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Is Amazon Violating U.S. Antitrust Laws? (inthesetimes.com)
260 points by walterbell 32 days ago | hide | past | web | favorite | 147 comments



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.


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.


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.


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.


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.


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.


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.


Yes. Without the ads I wouldn't have bought the second cooker - it was a pain point for my partner not for me, so she complained once then a week or two later I saw the ad and purchased another.

With the Google wifi I had forgotten, and it caused me tk reconsider and write it on my whiteboard.

The tool I wpuld purchase anyway.


You said you work for adtech, I'd just like to comment that I personally like targetted ads. Areas of my life have improved from targetted ads, I'm shown things I didn't even know I want until I've seen them, etc. I look at it as a positive.


Its an interesting one. I've made some pretty active choices about jobs for ethical reasons but ended up in a slight geographical bind in my last search. I found my current company through a friend (who works in another department) and was very skeptical. After not finding anything bad I decided to go with it for a few months, but had a resignation letter ready in my car. I'm now over a year in and despite the normal problems businesses have there is not a moral one here - and I've had pretty great insight into the decision making.


It's not as simple as that. There are multiple ways to figure out which ad to show to a user, but I think the most efficient way (development and compute) is to put a user in segments (e.g. lives in area X, searched for Y, age Z, ...) and then do the bidding magic. There are tight tolerances for bidding--you want it to happen within a fraction of a second so the ad quickly loads for the user. Feeding purchase data is likely something that requires a bit of work, and I imagine the ad team at Amazon doesn't see enough value to prioritize it (especially since they make money either way--the advertisers pay for the ad with a higher CPC).

One thing to keep in mind is that the purchase data is per-user, so it's different from the segment approach I was mentioning above. It would require a whole new schema* that is queried whenever bids are processed for an ad event.

* Sorry for using the word schema here. It was used a lot on a team I was on in a similar context, and it bothered me at first but I got used to it. What I mean by schema is a "blob" with purchase data that is periodically processed by the bidding subsystem to add bid exclusions per user.


What is the ratio between people who viewed a rice cooker (the group I'm assuming they target with ads) vs. those who actually bought a rice cooker?

Is it possible the ratio is so large to where while it obviously could be optimized to exclude people who have since purchased said item - the optimization is only a rounding error, and may not turn out to be worth it?


Well, I buy things from Amazon very frequently, and I have a high conversion rate between searched-for-category and bought something to satisfy the search, so Amazon ads are for things I've already taken care of >90% of the time. I'm guessing they're leaving a lot of money on the table from me because of it. But maybe I'm unusual in my shopping patterns.


But couldn't they improve the signal to noise ratio by showing contextually relevant ads e.g. showing rice cooker cookbooks after purchasing a rice cooker? Wouldn't this lift ad click through rate? This is truly baffling expected behavior, who would ever buy a second rice cooker after having searched Amazon for rice cooker and compared a few top models already? I'd love to see some studies or data proving otherwise...


> they don't really care if 9k of the ads get appreciably dumber.

But maybe they should. The recipients of those 9,000 ads are being trained to ignore the recommendations because they’re so useless, and may continue to ignore its suggestions even after it improves. Likewise, a few clueless recommendations can “spoil” good ones shown at the same time.

None of this shows up in the test set, of course, but people tend to turn off their brains when ‘evaluating’ ML stuff.


> The recipients of those 9,000 ads are being trained to ignore the recommendations ... Likewise, a few clueless recommendations can “spoil” good ones shown at the same time.

How can you be sure that "random" untargeted ads don't have just as bad of an effect? Ultimately Amazon can see the numbers and we can't, and they made their decision based on that. It's pointless to argue over theories without data.


Amazon seems to think that I’m a real vacuum aficionado/collector as well.

It’s quite possible that those are still the best items to recommend to us, to mop up any “unhappy with the one they got, so save them with a return/rebuy” sales.


I wouldn't be surprised if the actual reason was they are capturing extra sales from people who bought something, liked it a lot, and then bought another to give to their kids or for their second home. My mom buys me random chotchkies all the time after she bought them and liked them, and if my parents were well off I could easily see her buying me a vacuum or a new mattress after she got herself one.

For 99% of people that probably doesn't happen, but the people with the money to do that probably spend a TON of money, so they are worth targeting with ads.


So they are misattributing the additional sale to their suggestions instead of the product being an advertisement for itself.


I suspect adtech industry would shrink down half its size if it could accurately attribute sales to ads. It sometimes smells as if it was standard practice to convince the client (intentionally, or unintentionally by also convincing yourself) that correlation is causation and therefore their success is attributed to ad spending.


The working vacuum in your house is a significantly better ad than whatever amazon shoves down your throat.


I read somewhere (can't remember exactly where) that this happens because people are most likely to buy the same item they just bought due to not being happy with their original purchase.


patio11 has a good tweetstorm on why Amazon doing this is perfectly rational.

https://twitter.com/patio11/status/875629380105416705


It doesn't take that many people buying ten (or a thousand) rice cookers for that ad to make sense.


Or they know something about that rice cooker that you don't know yet.


Maybe you'll find it so useful that you'll want to gift it to someone else also?


I think this makes sense. Maybe you like it and want to buy another for friends & relatives?

You might not be happy with the purchase and on the lookout for a better model.


They've probably modelled the failure rate for the first one you bought.


Reminds me of booking.com that keeps on sending me hotels in small towns I just visited once (for a weeding, driving thru) etc. I don’t why they get smarter than that


I'm not sure offloading its decision-making to the neural network will be an effective legal protection for Amazon against anti-trust claims. The key question in the US is whether "predatory" pricing results in financial harms (higher prices) to US consumers. As I understand the logic put froth by Bork in the 70s, the general idea is that "the market" will solve this problem in most cases, under the assumption that if a single big company tries to gouge consumers, rival firms will emerge that are able to outcompete them, thus restoring (or at least reapproaching) the idealized price equilibrium.

The law article cited in ths news story seems to be saying that even though Amazon's practices haven't visibly hurt consumers in terms of retail prices, this is due to the ability to play legal games with corporate accounting that conceal the present and future anticompetitive effects of Amazon's business model, and that its status as the dominant platform for online retailers presents some degree of threat to competition.

Lina Khan published a very informative and influential review on Amazon and antitrust in 2017. https://www.yalelawjournal.org/note/amazons-antitrust-parado...


"Sussman constructed his theory as something a company harmed by Amazon could use to file a lawsuit, even if no antitrust laws are changed. If it survives an initial motion to dismiss in the courts, Amazon would have to reveal unit costs in a discovery proceeding, which would settle the controversy."

What Sussman actually wrote was "In addition, [this paper] calls for the establishment of a viable framework under which a case may be brought against such firms [as Amazon] by injured competitors."

The journalist says no antitrust laws need be changed. What he fails to mention is the small matter of this framework Sussman says is needed before any case can be brought. It does not exist.

Sussman did not describe the framework in any detail or how it would work. All one can find in the paper is this single sentence: "It is, therefore, necessary to develop some means of oversight that will allow the public to determine whether firms such as Amazon are engaging in such activities."

"Linda Khan published a very informative and influential review on Amazon and antitrust in 2017."

I can remember when a story on the Khan paper was posted to HN. I thought at the time the journalist seemed just a tad overly optimistic. It felt odd to see a law review article being so "hyped" by a journalist. It almost seemed like he/she did not want the reader to actually read the paper. There was so much paraphrasing that the risk of the journalist getting something wrong would be very high.

In 2018, there was another paper in Yale LJ by Baker and Morton that discussed Amazon's anticompetitive activities. This paper was actually influential.1 Unlike Sussman's single sentence calling for "some means of oversight" and a framework under which cases can be filed, the authors included an entire section on "US Enforcement Challenges", about five pages devoted to how enforcement might proceed. The paper was cited by US Sen. Blumenthal in a letter to DOJ and FTC urging them to open investigations of Amazon's predatory pricing.2 (He did not cite Khan's paper.)

Not sure if the Baker and Morton paper received any hype from journalists, but it is indisputable the paper and the letters to DOJ and FTC had an impact. Amazon finally removed the MFN clauses from its agreements with US sellers, as it had done for sellers in Europe in 2013.3

1 https://www.yalelawjournal.org/feature/antitrust-enforcement...

2 https://www.blumenthal.senate.gov/imo/media/doc/12.19.18%20-... https://www.blumenthal.senate.gov/imo/media/doc/12.19.18%20-...

3 https://www.bbc.com/news/business-23881202 https://www.axios.com/amazon-price-practice-antitrust-elizab...


"and then doing what the systems tell them is the most profitable."

...so, not predatory pricing then?


That doesn't follow.

If predatory pricing is effective, an algorithm can be taught, or learn to, exploit it if fed with the right data.

This, quite obviously, shouldn't change anything regarding the potential legality, as it's entirely self evident that a sufficiently powerful machine learning algorithm will exploit any patterns not expressly forbidden.

As always, the responsibility for following the laws, and making sure these extensions of our own agency we call machines also follow the same laws fall on whomever is making the machine act in their stead.

One can however be assured that several companies will argue otherwise, argue as if they were simply a victim of some sort. Which might be true in a sense. Victims of their own devices, both figuratively and almost literally at the same time.


“A slightly more grey area arises where, with no human involvement or instruction, a price-setting AI algorithm teaches itself to coordinate with competitors – otherwise referred to as tacit algorithmic collusion. While it is unclear the extent to which current AI technology allows for this tacit coordination, a 2018 University of Bologna study found that if two competitors both employ pricing algorithms, and each gives its software total autonomy to set prices, those two algorithms would reach collusive, price-fixing arrangements more often than not.”

[1] https://www.russellmcveagh.com/insights/march-2019/ai-and-pr...

[2] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209781


> no human involvement

How does it come about that that is that a concept?

Does the thought go something like: "We neglected to instruct the algorithm not to collude, and failed to monitor outcomes for collusion, therefore we're not responsible?"

> and each gives its software total autonomy to set prices

Ah, yep.


I think it is a matter of intention as the ultimate ass-covering. They never /intended/ anything other than a legal aim.


luckily, predatory pricing does not have to consider intent.

see Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209.

essentially, all you have to do is prove that there is "dangerous probability" that a monopolist can recoup their losses after all competitors have been priced out.


Predatory pricing is still predatory if a human does it or if a giant Rube Goldberg machine does it.


Depends. Did they intentionally go out of their way to teach the model that predatory pricing, despite being profitable, is not allowed?


why does it matter that the decision came out of an AI model?

Predatory pricing is either legal or not (in the eyes of the court, or legislations).


We are in agreement on that. The point that I was attempting to make was that an AI model will do exactly what it was trained to do. If a model is trained to maximize profit without consideration for the law, then it will find all the unethical and illegal ways to price goods.


It seems to me that, by this description, Amazon is admirably fulfilling its legal and fiscal duties, and to a greater degree than I thought before receiving this information.


Maybe to the shareholders but definitely not to the consumers or the businesses on the platform.


Maybe to the shareholders

Not to this shareholder.

If Amazon is playing a dangerous game, then it's risking my money, which is not OK.


> If Amazon is playing a dangerous game, then it's risking my money, which is not OK.

If you're so sure of that, then why did you buy AMZN? Why have you not sold your AMZN?


> definitely not to the consumers

Amazon always ships packages ahead of time, at my leisure, and often cheaper than retail. They always process returns and complaints in my favour, without contest. They reach out to local logistics companies in order to improve delivery, and I can tell by the fact that those companies now have branded vehicles (and much happier and more attentive personnel than UPS!), and better verification processes (they found a logistics provider that actually emails the signature given at the door to you when the delivery is processed) that they've done well out of that.

I feel they're serving me very well as a customer, and every ordinary person in my life who isn't competing with Amazon is richer and happier because of Amazon's services.

> definitely not ... the businesses on the platform

The businesses fulfilling through Amazon would absolutely not have received my business were it not for Amazon; in many cases they do not have the expertise to handle the orders correctly, and I do not trust all of them to process the payments securely to the degree that I trust Amazon to.

They have every opportunity to improve their ordering and fulfillment systems, but they choose Amazon because it's where the customers are comfortable already.

I dreamt of a logistics integration system much like Amazon Marketplace when I was 16, and every year they make it closer to that dream, I think it's great. I'm willing to accept an argument from concrete evidence that they have somehow deliberately and systematically broken the law in so doing, but I've yet to see it.


I get free shipping from Walmart.com and AliExpress, the latter of which 90% of electronics on Amazon are sourced from. Walmart offers free 2 day shipping and in-store pickup. AliExpress offers the same items on Amazon without having to give middleman their expensive cut.

I don't trust Amazon not to send me fake items or cheap Chinese knockoffs. There is absolutely no quality control on Amazon's end. Amazon has the resources to fight fake reviews, yet fake reviews are still rampant. As a result, I cannot trust Amazon's rating system at all.


> Amazon has the resources to fight fake reviews, yet fake reviews are still rampant. As a result, I cannot trust Amazon's rating system at all.

While this is true, at least the part about fake reviews being pervasive, the fact is that I don't trust any reviews on a retailer's website anymore, especially those that aren't verified purchases, and the only retail site where I trust verified purchase reviews at all (and not all of those either) is Amazon.

> I get free shipping from Walmart.com

Yes! walmart.ca is great, very prompt and simple to work with them.

> AliExpress, which 90% of electronics on Amazon are sourced from.

More like 90% of obscure commodity electronic bits and bobs. But yes, some of these rinky-dink sellers and unrecognized brands do mess up the experience a bit, but imagine ordering directly from their individual weird off the shelf fulfillment sites and hoping your credit cards don't get burned. It's not any better of an experience, and at least with Amazon you generally have recourse outside the seller.

> I don't trust Amazon not to send me fake items or cheap Chinese knockoffs

I don't trust AliExpress not to send me fake items or cheap knockoffs either, but that doesn't stop me from trying sometimes. At least with Amazon you have recourse in my experience.


>More like 90% of obscure commodity electronic bits and bobs.

I feel like this is a dramatic market development. In the era of brick-and-mortar shops, a lot of those products were only available as branded versions. Think when you had to go in to a store and get a printer cable in 2001, and you were paying $25 for a Belkin cable in a fancy box because it's all they sell.

Branding from a consumer perspective is about building a message of "we're the quality one you know and trust" or "we're the cool/desirable one you recognize." It isn't necessary for a lot of these products: they're not sexy and the bar of competence is so low that you're unlikely to be burned.

AliExpress and friends have completely reinvented that market by tapping into that sentiment. Their products are unbranded (or as-good-as-unbranded, with a name with no meaning to the buyer) but trade on cheap and good enough. I'm sure a lot of the bits-and-bobs industry is up all night sweating.


For things like electronics components, I used to see a lot more sellers located in China who were presumably effectively drop shipping from AliExpress. Now it's almost all pre-imported goods with fulfillment by Amazon. The difference is paying an extra $2-3 bucks (basically doubling the price for something like an Arduino Nano clone) for a much faster shipping time. Sometimes that's worth it and sometimes not.

Unfortunately as a non-Prime customer, Amazon's shipping has been getting so slow that the gap is closing and it's getting harder to see their value.


> While this is true, at least the part about fake reviews being pervasive, the fact is that I don't trust any reviews on a retailer's website anymore, especially those that aren't verified purchases, and the only retail site where I trust verified purchase reviews at all (and not all of those either) is Amazon.

Only on Amazon do you find listings for headphones with 400 positive reviews for some BluRay version of Harry Potter, where those 400 positive reviews are displayed as if they're for the headphones themselves.

> I don't trust AliExpress not to send me fake items or cheap knockoffs either, but that doesn't stop me from trying sometimes. At least with Amazon you have recourse in my experience.

AliExpress has never given me a reason to distrust them, while Amazon has. I once received a defective item from a seller on AliExpress and I was refunded my money without having to ship the item back. I'm okay with that recourse.


IIRC, there was a science fiction story where a supercomputer that humanity used for efficient logistics took over the world simply by changing the orders and sending things to the appropriate places. Can't remember the book, but might have been by Heinlein or Clarke... Seems like the Amazon AWS servers could do that quite nicely if they were sentient... or just had enough data.


Asimov wrote one like this[0], but the theme is pretty common and shows up in many science fiction stories. I only call out Asimov's version because it also has the Machine screwing up orders on purpose to remove otherwise competent people from power who don't trust it.

[0]: https://en.m.wikipedia.org/wiki/The_Evitable_Conflict


Yep! That's the one


I suspect you are thinking of The Moon is a Harsh Mistress. Though, it has been a long time since I’ve read that book.


What is it that enables companies to seek the boundary of what is allowed by law, whereas when humans do it they are called assholes?


Because corporations are publicly owned. They're treated like humans in many ways, yet when it comes to responsibility they're protected by a facade of faceless leaders and shareholders.

The 2003 documentary "The Corporation" covers this subject in detail: "Documentary that looks at the concept of the corporation throughout recent history up to its present-day dominance." [1]

[1] https://www.imdb.com/title/tt0379225/


Greed has become something we celebrate instead of condemn.


The two are not mutually exclusive.

The general consensus around these parts seems to be that Amazon is a dog of a company.


It's a pretty interesting example of the pitfalls of ML. It's a clever and exciting use of ML and when observed in a silo is the correct thing for any company to do. The law wasn't designed for such sophisticated modelling of the domain. Screwing over small and medium businesses was never the goal, it's just an inevitable consequence. The flip side is the algorithm cannot model what happens once they screw over businesses so badly that it causes a mass migration away from Amazon (because they've not seen that data before). Fascinating to see how this plays out.


What is different — generally — between the way Amazon determines prices, in your example, and the way Google determines the best search results? It seems they both use massive knowledge and technology advantages to determine something that’s in the best interest of the company...

In fact almost all large businesses use these types of data to maximize profits, I would assume. Is there a functional difference between changing a digital page to optimize return and changing a store shelf configuration at Wal Mart to do the same? Because of course Wal Mart uses analytics to determine their store layouts and deal placements etc.


> What is different — generally — between the way Amazon determines prices, in your example, and the way Google determines the best search results?

The fact that the US only cares about how action like this effects the price an end-consumer pays in a good


I think the problem might be even more complex than that. From what you’ve said they seem to be training AI to predict what people want and how valuable it is to them. This problem used to be the role of the giant distributed computational process know as the Free Market. Communism/Socialism famously found that problem too hard to solve and collapsed as a result. If there’s a new way to solve it, it’s both hard to argue that’s a bad thing, and a major threat to many of society’s institutions.


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.


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/

[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".


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.


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?


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.


Loss leaders are not universally legal, they are legal in some US states and illegal in others[1] - this may actually be a giant can of poo that's heading towards Amazon now that most states are agreed sales tax should apply to online purchases. Personally I find that loss leader pricing is unethical in a free economy, but my opinion isn't US law.

[1] https://www.aeaweb.org/research/loss-leading-bans-retail-com...


Can you explain why you feel that it's unethical? That's not something I've ever thought to consider one way or the other.


I think that loss leading leads to device or producer lock in (as it's intended to) and limited the utility of devices for frivolous reasons - if your nuclear reactor specifically requires rods with little notches at the end feel free to warn and protect against incompatible notches, but if that notch requirement was to lock the consumer into your Atomizer Brand Rods(R) then you may force a consumer into making fiscally unsound choices down the line, preventing a new competitor with a genuinely improved (possibly even safer) product from being able to compete fairly. Loss leading is just another barrier to entry that incumbent companies can establish to prevent free competition.


I feel like that's more the Gilette/HP "expensive propriatery consumables" model, not the classic loss leader.

When I think of "loss leader" I think of the Thrifty pharmacies that used to have an ice-cream counter. People went in for a 35-cent cone and ended up buying $10 of other merchandise that more than made up for the 15 cents Thrifty lost on the cone.


That Gilette/HP model is something I consider unethical as well. It's manipulative (instead of a honest deal, it tries to mess up people's calculus), anticompetitive (undercuts honest dealers) and generates ridiculous amounts of waste - doubly so, when you end up in situations like people buying new printers every time their old ones run dry, because even with reduced-capacity starter cartridges, it's still a better deal than just buying ink cartridges.


The example that comes to my mind for "loss leader" is stores a while back selling CD-R spindles for almost free, limit one per customer, to get people in the door. No lock-in at all, just a way of doing advertising.


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


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


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?


I thought the difference is that in one case you sell below market price (loss leader) and in the other below production cost.

So: 1$ production cost 5$ market price

Your price: 3$ -> Loss leader .50ct -> Predatory pricing


Beyond being indistinguishable but by intent, loss leaders deployed at scale effectively are predatory pricing.


Or controlling the market place where those middle-men are operating from which you're forcing them out? Really, the burden of proof here is on Amazon and I'd be amazed if there wasn't really clear cut proof that they used analytics they don't offer to outside clients (private information) to specifically undercut the existing sellers (under pricing) or selling the products at a profitable point unrealizable if you need to pay their listing fee (again under pricing) or even just delisted their competitors products or discouraged searches from returning them as valid options.

Pretty certain amazon checked at least one of those boxes - reasonably confident they checked at least three of them.


> the burden of proof here is on Amazon

What? What kind of standard is that?


But cutting out the middlemen is a good thing, not a bad thing.

It means that less groups take a cut of the profits, and prices.can be reduced because of it.


(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.)


The "consumer welfare standard" is a relatively recent thing, as the article points out, and there were antitrust actions (e.g. blocking of mergers) that were sustained without direct evidence of consumer prices going up as a result prior to that standard being enshrined.

And many people don't think it's a valid standard. So you might be correct in that this is currently legal - or, perhaps, unenforceable because there's no way to prove that it is illegal to the requisite standard of proof. But if so, then to me that would be yet another argument in favor of getting back to antitrust that we used to have before it got Borked [1], since what we have right now is very clearly not working.

[1] https://www.theamericanconservative.com/articles/robert-bork...


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.


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


I haven't looked closely enough to see if there's evidence, but we can finesse the matter by just taking the law student part out of the title above.

lvs 31 days ago [flagged]

You're clearly engineering on how to evade antitrust law. But the better argument is simply that if antitrust law doesn't sufficiently cover Amazon's business, then it needs to be changed to ensure that it does.


Reposting a flagkilled comment like this is obviously an abuse of the site. Please don't do it again.


[flagged]


You can disagree on whether or not Amazon is pricing things ethically, or whether or not antitrust laws should cover Amazon's actions, but the article title is "Is Amazon Violating U.S. Antitrust Laws" which, in the current state of US law, it (probably) isn't.


This comment crosses into personal attack, which is not allowed on Hacker News. Please make your points without stooping to that.

In this case, the nasty bits at the beginning of the comment could be replaced with a factual explanation about the issue at hand. Since you say it's clear, that ought to be easy to do, and it would make your comment into a good one rather than a bad one for HN.

https://news.ycombinator.com/newsguidelines.html


No, a personal attack would be to suggest the moderators at HN are defending Amazon employees from criticism using intellectually dishonest tactics. That would be a personal attack.

Nothing I said was about the poster as a person, but rather the poster represented him/herself as a representative of a company at issue. If you're on here representing your company for good press, expect criticism. If you're moderating that away, look in a mirror and ask yourself why. Does one of the largest companies on earth really need to be defended in the public square by HN moderators?


No, of course. But I'm defending HN, not Amazon. Had your comment been pro-Amazon the moderation would be the same.

You broke the site guidelines by accusing the commenter of posting in bad faith and by making a serious allegation in a snarky, drive-by way. If you're going to address that sort of issue on HN, your comment needs to lose those qualities and contain more information. That's true regardless of how correct your view is.


Sounds like you're putting a lot of words in my mouth. Delete this account please.


It is your duty to evade violation of the law, and your absolute right to evade accusations of violation of the law.


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.


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?


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.


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?


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.


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.


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

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

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


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.


> 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?


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


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.


Isn't this basically converting capex to opex?


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.


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.


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.


>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’


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!


"Privilege" in this context is sarcastic or exaggerated. It's a common figure of speech.



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.


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.


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...

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://www.geekwire.com/2018/dropbox-saved-almost-75-millio...


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?


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/


> ...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.


And that's the question that seems pretty clear cut as a violation - not currently provable but highly indicated by evidence. The portion of Amazon that sells things to consumers provides a clear incentive to raise barrier to entry in the market that they sell those things in - and Amazon also happens to own the market that these things are sold over.

This is part of the reason I think there should be concern over Amazon, Google & Apple's profitability (and to a lesser extent Microsoft and Valve) creating a walled garden app store opens up all sorts of crazy anti-trust exposure, just because the FTC is currently declawed doesn't mean that exposure doesn't exist, that risk is just being deferred.

In cases like Amazon where they are actively competing against competitors on their own platform... the question of how their suggestion algorithm works is a huge can of legal liability.


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


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?


Maybe. But the fact that Uber and Lyft are actively competing (both with taxis and each other) using that model would be a pretty strong argument to the contrary.

At the end of the day, antitrust legislation exists to protect consumers and markets, not established businesses. Prices under cost, in isolation, pretty much can't be antitrust violations by definition. They have to be used to effect a harm to the market in other ways.


The article touches on this briefly

>The paper could also spur the Federal Trade Commission to make a simple rule change that would lay bare Amazon’s practices. And, it could blow up a scheme that Uber, Lime, and numerous other startups have been accused of undertaking.


Article was written about a specific incident rather than every incident.


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."


That's ridiculous. There is no law that mandates consumers get a specific percentage of the economic surplus. Amazon is worth about a trillion dollars. Amazon has 100 million prime customers, not to mention all the non Prime customers. With these very generous assumptions NOT in Amazon's favor, $10K equity per prime customer is totally on par with the amount of lifetime consumer surplus a Prime customer enjoys thanks to Amazon existing, possibly in gasoline and shipping savings alone! Amazon probably does anti competitive things, and competing vendors and their low skill employees and contactors maybe earning less, bit it's laughable to claim that customers are suffering.


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.


Free delivery isn't free; it's just amortized baked into the price. The real savings come from logistics like getting one shipment from the Everything Store instead of 5 separate shipments.


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


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.


This view, that prices to consumers are really the only thing that matters, is why Amazon was able to use the Justice Department to remove their only real competition in the eBook space (Apple).


That seems like you could easily circumvent by claiming the underpriced service is a loss leader, routing customers towards more profitable upsells at other points in the relationship. Printers and toner, handles and razors, banks and toasters.


These all[1], along with the general concept of a loss leader, are instances where a company is leveraging patent or protected data laws in an unintended manner to set up a moat against competition - as this is anti-competitive all these examples should be examined to see to what extent are preventing free enterprise - printer toner is a particularly egregious example of using device lock down to prevent a legitimate use of a product.

[1] Except banks and toasters which is... a weird example case


Okay, poor examples?

How about quickie marts selling underpriced drinks in the back... but you usually end up buying other things on your way to the drinks that have the big margins. The drinks are probably undercutting other stores.


I have less of an issue with this sort of an arrangement as the low saturation point for selling drinks means that the locality of the quickie mart already gives it a huge competitive advantage, under-pricing their drinks isn't likely to effect competitors - just spur on more sales as a sort of advertising.

That said if a drink stand (maybe a food-cart) was unable to match the prices offered by a quickie mart because they were selling at a loss - then I think we've returned to a situation where loss leading is creating a barrier to market entry.

The quickie mart is a really good example (I also like toy stores that sell cheap diapers to try and leverage free eyeballs as they pass through the store) where the market has a very low natural level of competition and there aren't as many specialized sellers - I think in these cases a loss-leader could be permitted on a small scale, but still be held subject to legal action if the disparity started suppressing the local market.

(Also, sorry, I didn't mean to criticize the bank toaster example, I was actually quite amused by it, I've never heard that described as a loss-leader but it totally is)


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


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


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.


Amazon has always focused on lowering prices, as long as Bezos is around I don’t expect that to change. By the way Walmart clobbered competition with lower prices for last 60 years, did all retail go away? No, in fact several places like Target, Costco etc popped up and have carved out a niche and they all still compete on prices


Do you really think they're ever going to be the only online retail company in the country?


Does antitrust law apply to a monopsony?


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.


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.


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


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.




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