on your iPhone and iPad, but also on a Kindle, and also if you switch to Android down the road, you can read it there too. Apple’s e-book offerings are the same price, but inferior because they lack that cross-platform capability. Is it too bad that Apple doesn’t try to launch a competing e-ink product? That Microsoft doesn’t buy Barnes & Noble and try to get into the e-book game? That Google doesn’t work something out with publishers to offer Google Play books for less money than Amazon charges? It absolutely is. But the main story here is that there’s a market that nobody else seems very interested in contesting, not that Amazon has an unassailable monopoly.
Wrestling with bigness
I think the bottom line here is that most of the strong Amazon critics of the world also don’t like the other companies — Walmart in retail, Google and Microsoft in cloud computing, Apple and Google in e-books, Facebook ads as an alternative to Amazon search in e-commerce — any more than they like Amazon.
That’s because what we’re actually dealing with here is anti-bigness advocates, so my observation that big tech companies face competition from other big tech companies, and to some extent from massive traditional retailers, does not address their concern. But again, that is simply to clarify that we are not actually talking about a question of monopoly, here as anti-monopoly and anti-bigness are often in tension. There is, by design, no such thing as a really large car dealership company in America. Instead, the legal regime governing car dealerships gives a very fragmented landscape of dealership owners’ mini-monopolies (franchises) over different pieces of turf.
In that particular case, I think forced fragmentation hurts consumers and mostly serves to pad pocketbooks of a group of not-particularly-impressive provincial elites.
But forced fragmentation of the television station market in the 20th century probably served an important democracy-safeguarding function. And while forced fragmentation of the banking sector seems to me to have gone too far in some places and at some times, a certain amount of fragmentation can have useful macroeconomic effects. It seems to me that this kind of analysis is very sensitive to what sector we are talking about and what means we have at our disposal to fragment it. Just pointing at big things and saying “big is bad!” is not that helpful. And characterizing the concern as a monopolization concern is particularly problematic, because it will tend to obscure the actual issue at stake.
I am not a lawyer, but I think your point is both narrowly correct and also beside the point. The standard of concern is not whether something is or is not “a monopoly”. It’s whether someone becomes so large in a given market that they can (and do) engage in anti-competitive behavior. So in Microsoft’s case, the issue wasn’t having 90% market share in PC OS, it was leveraging that position to force PC makers to advantage Office and Explorer to the detriment of Netscape, Lotus, Corel etc who they saw as threats. People are using the term “monopoly” as a shorthand for “big enough to effectively engage in anticompetitive behavior absent oversight” which I think is fair. That said it is incumbent on the would-be regulators to describe exactly what behavior is inappropriate and a lot of what people criticize about Amazon I would agree with Matt is just fair business.
Very sensible, but it does not deal with two other aspects of bigness/monopoly: buying up of potential competitors before they can compete (Facebook-Instagram) and buying of a competitive firm by an actual monopoly (Verizon-content provider).