
Is Amazon Violating U.S. Antitrust Laws? - walterbell
http://inthesetimes.com/article/21850/is-amazon-using-predatory-pricing-in-violation-of-antitrust-laws-monopoly
======
nanoscopic
Amazon has a team called "Amazon Profitability Group". I used to work for said
team, albeit only briefly.

The purpose of the team is to calculate the proper price to sell items for,
the "discount" to vendors, and the items to put in the "buy box" in order to
make the most profit for Amazon. I think the what is described here in the
article is only the tip of the iceberg. Amazon isn't doing something as
simplistic as cutting out the competition with low prices... they are feeding
all the numbers into neural networks and analyzing and predicting competition
and profits, and then doing what the systems tell them is the most profitable.

That is, anything that Amazon can predict will make them more money or gain
more market share... they are doing. I have full confidence that they are
doing all of the terrible things outlined and more. The bigger question is
whether government and law allow them to continue doing this. I think that it
will continue to be allowed, despite being super shady and destroying both
small and medium size businesses.

It cannot easily be proven that there is anyone orchestrating the monopolistic
processes, because Amazon has essentially turned the process of dominating the
market into an equation and they just do what the equation tells them to.

Amazon will claim "we are just being smarter; we mean no harm", and without
providing open minutes of their internal discussions it will be impossible to
prove wrongdoing.

What is needed is open accountability for internal plans, but that is against
the "American way" so I doubt it will happen anytime soon.

~~~
tyingq
I do believe these sorts of "Amazon is amazingly smart" posts.

But they are hard to reconcile with why Amazon keeps showing me a rice cooker
ad, after I buy a rice cooker from them.

~~~
serioussecurity
Because ad click through rates are so low and the signal is so incredibly
sparse. It's all measured against a test set which the researchers rarely look
at directly (because the data set is so large). So if something lifts ad
vlicks by 1% and that's from 100 in 10k to 101 in 10k, they don't really care
if 9k of the ads get appreciably dumber.

~~~
cryptonector
Sure, but if you buy a rice cooker, maybe the ads to show you are for: rice,
cookbooks (featuring lots of rice?), pressure cookers, cast iron pans, sous
vide recirculators, and so on. I mean, you have a rice cooker, you won't want
another, but chances are you'd buy other things you don't already have.

~~~
Normal_gaussian
Its funny you should use that example. I recently bought a rice cooker, and
then bought another a few weeks later.

I've done similar things a lot, in this case it was because the first cooker
had too large a minimum cooking amount. I'm currently looking at buying my
mother google WiFi - which I bought a few weeks ago. And a few months back I
rebought a tool I had just purchased because I lost it.

I currently work for a (responsible) own site adtech (personalization)
company. Its surprising what behaviours our clients find profitable for their
business.

~~~
dhimes
There's a whole lot about advertising I don't know, but the question that
sticks in my mind is, did you _need_ that ad to know which rice cooker to buy
the second time? Did it change your decision? Did you see an ad for a
different rice cooker and act on that?

It seems like an effective ad would be this: Say you bought a rice cooker on
Amazon for $75. Now Walmart shows you an ad for the _same_ rice cooker for
$60. That would certainly stick in my head- not for the rice cooker but for
the price difference that Walmart can provide.

~~~
Retric
These are amazon internal adds, they don’t care about the specific rice cooker
they show as much as the rice cooker category. Thus simply getting you to
think about them while you’re on the website is enough they don’t need to
predict your specific purchase.

------
c3534l
As an accounting student, the idea that Amazon is using _capital_ leases as
way of manipulating their financials is hilarious. That's the exact opposite
of what everyone else does. Most companies try to hide debt they incur to buy
infrastructure by claiming that they're actually renting it. This is why there
are complicated rules about what kind leasing agreements count as debt and
which count as expenses.

The claim repeatedly and misleadingly made in the article that Amazon doesn't
post a profit is easily debunked by the fact that they're a publicly traded
company that legally has to have it profits made publicly available. They make
a profit. They have for a long time. It goes up and it goes down as they
expand and reinvest, but they're definitely not intentionally taking a loss.

And they have to have their accounting methods and control systems used to be
audited by an independent third party annually to ensure compliance with
generally accepted accounting principles. As far as I'm aware, they've never
had an adverse opinion issued against them. The whole point of making public
companies undergo an audit every single year is to make sure they're doing any
shenanigans that make their annual statements in some way not comparable to
the financial statements of other companies in that industry.

It's incredibly annoying to see an article like this get shared because it's
incredibly obvious the author doesn't know what the heck he's talking about,
but just enough to fool readers into thinking he does.

------
munk-a
Yes, via vertical integration[1] - this should be obvious to anyone outside of
the FTC[2].

[1] For people unaware of Amazon's practice of pushing out middlemen who
conduct high volumes of business: [http://fortune.com/2016/04/20/amazon-
copies-merchants/](http://fortune.com/2016/04/20/amazon-copies-merchants/)

[2] People inside of the FTC are almost certainly aware, but happily continue
to shove their fingers in their ears and sing "la la la I can't hear you la la
la".

~~~
mr_toad
Vertical integration, or cutting out the ‘middle-man’ is not in and of itself
illegal.

What might be illegal would be selling products at a loss to drive others
away.

~~~
mehrdadn
Loss leaders are legal, right? What's the effective difference between those
and predatory pricing? Is it just the intention rather than the actual effect?

~~~
omeid2
Loss leaders are to bring customers in with the hope of selling them some
higher margin products, predatory pricing is selling products below the price
to push competition out of business.

~~~
haimez
So yes, it’s not externally distinguishable and basically boils down to
intent.

~~~
omeid2
I am not sure what you mean by _externally distinguishable_ but pattern-
behavior is hard to hide.

    
    
        1. undercut product x and y that Z Corp sales
        2. wait for Z Corp to go out of business
        3. Increase price of x and y
    

VS

    
    
        1. sale product x cheap
        2. sale other products to people who buy x
        3. continue to step 1 or terminate selling below market

~~~
TeMPOraL
How about:

    
    
      1. Sell products x cheap and y at higher margin.
         (x happens to be what Z Corp also sells)
      2. At some point in time, coincidentally after Z Corp
         folds, decide to stop selling x cheap.
    

Was x the case of predatory pricing? Or was it just a loss leader to get
people to buy y, and it's just a coincidence that the company abandoned it
around the same time Z Corp gave up?

------
_4vew
(Disclaimer: I work for Amazon, but not in the retail, legal, or finance
departments, and I have no inside information about what the company is doing
with respect to its pricing. Opinions are my own and not of the company.)

Yet another sensationalist headline that is unsubstantiated by the article.

"This law student" has a _theory_. He does not have _evidence_ \-- and, in
fact, much ink in the article is spilled on the fact that the evidence needed
to sustain an antitrust case against Amazon isn't readily available to the
public or to the Government.

Nor has any Court ever held, to my knowledge, that an antitrust action can be
sustained without consumer prices going up - merely keeping them the same is
not enough.

Key quotes (emphasis mine):

"Sussman _believes_ that _if_ Amazon gave the full picture, it would show
negative cash flow."

"No current accounting rules force full disclosure of itemized costs.
Considered highly confidential, they’re typically redacted from public legal
documents, even when a company is sued. More definitive cash flow numbers
could help prove whether Amazon sells items below cost."

"Sussman believes that the Federal Trade Commission should force companies to
break down their costs in confidential examinations."

"Right now, anti-competitive conduct like predatory pricing is judged under
the “consumer welfare standard,” which has been interpreted to mean simply
whether a market dominated by a single company results in higher or lower
prices. But even though prices are the same on Amazon, consumers are arguably
missing out, Sussman explains, because they’re not benefiting from Amazon’s
soaring profits." (This is not my understanding of an actionable situation
under current antitrust law.)

~~~
ikeboy
There is, in fact, evidence that

1\. Amazon occasionally sells below cost (hence existence of CRaP products)

2\. Amazon has pushed some vendors to 3p

3\. Amazon directly or indirectly dictates allowable 3p prices

The progression from Amazon selling at a loss to them pawning the product off
to 3p sellers and taking a larger cut is reasonably argued in the source
article to be harmful to consumer welfare.

~~~
TulliusCicero
Re: 1, selling below cost isn't always illegal. Loss leaders, for example.

------
jondubois
The root of the problem is that corporations have fooled governments into
mixing up 'consumers' with 'people'. Governments should serve people, not
consumers. This is a big mistake because people spend most of their lives
working; this means that the average person spends the vast majority of their
time producing value instead of consuming it. So the average person is not a
consumer, they're a producer. The biggest consumers are rich people. Whenever
you make laws to protect consumers, you're mostly protecting rich people. As
wealth becomes increasingly centralized, this statement becomes increasingly
true and it becomes a vicious cycle.

------
markwkw
Interesting piece from the article: "Sussman points to evidence that Amazon
has already flipped the switch, moving from dominating the market by
undercutting rivals to reaping the profits from that dominance."

So according to Sussman, Amazon is already making money. I wonder what point
in time the author thinks Amazon started making money.

If the author claims that happened e.g. in 2016, them Amazon was actually
losing money for the first 20 years of its operation. That would require
Amazon to have been raising capital for a long, long time. Can that be
verified? Are there stock market metrics on total amount of capital raised/net
borrowed in a given year?

Has anyone been able to access the actual article to check the details of
authors claims?

~~~
Despegar
They haven't needed outside capital because Amazon has been generating free
cash flow since 2002 or 2003. They were losing money on a GAAP basis because
they were investing in capex heavy things like warehouses and data centers.

Looking at Amazon's aggregate financials doesn't tell us anything about
whether they're doing something anticompetitive.

~~~
markwkw
The root of Sussman's claim is that Amazon was hiding some expenses to
_pretend_ that they were cash flow positive. (since being cash flow positive
strongly suggests that there is no predatory pricing)

<quote>However, Sussman asserts in his paper, “Amazon utilizes existing
loopholes in Generally Accepted Accounting Principles (GAAP) disclosure
regulations to exclude a significant portion of its expenses.”</quote>

So the author is claiming amazon's _not_ been cash flow positive. If that is
the case, then where was the money coming from?

~~~
TulliusCicero
Yeah, this is what I don't get. Amazon has been steadily growing without
injections of investor cash for a long time now. If they were constantly
selling stuff at a loss, that would be impossible.

------
Mikeb85
It's not illegal to drive down prices in a competitive environment. In fact,
economic theory says that in a sector that has 'perfect' competition, prices
will essentially be the cost of production.

What Amazon is currently doing isn't illegal. In the future, if they abuse
their dominant position to jack up prices, they might be in some trouble. But
running on thin margins isn't illegal, and it seems Amazon has created avenues
to produce profit without increasing prices, thus falling within the law and
also with what economic theory predicts should happen.

~~~
munk-a
It is illegal to do this when you slip below the cost of production line - at
that point your lost profit becomes an investment (if you're doing it right)
in either securing long term profits[1] (printers and toner) or driving
competitors out of business (predatory pricing[2] or possibly dumping[3] if
done for market control)

[1]
[https://en.wikipedia.org/wiki/Loss_leader](https://en.wikipedia.org/wiki/Loss_leader)

[2]
[https://en.wikipedia.org/wiki/Predatory_pricing](https://en.wikipedia.org/wiki/Predatory_pricing)

[3]
[https://en.wikipedia.org/wiki/Dumping_(pricing_policy)](https://en.wikipedia.org/wiki/Dumping_\(pricing_policy\))
Dumping is a particularly interesting instance since there isn't a direct
realized economic gain.

~~~
Mikeb85
From the article:

> 5 percent profit margin on Amazon’s own retail sales

Last I checked, 5 percent margin is still making a profit, and definitely
doesn't fit the definition of dumping nor predatory pricing.

Part of the theory hinges on this:

> However, Sussman asserts in his paper, “Amazon utilizes existing loopholes
> in Generally Accepted Accounting Principles (GAAP) disclosure regulations to
> exclude a significant portion of its expenses.”

> Amazon accomplishes this in part through using capital leases to purchase
> equipment and some of its 288 million square feet of office space. Instead
> of paying cash, Amazon borrows and finances these purchases over time. The
> leases don’t show up as expenses in Amazon’s free cash flow calculations,
> even though the equipment is listed as an asset. A 2017 Motley Fool report
> showed that, when you add in capital leases, Amazon’s 2017 cash flow was
> indeed over $1 billion in the red, although more recent numbers have bounced
> back.

Again though, there's nothing illegal about a firm using debt to finance
expansion, nor is there anything illegal about a firm's net profit being
negative, especially if there's positive cashflow from selling to consumers.

The whole article is nothing more than theories without any proof that Amazon
is actually dumping products. And like I said, running thin margins isn't
illegal. Undercutting your competition isn't illegal. Scaling out so your
costs are less than your competition isn't illegal. You need to _prove_ that a
firm is actually dumping, it's not enough to think that they _might_ be
because they're out-competing you.

More from the article:

> As Sussman explains, if Amazon is recouping losses from a predatory pricing
> scheme by reducing its costs, the windfall profits aren’t being transferred
> to customers.

Reducing their costs to realize a profit literally _is_ passing on the
benefits to customers by continuing to sell at a low price.

~~~
vidro3
> The leases don’t show up as expenses in Amazon’s free cash flow
> calculations, even though the equipment is listed as an asset.

Article aside, how does this work?

~~~
Mikeb85
Let's say you mortgage something, take on $250k in debt. You now have $250k in
assets. Net is zero. You don't take away the debt payments from your income,
since you received something from taking on the debt, and it becomes a net
positive over time.

It works similarly with operating leases. But the actual accounting is a tad
more complicated, so here's a link:

[https://www.investopedia.com/terms/o/operatinglease.asp](https://www.investopedia.com/terms/o/operatinglease.asp)

~~~
mckenna
Am I missing something below?

Equity = Sigma(Free-cash-flow) summed over time. In the case of AMZN, equity
is about 43B. 18B of this amount is goodwill(intangible vaporware). That
leaves with about 25B real equity. And surprisingly, this 25B matches with FCF
over the last 2 years(2017-2018). Which essentially means, cumulative FCF
until 2017 was indeed 0. Numbers do seem to support the claim that AMZN was
running on 0(averaged over time) FCF. Showing 1B in one quarter, -1B in
another. But overall 0.

Whether 0 cumulative FCF means predatory pricing is a different question
altogether. I'm not so sure about that. How would visionaries build big
things, that need, and money? If AMZN loses it and acts monopolistic, I think
people will respond by migrating en-masse. No one likes too much inequality.
Jeff should do something about that image.

------
rdlecler1
The real danger is in debasement—something we’ve seen with product over the
past 40-50 years and it’s no different than Walmart putting pricing pressure
on it’s suppliers. If suppliers can’t increase costs and they’ve maxed out
economies of scale then they need to debase their product to Suppliers need to
cut corners to generate additional profits.

~~~
ThrustVectoring
This squeeze on suppliers is a big part of why Amazon has such a problem with
counterfeit goods, IMO. If you start blindly optimizing on supplier prices,
counterfeiters can often win those price competitions.

------
rdlecler1
Companies achieving a kind of monopoly status should be subject to additional
financial disclosures and reporting. The benefit here is (1) not all companies
need to meet this compliance standard (2) we get a much better look into the
books to determine if there is something illegal/nefarious going on (3) this
additional reporting gives upstarts an insight to chip away at any monopoly by
having access to data that sustains that monopoly in the first place. Let’s
not use a heavy hand of busting up a company, just let capitalism do the work.

------
rdlecler1
>Sellers can use “Fulfillment by Amazon,” so Amazon handles storage and
shipping of its products through its vast logistics network. But Amazon also
charges for that privilege.

We used to call this kind of activity a ‘service’ but apparently it’s now
called a ‘privilege’

~~~
jgowdy
Right? I wonder if we take storage out of it...

>Sellers can use “Fulfillment by UPS,” so UPS handles shipping of its products
through its vast logistics network. But UPS also charges for that privilege.

Spooky!

------
thesumofall
For me, this is difficult to reconcile with my experience that there is barely
any product left on Amazon where they really are the cheapest. You’ll almost
always find well rated smaller online shops across all categories that sell
substantially below Amazon’s prices. This is even more so true if you want
something sold and fulfilled by Amazon.

~~~
TulliusCicero
Yes, but it's unlikely that they have fast, free/cheap shipping. And Amazon's
customer service/return policy/overall UX is top notch compared to smaller
retailers.

------
jasonsync
A little late.

Amazon launched a product called "Amazon Drive" in 2015 ...

Unlimited cloud storage! $11.99/year for photos and $59.99/year for
everything:

[https://venturebeat.com/2015/03/26/amazon-launches-two-
new-c...](https://venturebeat.com/2015/03/26/amazon-launches-two-new-cloud-
drive-unlimited-plans-11-99year-for-photos-and-59-99year-for-everything/)

At the time, anyone familiar with cloud storage (Dropbox, Sync.com, Box etc.)
knew that Amazon was undercutting their rivals (selling at a loss) to enter
the consumer market.

Worse, many cloud providers resell AWS storage (Dropbox did at the time, and
was an Amazon customer).

Amazon ran this "loss leader" for almost 2 years, hoping to drive the
competition out.

In the end all they did was upset existing AWS customers, and eventually duped
their own newly minted Amazon Drive customers, because they shuttered the
service 2 years later (the losses started adding up on both sides):

[https://techcrunch.com/2017/06/08/amazon-ends-its-
unlimited-...](https://techcrunch.com/2017/06/08/amazon-ends-its-unlimited-
cloud-storage-plan/)

[https://www.geekwire.com/2018/dropbox-saved-
almost-75-millio...](https://www.geekwire.com/2018/dropbox-saved-
almost-75-million-two-years-building-tech-infrastructure/)

------
0815test
Economically speaking, the question should boil down to "is Amazon operating
in a contestable market, and/or are they engaging in abusive behavior to raise
barriers to entry in the market, lowering its contestability". The notion of
predatory pricing _per se_ , in contrast, is not really well-defined. Is there
some inherent reason why the suppliers and wholesalers who are supposedly
being harmed by this monopoly could not simply move to an established
competitor, e.g. eBay, Alibaba or whatever, or even start a platform of their
own along more favorable principles?

~~~
int_19h
It _should_ , but the "consumer welfare standard" explicitly repudiates such
approach. In US, a company can be a complete monopoly, wiping out all
competition, and still not cross the line for anti-trust purposes.

This is actually kinda ironic, given that US is generally considered to be
more on the side of the spectrum that strongly believes in the "invisible hand
of the market" \- and so it would make more sense for anti-trust to be defined
in terms that would protect that hand from being "broken". And indeed, it was
so defined originally, until this new standard came to be. Since then, we've
seen steadily increasing market concentration [1], and the corresponding
decline in competition, all while being assured that it's not harmful to us as
consumers, and with some people even openly extolling the virtues of
monopolies for consumers (e.g. Thiel).

To me, these sound very similar to the arguments that are used to justify
"benevolent dictatorships", except here we're talking about economic power
rather than political (and, of course, the two are not independent).

[1]
[https://concentrationcrisis.openmarketsinstitute.org/](https://concentrationcrisis.openmarketsinstitute.org/)

~~~
0815test
> ...In US, a company can be a complete monopoly, wiping out all competition,
> and still not cross the line for anti-trust purposes.

That's actually allowed by the contestable-market framing, at least in some
cases. It all depends what you mean by "a complete monopoly" and "wiping out"
competition - does it happen via some "natural" cost advantages, or has the
company been building up an abusive "moat" around their position. Though even
in the former case, economic theory implies that forcing a break-up of the
firm that isolates the "naturally dominating" part of its business, and then
subjecting that to appropriate regulation and market-openness requirements,
can be a highly efficient approach and lead to improved consumer welfare.

------
skookumchuck
Reminds me of the astonishing anti-trust case against Microsoft arguing that
giving consumers free stuff was harming them.

------
licnep
What about Uber and Lyft?

Aren't they known to operate at a loss to undercut the competition, and
couldn't taxi drivers bring them to court for that?

~~~
mars4rp
according to the article, if the company is operate at loss and it benefit
customers, it is fine!

"Both of these outcomes reflect consumers failing to share in Amazon’s bounty,
which is key for current antitrust law. Right now, anti-competitive conduct
like predatory pricing is judged under the “consumer welfare standard,” which
has been interpreted to mean simply whether a market dominated by a single
company results in higher or lower prices. But even though prices are the same
on Amazon, consumers are arguably missing out, Sussman explains, because
they’re not benefiting from Amazon’s soaring profits. “It’s illegal and even
the most conservative neoclassical thinker would agree,” he says."

~~~
aeternus
I'd argue consumers are benefiting greatly from Amazon's profits. They have
overall re-invested those profits into other businesses that benefit
consumers.

Ex: Purchased Whole Foods and have brought down those prices overall plus
building Amazon Go stores which offer a much better consumer experience than
traditional grocery. Amazon's Web Services platform has leveled the playing
field and enabled many startups. Amazon has pressured almost all other
retailers online & offline to offer free or cheap delivery which is great for
consumers. Walmart would likely never have done this without pressure from
Amazon.

~~~
rootusrootus
Benefiting now perhaps, but isn't the point that in the long run customers
will be worse off because of what Amazon is doing?

~~~
aeternus
Maybe, but Amazon faces competition from Ebay, Alibaba, even Walmart. It's
unlikely they can raise prices significantly and maintain market share, nor is
it likely that they can push out all of those competitors.

------
elamje
Regardless of law, they are profitably delivering a very wide variety of items
to my door for significantly cheaper than anywhere else I look. I cannot
ignore that

~~~
paxy
What about if/when they are the only retail company left and significantly
raise prices? This is the reason such laws exist.

~~~
nickik
Its funny how this is a worry but it basically never happens. There is
basically a incredibly tiny number of actual cases where this 'predatory
pricing and then raise prices' has worked and not in markets as open as
e-commerce and delivery that other companies could easily get into.

In fact historically this has not happened before Anti-Trust laws. It has
basically been used by competitors who couldn't compete on the market so they
went to their friends in government to stop their competition. Since they
didn't want to argue 'Their product is better and cheaper' they argued, 'Its
predatory pricing, as soon as I'm gone this company is gone raise prices'.

The first US anti-trust law was enacted because butchers were extremely angry
about centralized slaughtering houses that used refrigerated trains to
transport meat. Classic special interest politics. But somehow 150 years later
the evil centralized slaughtering houses haven't raised the prices yet.

------
PorterDuff
Does antitrust law apply to a monopsony?

------
_tb1_
That Bork theory is nutty. Imagine thinking that businesses don't take
calculated risks. There is a conveyor belt of judges supported and moved
forward by big money corporate interests.

------
ssnistfajen
Maybe this so-called "law student" should read up on retail marketing terms
from time to time. Loss-leaders have been a thing for decades if not longer.
Amazon is just able to maintain more loss-leaders than your average brick-and-
mortar store (chain or non-chain), and their operations are diversified beyond
E-commerce/retail with higher margins which can polish the numbers quite a
bit.

The world has yet to see another monopoly on the scale of Standard Oil, and
no, Amazon (specifically in the E-commerce market) is nowhere even close to
that. One law student's "predatory pricing" is just another business' loss-
leader.

I hope Mr.Sussman will one day acquire the knowledge that he won't be the
first nor the last to come up with ideas on how to challenge Amazon.

~~~
C1sc0cat
And look at some of the super aggressive (ok bullying) that the big
supermarket chains do to suppliers /farmers etc.

------
ilaksh
I think if it's this complicated or needs internal documents then the laws
need to be revised.

To me it's very obvious that Amazon has a monopoly that is harmful to
retailers. It also seems straightforward that it is an undesirable situation
for consumers because it puts everyone at the mercy of this monopoly. Just
because it isn't obvious that they are screwing us yet doesn't mean we should
let them have total control until they do.

Anyone who wants to sell online has to worry what Amazon is going to do with
them.

It's as if there was a big public square in the middle of the city and some
day one of the vendors bought the entire square and then started charging all
of the other vendors for the privilege of using the square.

The reason they are successful I think is because people need a platform for
online shopping. Websites are not that platform. What I think we need are
public decentralized protocols that vendors, logistics, and applications can
plug into. Similar to what Amazon is doing now, but not controlled by one
company who is also a competitor.

