
Amazon's Antitrust Paradox - urs2102
http://www.yalelawjournal.org/article/amazons-antitrust-paradox
======
Booktrope
This article repeats the canard that Amazon has been selling ebooks at a
"loss", using this as a key example for its thesis. In actuality, Amazon
wanted to discount ebooks, but the big publishers wanted no discounts so they
could maintain ebook prices higher than paperbacks generally. Take the example
in the article, where the publisher set an ebook price at $12.99. The standard
publishing contract required a retailer to pay the publishing company about
50% of this amount, or about $6.50. Amazon paid approximately this royalty,
and retailed for $9.99, making a gross profit of about $3.49 per unit. This is
clearly not selling the item at a loss. The author of the article, claiming to
be an expert on business, thinks that any discount from list price is selling
at a loss - in other words, the article author, who claims to propose a better
way to approach a fundamental part of business law (antitrust) doesn't
understand the first thing about retail business. Discounts are not selling at
a loss, unless the retailer sells for less than its cost.

I suppose you could try to make some argument that it cost Amazon more than
$3.50 a ebook over and above the cost of the product itself, but the author
makes no effort to do so. And Amazon clearly has not been selling its products
below cost generally, though in a business of its size, of course its likely
that there are some exceptions. Consider, if Amazon really was selling books
and other products below its cost, losing money on each transaction, where
would the money come from to invest in all the new businesses like AWS,
production of films and TV shows, etc, that the article's author thinks are
such a problem?

So here's a proposal for a "better" idea for antitrust law based on an article
demonstrating lack of understanding of the first thing about business.

~~~
phonon
You are incorrect.

From Judge Cote's Opinion & Order, _U.S. v. Apple, Inc., et al._

[https://www.justice.gov/atr/case-document/opinion-
order](https://www.justice.gov/atr/case-document/opinion-order)

 _One of the strategies that they [the publishers] employed was the
elimination of the existing discount on wholesale prices of e-books. This
meant that the wholesale price for e-books would equal the wholesale price for
physical books, and as a result, the wholesale price that Amazon paid for an
e-book would be set at several dollars above Amazon’s $9.99 price point. This
tactic, however, failed to convince Amazon to change its pricing policies and
it continued to sell many NYT Bestsellers as loss leaders at $9.99._

------
sosuke
I don't understand the argument that they don't profit. All of their people
get their pay. Instead of sitting on giant piles of cash they use it all to
invest in more stuff. That sounds like a great idea!

I never understand it when I hear such and such company has billions of
dollars of cash just sitting around. If they spent that money wouldn't that
help themselves and the economy?

Truly I am no economist.

Edit: I kept reading and I have to stop. I have too many counter arguments to
each paragraph and I know I'm missing some larger picture they want to paint
because of it. Without a significant investment of time which they've
obviously devoted. I feel like they just really want to have an anti-trust
lawsuit and are trying to fit the argument to available companies.

~~~
Lazare
> I don't understand the argument that they don't profit. All of their people
> get their pay. Instead of sitting on giant piles of cash they use it all to
> invest in more stuff.

"Profit" is a technical term with a specific meaning; in this context it's the
money left over _after_ paying wages, rents, interest, and investing in the
business. So there's not much of the argument to understand; they get a lot of
money, then they spend it, so there's nothing left to return to the investors
which means _by definition_ there's no profit.

> I never understand it when I hear such and such company has billions of
> dollars of cash just sitting around. If they spent that money wouldn't that
> help themselves

History is littered with examples of successful companies who spent large sums
of money and got nothing in return. If Apple had a clue how to spend $100
billion usefully they would, but they don't. Their existing business are
mature; they're selling all the phones they're making. They could build a
bunch of factories and triple production, but to what end? They could start a
chain of pizzerias, but why would that be a good idea?

~~~
paulddraper
They could make a phone with an audio jack.

~~~
dilemma
I'd buy that for a dollar.

~~~
RA_Fisher
Are you a programmer?

------
chx
Reminder:
[http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...](http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_profits_fall_45_percent.html)

> That's because Amazon, as best I can tell, is a charitable organization
> being run by elements of the investment community for the benefit of
> consumers. The shareholders put up the equity, and instead of owning a claim
> on a steady stream of fat profits, they get a claim on a mighty engine of
> consumer surplus. Amazon sells things to people at prices that seem
> impossible because it actually is impossible to make money that way. And the
> competitive pressure of needing to square off against Amazon cuts profit
> margins at other companies, thus benefiting people who don't even buy
> anything from Amazon.

~~~
Fezzik
I wonder what percentage of goods that Amazon sells are still being sold at
low-margin prices though. Most things I see on Amazon these days are more
expensive than at my local store. Two examples from yesterday: Rani Hot Curry
Powder (Amazon: $14.99, my local grocer: $8.69) and Speedo Silicone Swim
Earplugs ($5.99 on Amazon, $2.99 at Fred Meyer).

Just about _everything_ I purchase these days is cheaper at a local store.
Ritter Sport chocolate bars are cheaper, bike tubes and tires, pots and
pans... I can't think of a single thing that I have price-checked recently
that has been even slightly cheaper on Amazon.

~~~
kevin_thibedeau
Are these products being sold by Amazon itself, or just fulfilled by them with
partners setting higher prices than retail?

~~~
Fezzik
A bit of both. I just checked, and in my specific examples the curry was sold
by another retailer and fulfilled by Amazon and the Ear Plugs were sold by
Amazon. Both with similar markups when compared to brick and mortor retail.

------
msandford
The idea that Amazon isn't profitable is laughable at best. Examine what
they're doing. If they stopped constantly creating new business divisions
they'd be super profitable. They continue to invest in new businesses, though,
so on the whole they're "unprofitable" on a cashflow basis. On a sales basis
though? Immensely profitable.

Just because Amazon has ideas about how to reinvest doesn't mean they're only
breaking even on their sales or selling at a loss. Starting new businesses
every year costs money. Amazon might not have balance sheet profits but the
company continues to grow. How could they do that if they were making a loss
on everything? They aren't issuing anywhere NEAR enough shares to keep the
loss-leader scheme going on investor money:
[https://ycharts.com/companies/AMZN/shares_outstanding](https://ycharts.com/companies/AMZN/shares_outstanding)

~~~
sbierwagen
[http://www.dcvelocity.com/articles/20170202-amazons-
shipping...](http://www.dcvelocity.com/articles/20170202-amazons-shipping-
costs-soared-in-fourth-quarter-far-exceeding-revenue/)

"Amazon.com Inc. said late today that its fourth-quarter global shipping costs
soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with
increases in fulfillment demand brought on by another peak-season quarter of
double-digit sales growth.

At the same time, fourth-quarter global shipping revenue came in at slightly
more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of
shipping costs exceeding revenue. For the year, Amazon spent about $16 billion
on shipping services and took in about $9 billion in revenue."

~~~
abtinf
If your point is that this is somehow damning to Amazon, it is an extremely
silly metric.

At least Amazon is collecting some revenue for shipping. I pay zero shipping
costs to Costco, or Walmart, or Target, most Newegg items, gas stations, or
grocery stores. Because it has become customary to package shipping costs into
unit prices.

I know people who buy everything, like toilet paper, from Amazon. I think they
are crazy, because Amazon prices are generally at least double or triple for
similar items from Costco. They like paying for the convenience. To each their
own.

~~~
Godel_unicode
You have misunderstood the figures. If they spend more than they make on
shipping, they are losing money on shipping. If they then do more (losing)
shipping business, they lose additional money. Net negative value is not made
better by increasing volume.

Additionally, the fact that you don't realize that you're paying for shipping
with other vendors, because it's not listed on the bill, does not mean that
they aren't recognizing revenue from shipping.

~~~
corin_
If you lose $1 shipping per order but make $2 profit on the items per order
then each order is worth $1 profit. Now double the order quantities, and you
say "great, double the profit" not "oh no, double the shipping costs".

~~~
Godel_unicode
The profits from shipping are an accounting construct which is essentially a
tax on items sold. They assume it will cost X dollars to ship an item, so they
book X+margin (possibly 0 margin, depends on how they structure) at sale to
shipping costs. If it costs more than X+margin to ship, they lose money
shipping even if they net a profit. I said this elsewhere, but the purpose of
this construct is to allow Amazon to keep track of actual vs estimated cost of
shipping. The purpose of reporting it is to tell analysts whether shipping is
a boost to, or a drag on, profits.

In your scenario, smart companies say "how can we improve shipping to get that
dollar back".

------
gthtjtkt
I feel like we're already starting to see the effects of Amazon's attempts to
become profitable.

Their customer service has certainly gone down the drain, and their whole
website is littered with cheap garbage from Alibaba.

To me, it looks like they pulled the typical bait-and-switch we see every day
with mobile apps: Offer something great for free. Then, once you've cornered
the market, start squeezing every penny out of your users and cutting corners
everywhere.

~~~
gowld
Alibaba garbage exists because the modern manufacturing and logistics economy
makes it easy to deploy that stuff, and it overwhelms very similar looking
quality stuff.

You can shop sold-by-Amazon.com only if you only want highly reputatable stuff

~~~
mattpavelle
Actually, "sold-by-Amazon.com only" doesn't help avoid knock-offs.

"For Faster Shipping, Items Are Commingled at Warehouses, Opening the Door to
Knockoffs" ([https://www.wsj.com/articles/on-amazon-pooled-merchandise-
op...](https://www.wsj.com/articles/on-amazon-pooled-merchandise-opens-door-
to-knockoffs-1399852852)).

Basically if a third party seller says it's a "Genuine Apple iPhone Charger"
(whether it is or not) and the packaging looks real enough, it gets thrown in
with all the other sellers (including Amazon) who have genuine chargers.

Thus "sold by Amazon.com" means just what it says - "sold" by. Not "sourced"
by...

~~~
gozur88
I've never had that happen to me, and if it does I'll send the item back. This
isn't something that should keep you up at night.

~~~
troisx
Over the past 6 months I've had to return over half of the 40 items I've
purchased from amazon for reasons ranging from being fake to damaged in
shipping. The guy who took most of my returns at the UPS store said he's has a
large increase in returns to Amazon. Could be that more people are ordering,
and I know antecdotes aren't great evidence. But I do think that if Amazon
keeps selling fake merchandise and inconveniencing consumers, they're going to
suffer in the long term.

I'm also waiting to see if I get banned for "abusing" their return policy
which legitimate customers have reported happening.

~~~
manyxcxi
I'll second this. I checked my order history, I've got about a 40% return rate
over the last 12 months. Most are things I bought that looked okay and were
just junk when I got them. Some were standard "it didn't quite fit/whatever"
returns, and then the ones that really get me mad are the ones that are
supposed to be a brand name and holding it up next to a known genuine article
they're not even a good fake.

Trendy brands of clothes or accessories don't even bother. Supposedly real
brand name ICs and small electrical components, completely hopeless.

Throw in the fact that they don't notify you when your shipping times changes
and it almost always seems to push out a day or two as soon as you purchase it
and I've practically quit shopping on Amazon unless I can't find it anywhere
else or I don't care about the quality that I'm getting.

------
Animats
Amazon achieved dominant market share more or less legitimately. It wasn't
done by merger. It was done competing with bigger competitors, including
WalMart and Sears. (Sears should have been huge in online commerce. They were
once the biggest name in mail order. They blew it.)

There's no public utility type monopoly with Amazon, compared to Comcast and
AT&T, who have wires and poles. It wasn't done by selling at a heavy loss,
like Uber. Amazon runs close to break-even, while building and operating
expensive physical assets.

The author is arguing that the old pre-Chicago School antitrust theory should
be revived to protect Amazon's suppliers. Yet WalMart is much more heavy-
handed in that area. They continually squeeze suppliers to cut their prices.
Amazon squeezed booksellers hard to get them to provide e-books, but outside
of that, Amazon is usually content to let their suppliers set prices and let
them compete with each other. Amazon doesn't have a shelf space constraint in
the way that WalMart does.

There's a need for stronger antitrust enforcement in communications services
and pharmaceuticals. They have real monopoly power. But Amazon? Probably not.

~~~
caminante
Wonderfully said!

Even with the book case (h/t phonon's link above), AMZN was still making money
in the aggregate in its e-book business, despite the loss-leader bestsellers
being sold at $9.99 and below their wholesale price. That's starkly different
than firms (e.g. industrial) over-producing, under-pricing, and losing money
(in aggregate) to gain market-share.

------
oli5679
I think you have to have a really high standard of evidence for predation,
because the cost of intervention to adress false positives (efficient firms
undercutting incumbents) is so expensive. Think about the short run consumer
harm that would be caused by Uber, YouTube, Southwest, Walmart or Amazon being
restricted to charging higher prices. You have to be sure that the prevented
predation is sufficiently risky. In all cases incumbents have made predation
claims. No price hikes have materialised so far in any of the markets.

------
fiatjaf
Ok, 20 years of sheer monopoly and yet Amazon can't raise its prices or it
will be beaten by other, more specific, retailers, Google and Microsoft. The
case for antitrust law and State action should fall apart now.

[https://mises.org/library/anti-trust-anti-
truth](https://mises.org/library/anti-trust-anti-truth)

~~~
Klathmon
But Amazon can lower their prices and snuff out any threats before they get
too big.

Not to mention that price isn't the only reason why monopolies are bad. I had
a period of about 3 months where Amazon just couldn't deliver to my house.
They switched to using their own carriers, and they would just never be able
to find my place. I actually had a hard time finding another retailer that
would ship to my house for less than double the total price of some of the
things I was buying.

Plus the (very real) threat that they can just remove an item from their store
for any reason (the one that comes to mind is that Amazon doesn't allow anyone
to sell chromecasts' on their store. Rokus, Fire Sticks, and various other
streaming "devices" are fine, but chromecast is banned completely) means they
also have a monumental amount of power to hurt anyone selling through them at
a moment's notice.

I'm not in a position to say whether or not Amazon is a monopoly, and I
wouldn't even know the first thing about solving the problem, but IMO the fact
that they haven't raised prices isn't exactly proof that they aren't a
monopoly.

~~~
naranana
>I had a period of about 3 months where Amazon just couldn't deliver to my
house.

And Amazon can also ban you forever from their service, for example if you
return too many things in a short period.

Imagine if that meant you couldn't buy anything at all because there aren't
any competitors.

~~~
joemi
Loss of selling privileges can be a big problem too, and incredibly hard to
fight.

The store I work for once lost selling privileges for spurious copyright
claims regarding books we had bought directly from large established
publishers. Even with the publishers themselves (and sometimes the authors,
too) writing on our behalf to state that there were no violations, it still
took about two weeks to regain privileges. During a busy season, two weeks is
a long time to be without profits for a small retailer.

------
threepipeproblm
TLDR: Amazon doesn't meet the definition of harm that has always been used in
antitrust. Since they clearly need to be punished for their success we should
expand the definition of harm to include whatever they are doing.

------
koga-ninja
I wonder what Amazon's exit plan is. At what sum of Money would they shut
their doors.

I know they are publically traded, but every successful Company has a mission
statement of sorts.

~~~
matt4077
Are you saying companies hang a "mission accomplished" sign on the door and
just close down? Is that the George W. Bush economic doctrine?

In any case: if you really want Amazon to shut down, the cost is the current
market capitalization, plus a healthy surcharge to convince enough
shareholders to sell. In practical terms, there may be large shareholders
looking unfavourable on your plans such as Bezos.

~~~
koga-ninja
Bezos is an outlier case, since every hedge fund is Watching if he buys or
sells Amazon stock.

There are successful publically traded companies that do Not care anymore.
Seagate comes to mind. I remember a Pronouncement from the CEO a few years
ago, in which He said that our customers use our product to store Porn. In
other words, please don't invest in our Company anymore.

------
djyaz1200
What this really is that Amazon is boot stomping their competitors so hard
that they are positioning for the government to step in and break up the
fight.

------
yeslibertarian
There's no paradox in Amazon. The antitrust law makes no sense. The people
will decide collectively and distributedly (= the market, a p2p network) if
they like Amazon or not. There is a conceptual error in the idea of needing
the government to interfere the market with these antitrust laws.

~~~
devwastaken
Can you define what the 'market' is?

