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FRI, SEP 29, 2023

Is Amazon Abusing Monopoly Power?

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The Federal Trade Commission and 17 state attorneys general this week sued Amazon, claiming it’s abusing monopoly power in online retail. Is it a strong case? Jon Fortt is here to weigh in.

JON:

“The FTC does lay out a convincing case that Amazon is using its scale in online shopping to force businesses to use its advertising and fulfillment services.

The result is that Amazon keeps merchants from lowering prices on other platforms. So consumers end up paying more than they should.

Now, I know, this isn’t your traditional antitrust scenario where a company becomes the dominant provider in a category and then hikes prices on consumers without fear of competition. This is the digital economy, where Amazon is a superstore, a marketplace operator, an advertising platform and a logistics provider. And the FTC builds a case that Amazon is using its dominance as a superstore and a marketplace operator, along with its other strengths, to stifle competition and protect its share.

The suit offers data showing that among the top 4 retailers — Amazon, Walmart, eBay and Target — Amazon now captures about 80% of total online sales. For the health of the online economy, the FTC needed to call Amazon out. Way to go, Lina Khan.“

Is it really fair for the FTC to define a market of U.S. online superstores and declare Amazon a monopoly?

JON:

“On the other hand, that’s the problem: Amazon isn’t a monopoly, because the “online superstore” market the FTC says Amazon dominates doesn’t exist.

Nobody says, “I think I’ll buy toothpaste at an online superstore today.” We might Google toothpaste, or order it on Amazon, or pick some up at Walmart while shopping for groceries.

But the FTC imagines a world where the Internet has made price discovery harder, not easier. They’d have us believe Amazon has single-handedly hacked free market capitalism, turning consumers into web-shopping zombies paying more than necessary for online goods, trapped in Prime subscriptions they don’t want. The FTC also argues this expensive online universe Amazon has created exists completely separate from the rest of retail. It has its own rules.

But riddle me this: A Goldman Sachs note last month said 85% of retail purchases still happen in physical stores. Buy online, pick up in store is a growing trend. If all that’s true, and Amazon is price gouging, wouldn’t we all just go back to the mall? Inflation’s high. People want deals. This lawsuit is a joke.“

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*Why LinkedIn? On the Other Hand is about civil debate that illuminates the relevant facts. We’ve found that LinkedIn does a good job fostering that kind of environment.

On the Other Hand is Jon Fortt’s weekly segment on Squawk Box, Thursdays in the 7 a.m. ET hour. He’s been writing it just about every week since August 2020. The second (or first) argument each week isn’t necessarily the one Jon agrees with. He just makes an honest effort to construct the best argument he can for each side.

When he’s not debating himself, Jon co-anchors Overtime at 4 p.m. alongside Morgan Brennan. Jon also researches and writes the weekly Working Lunch segment on Power Lunch, Fridays in the 2 p.m. ET hour, where he introduces viewers to founders and CEOs through their origin stories and strategic goals.