Amazon critics press for US antitrust probe as e-commerce giant’s market share grows

12 January 2017 2:18pm

First published by MLex 29 November 2016. By Leah Nylen.

Nearly $1 out of every $2 that US consumers spend online this year will be through Amazon’s platform, a phenomenon that has made the e-commerce giant “a novel and dangerous threat to competition” as the largest online seller of books and toys and a leading retailer of apparel and consumer electronics.

Those conclusions come from a report issued Tuesday by the Institute for Local Self-Reliance, a nonprofit focused on community economic development. The report takes aim at Amazon’s alleged anticompetitive conduct, labor and employment policies and tax strategies.

US President-elect Donald Trump has said Amazon’s monopoly position and taxes deserve greater scrutiny, and the issues highlighted by Tuesday’s report are likely to form the basis of complaints to US antitrust enforcers under his administration.

In 2011, Amazon controlled about 22 percent of US online retail sales, either through its own sales or third-parties selling products through its website. That percentage has increased substantially over the past five years, with Amazon on track to control 46 percent of all US online sales in 2016, ISLR found, analyzing Amazon annual reports and e-commerce sales data drawn from ChannelAdvisor.

Today, online spending only accounts for 10 percent of the money US consumers spend. But if current trends continue, that amount is expected to reach 20 percent within the next five years.

In particular industries, such as books, Amazon has an even greater market share. Two-thirds of all books, both print and digital, are now sold online, and Amazon controls 70 percent of those sales, the ISLR report said. The company is now the second-largest retailer of consumer electronics behind Best Buy, controlling 17 percent of the market, and is projected to overtake its rival in 2017, according to a Deutsche Bank analysis cited by the report.

“If you look beyond Amazon’s modern veneer, the company looks remarkably like the Robber Barons of another age, who also took advantage of changing technologies to assert control, impede competition, and exploit workers,” ISLR said in its report. “So long as the company appears to offer consumers a good deal, at least in the short term, regulators have been inclined to overlook the predatory and exclusionary ways it exercises its power, and the harmful effects on competition and market diversity.”

In a call with reporters Tuesday, Stacy Mitchell, ISLR’s co-director and one of the report’s authors, said that Amazon “toggles back and forth between being a platform and a seller” controlling both the infrastructure that others need to access customers in its platform and a massive shipping business. That allows the company to act as both gatekeeper and competitor to rival retailers, she said.

“We are accustomed to thinking of the Web as this fluid place where a new competitor can come along at any point and change everything,” Mitchell said. “But there’s a lot of evidence from the last few years that that’s no longer the case and that Amazon has the financial wherewithal and the backing from Wall Street to take on losses whenever it needs to in order to prevent an upstart competitor from challenging it or to take market share in an industry where it’s going up against companies that don’t have that backing. … The result is fewer competitors and a less competitive economy over time.”

As an example, Mitchell cited Amazon’s conduct in 2009 when it cut prices of diapers below cost, preparing to lose $100 million over three months, in order to force the owners of to sell. She also noted reports that Amazon has been selling its Echo speakers, with the voice-powered Alexa assistant, and its new music service below cost in order to help gain market share.

Amazon declined to comment Tuesday on the report.

But the company could offer a number of defenses to accusations of antitrust problems. The report doesn’t break out what percentage of sales come from Amazon’s direct sales versus third-party sales, but Amazon could argue that third-party vendors have a number of other platforms on which they can sell products, including eBay and Etsy. Vendors also have the option of undertaking “fulfillment” — the packaging and shipping — themselves rather than relying on Amazon.

While the ISLR report cites several instances of alleged predatory pricing, the current state of US antitrust law would make it difficult for parties to prevail on such claims: A plaintiff must show that the company reduced prices below cost in order to drive competition out of the market and then raised prices above market levels.

This is by no means the first time in which Amazon has been accused of violating the antitrust laws. A group of writers who’ve dubbed themselves Authors United have twice met with antitrust officials at the US Department of Justice to press for a case against Amazon over its e-book pricing, first in 2014 in the midst of the e-commerce giant’s fight with Hachette, and again in September 2015.

Others have also raised issues with Amazon’s distribution arrangements for audiobooks through its unit and exclusive contracts that Amazon urges on self-published authors who use its Kindle Direct Publishing platform.

So far, those complaints have gone nowhere in the US, though several global antitrust enforcers have opened probes into Amazon.

The European Commission has been investigating Amazon for its use of most-favored nations clauses with e-books publishers. Germany’s antitrust authority has a separate probe into Amazon’s use of such MFN clauses in audiobooks, and Japan’s antitrust regulator has also opened a similar probe into the e-commerce company’s MFN clauses.

The reluctance of US enforcers to get involved could change. In a May interview, now President-elect Trump said that he would take action against Amazon, which he described as having “a huge antitrust problem”. Whether an investigation into Amazon will begin once Trump takes office in January remains to be seen.

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