Amazon has built an empire in the internet economy, dominating ecommerce sales and transactions, and rapidly expanding in tandem with the online shopping industry. It competes with Netflix and Hulu in providing films, television shows, and original programming, recently expanding Amazon Video globally. It provides authors with independent publishing services. An August 2016 article in Bloomberg noted Amazon is taking business away from UPS, FedEx, and other shipping services as it expands it delivery and logistics network. Amazon provides web services in the form of hosting servers, offering software, cloud space and financial services. Amazon offers credit and loans to its sellers and customers. The company’s infrastructure continues to infiltrate and dominate businesses and industries that continually increase their reliance on ecommerce.
A recent publication in Yale Law Journal by Law School student Lina M. Khan, Zephyr Teachout’s Policy Director for her 2014 Campaign for New York Governor against Andre Cuomo, outlines the anti-trust concerns in regards to Amazon’s aggressive expansion and the shortcomings under current law to meaningfully address anti-trust implications in the internet economy.
“The titan in e-commerce is Amazon—a company that has built its dominance through aggressively pursuing growth at the expense of profits and that has integrated across many related lines of business,” wrote Khan. “As a result, the company has positioned itself at the center of Internet commerce and serves as essential infrastructure for a host of other businesses that now depend on it. This Note argues that Amazon’s business strategies and current market dominance pose anticompetitive concerns that the consumer welfare framework in antitrust fails to recognize.”
Khan cited Amazon’s first few years of growth and development, during which the company managed to continue running despite suffering drastic losses. Founded in 1994, the company didn’t report its first quarterly profit until 2002. But even since then, the company has continued posting losses, yet has remained a Wall Street favorite. “The company barely ekes out a profit, spends a fortune on expansion and free shipping and is famously opaque about its business operations,” reported the IBTimes in 2013, citing Amazon’s increase in revenue is completely poured into lowering prices and offering services like free shipping to eliminate competition, or to expand into different industries. This monopolistic business model has come at the expense of its workers and small businesses.
For Amazon’s warehouse employees, Amazon and its managers use unattainable productivity goals to maximize employee output and exploit their job insecurity. The company often utilizes temporary workers from labor recruiters with offices in warehouses to replace employees as needed. The company has faced several employee lawsuits, including its unwillingness to pay employees for time spent in mandatory security lines exiting the warehouse, aimed at combatting employee theft. In January 2016, Amazon settled that lawsuit for $3.7 million. In October 2016, delivery drivers filed a lawsuit against Amazon for paying them as independent contractors, but stipulating they follow rules and company practices as employees. “The company’s winners dream up innovations that they roll out to a quarter-billion customers and accrue small fortunes in soaring stocks,” reported the New York Times in 2015 on the predatory business model Amazon uses to exploit low ranked employees. “Losers leave or are fired in annual cullings of the staff- ‘purposeful Darwinism,’ one former Amazon human resources director said. Some workers who suffered from cancer, miscarriages, and other personal crises said they had been evaluated unfairly or edged out rather than given time to recover.”
For small businesses and independent retailers, Amazon has eliminated its competition through price reductions close to cost meant to beat competition rather than make a profit, and a flood of investments that provide amenities like free shipping other businesses can’t compete with. Its power and resources have allowed Amazon to boost itself in different marketplaces, all behind the veil of the internet, shielding it from similar criticisms that Wal-Mart’s business practices have provoked, while avoiding have to charge sales tax in most states due to the transactions conducted on the internet.
For Amazon’s book marketplace, the “Gazelle Project” was set up from a quote by Amazon CEO Jeff Bezos instructing his price negotiators to stalk publishers “the way a cheetah would pursue a sickly gazelle.” pushing them to reduce their book prices to acquire a listing on Amazon, undercutting all competition.
When rival competition emerges, Amazon has either bought them out or poured in funds to undersell the competing company until they cede to selling or go bankrupt, as Amazon CEO Jeff Bezos did to Diapers.com, detailed in a 2013 book by Brad Stone. Amazon has reportedly offered customers a $5 rebate if they scan items in stores using their App and buy them on Amazon instead.
Amazon’s practices have incited anti-trust concerns, but as Yale Law School Student Lina M. Khan added, anti-trust laws aren’t updated to properly assess companies in the internet economy. “Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition,” Khan wrote. “It is as if Bezos charted the company’s growth by first drawing a map of antitrust laws, and then devising routes to smoothly bypass them. With its missionary zeal for consumers, Amazon has marched toward monopoly by singing the tune of contemporary antitrust.”
Khan argues that in regards to Amazon and the twenty-first century marketplace, the competitive process as a whole, including marketplace infrastructure and dynamics.
“Amazon controls key critical infrastructure for the Internet economy—in ways that are difficult for new entrants to replicate or compete against,” Khan explained. “By making itself indispensable to e-commerce, Amazon enjoys receiving business from its rivals, even as it competes with them. Moreover, Amazon gleans information from these competitors as a service provider that it may use to gain a further advantage over them as rivals—enabling it to further entrench its dominant position.”
Amazon has built, expanded and acquired the infrastructure their competition depends on, and it exploits this power to eliminate any neutrality in the competitive process. The company’s size and broad scope enables it to selectively choose who uses it services, how, and on what terms, while increasingly tipping the competitive balance in their favor. Khan concludes by outlining two avenues of possible solutions for Amazon’s monopoly; “restoring traditional antitrust principles to create a presumption of predation and to ban vertical integration by dominant platforms could help maintain competition in these markets,” or based on the presumption that dominant online platforms like Amazon are inherently monopolistic, then applying regulations similar to those enacted for public utilities to mitigate any abuse of power from the dominant platform. But both avenues demand analyzing current legal framework and amending it to address the internet economy and in that economy, what should the law identify as unhealthy threats to maintaining a free, competitive market.