12 ms·

Amazon's Antitrust Paradox

116 points by urs2102 10y ago

fiatjaf 10y ago
Ok, 20 years of sheer monopoly and yet Amazon can't raise its prices or it will be beaten by other, more specific, retailers, Google and Microsoft. The case for antitrust law and State action should fall apart now. https://mises.org/library/anti-trust-anti-truth https://mises.org/library/anti-trust-anti-truth
- kuschku 10y ago
  Eh, Amazon actually has recently raised prices. Many products are now only available to Prime users, or are more expensive if you search it via Amazon than if you get it linked by someone else.
- Klathmon 10y ago
  But Amazon can lower their prices and snuff out any threats before they get too big. Not to mention that price isn't the only reason why monopolies are bad. I had a period of about 3 months where Amazon just couldn't deliver to my house. They switched to using their own carriers, and they would just never be able to find my place. I actually had a hard time finding another retailer that would ship to my house for less than double the total price of some of the things I was buying. Plus the (very real) threat that they can just remove an item from their store for any reason (the one that comes to mind is that Amazon doesn't allow anyone to sell chromecasts' on their store. Rokus, Fire Sticks, and various other streaming "devices" are fine, but chromecast is banned completely) means they also have a monumental amount of power to hurt anyone selling through them at a moment's notice. I'm not in a position to say whether or not Amazon is a monopoly, and I wouldn't even know the first thing about solving the problem, but IMO the fact that they haven't raised prices isn't exactly proof that they aren't a monopoly.
  - kemayo 10y ago
    Not just Chromecast -- they also completely ban Apple TVs. It's pretty sketchy.
  - urs2102 10y ago
    A great example is their Diaper.com fight with their launch of Amazon Mom [0]. [0]: https://www.bloomberg.com/news/articles/2013-10-10/jeff-bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone https://www.bloomberg.com/news/articles/2013-10-10/jeff-bezo...
  - naranana 10y ago
    >I had a period of about 3 months where Amazon just couldn't deliver to my house. And Amazon can also ban you forever from their service, for example if you return too many things in a short period. Imagine if that meant you couldn't buy anything at all because there aren't any competitors.
    - joemi 10y ago
      Loss of selling privileges can be a big problem too, and incredibly hard to fight. The store I work for once lost selling privileges for spurious copyright claims regarding books we had bought directly from large established publishers. Even with the publishers themselves (and sometimes the authors, too) writing on our behalf to state that there were no violations, it still took about two weeks to regain privileges. During a busy season, two weeks is a long time to be without profits for a small retailer.
- btilly 10y ago
  I wish more people knew the basic economic theory of monopolies. Because virtually all common public arguments, including yours, show abysmal misunderstanding of the issues. First let's start with something that your article got right. Virtually every monopoly is worth more in pieces than it is together. That is because maintaining the monopoly requires having profitable parts of the business subsidize other parts which are running at at unprofitable prices to shut down potential competition. The result is the sum of the pieces of monopolies that were divided by law were worth more than the original monopoly was. And THAT means that a divided monopoly almost immediately COSTS consumers more. So, as your article concludes, saving consumers money in the short run is not a reason to shut down monopolies. This immediately raises the question of why monopolies come around. If a monopoly is worth less than separate companies, why make one? The answer is that a monopoly is worth less than the entire area of business that it would monopolize, but it is worth more than any individual piece of that business. Therefore creating a monopoly is personally profitable to the one who does. OK, with that out of the way, why should we object to monopolies? The answer is simple. Monopolies are about establishing control. In the area that is controlled, the monopoly can make any unilateral decision that it wants. This is really, really bad for innovation. Innovation requires many different players trying many different things. With innovation, in time it is quite possible for consumers to get both better features and more competitive pricing than the monopoly would have managed. Getting rid of the monopoly is essentially always bad for consumers in the short run. But the long run could be a different story? As a concrete example, one contributor to the dot com boom was that the web offered a way to create businesses that Microsoft's monopoly could not squish. As another example, before the breakup of Bell Telephone, customers couldn't even choose what color they wanted for their phone! If they had not been broken up then it is unlikely that we'd have seen the rapid spread and improvement in things like smartphones. The long and short of it is that we should expect (relatively) cheap prices from a monopoly. And saving money is not reason to break one up. Our areas of concern should be continued innovation and availability of customer features.
  - meanduck 10y ago
    And I cant believe I have to type this on HN of all places. No one denies that monopolies are risky. In fact this is the argument against anti-trust regulations, which is basically a monopoly granted to very few people (which in practice, means a guranteed monopoly to a colluding subgroup of political class). There are probably more cases of harm done by this monopoly than by corporations monopolies. Also one major difference, Corporations have to earn their monopolies where the political class dont. Only one of these two will not think twice before abusing it. We already have a protection agaisnt monopolies aka free market.
- deleted 10y ago
  [deleted]
What_an_idea 10y ago
Nobody is saying anything because everyone owns a piece of AMZN..
gthtjtkt 10y ago
I feel like we're already starting to see the effects of Amazon's attempts to become profitable. Their customer service has certainly gone down the drain, and their whole website is littered with cheap garbage from Alibaba. To me, it looks like they pulled the typical bait-and-switch we see every day with mobile apps: Offer something great for free. Then, once you've cornered the market, start squeezing every penny out of your users and cutting corners everywhere.
- gdulli 10y ago
  Since I don't have Prime I'm not locked into Amazon. I've noticed in the last few years that the assumption that Amazon will have the best deal is no longer a safe one. I'm not surprised they push Prime so aggressively. The fewer people paying attention, the better.
  - rootusrootus 10y ago
    I have Prime and I don't feel the list bit locked in. I get enough value from the streaming video to justify the cost, free 2-day-ish shipping is just a nice bonus now. I'm also definitely aware of how their prices are no longer automatically the lowest. I shop around, factor in 'how soon do I want it', and sometimes I buy from Amazon, sometimes not.
- gowld 10y ago
  Alibaba garbage exists because the modern manufacturing and logistics economy makes it easy to deploy that stuff, and it overwhelms very similar looking quality stuff. You can shop sold-by-Amazon.com only if you only want highly reputatable stuff
  - deleted 10y ago
    [deleted]
  - mattpavelle 10y ago
    Actually, "sold-by-Amazon.com only" doesn't help avoid knock-offs. "For Faster Shipping, Items Are Commingled at Warehouses, Opening the Door to Knockoffs" (https://www.wsj.com/articles/on-amazon-pooled-merchandise-opens-door-to-knockoffs-1399852852 https://www.wsj.com/articles/on-amazon-pooled-merchandise-op...). Basically if a third party seller says it's a "Genuine Apple iPhone Charger" (whether it is or not) and the packaging looks real enough, it gets thrown in with all the other sellers (including Amazon) who have genuine chargers. Thus "sold by Amazon.com" means just what it says - "sold" by. Not "sourced" by...
chx 10y ago
Reminder: http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_profits_fall_45_percent.html http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro... > That's because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don't even buy anything from Amazon.
- gowld 10y ago
  Yglesias is a political pundit, not so much an economic expert. He doesn't understand reinvesting profits to grow a business.
  - superbatfish 10y ago
    You are mistaken. For example: - He wrote Slate's economics column, "MoneyBox," for a number of years. - He wrote a book about the economics of the housing market. - He co-founded Vox.com, which -- presumably -- reinvests its profits to grow the business.
    - johncolanduoni 10y ago
      I don't personally know much about him, but your first two points do nothing to make him look less like a political pundit.
      - caminante 10y ago
        I submit the points address questions over his economic analysis credibility. I'll add that his writing was good enough to trigger a response from Bezos in a letter to shareholders.
sosuke 10y ago
I don't understand the argument that they don't profit. All of their people get their pay. Instead of sitting on giant piles of cash they use it all to invest in more stuff. That sounds like a great idea! I never understand it when I hear such and such company has billions of dollars of cash just sitting around. If they spent that money wouldn't that help themselves and the economy? Truly I am no economist. Edit: I kept reading and I have to stop. I have too many counter arguments to each paragraph and I know I'm missing some larger picture they want to paint because of it. Without a significant investment of time which they've obviously devoted. I feel like they just really want to have an anti-trust lawsuit and are trying to fit the argument to available companies.
- gowld 10y ago
  companies have billions of dollars in cash often because they are waiting for a tax holiday before they move it from where it is to where they want to use it
- caminante 10y ago
  edit: ha! your edit nails it. You share a feature with the author in that neither of you are economists! ;-) I skimmed the writing to create a skeleton of the argument. The claims and solutions are wild. No, AMZN doesn't have a "free pass to grow without any pressure to show profits." This is evidenced by investor reactions to their Q4 earnings call. Her solution is a solution in search of a problem: More specifically, restoring traditional antitrust principles to create a presumption of predation and to ban vertical integration by dominant platforms could help maintain competition in these markets. If, instead, we accept dominant online platforms as natural monopolies or oligopolies, then applying elements of a public utility regime or essential facilities obligations would maintain the benefits of scale while limiting the ability of dominant platforms to abuse the power that comes with it.
  - pitaj 10y ago
    Please don't use code blocks to quote. Use `>` meme arrows instead.
deleted 10y ago
[deleted]
yeslibertarian 10y ago
There's no paradox in Amazon. The antitrust law makes no sense. The people will decide collectively and distributedly (= the market, a p2p network) if they like Amazon or not. There is a conceptual error in the idea of needing the government to interfere the market with these antitrust laws.
- devwastaken 10y ago
  Can you define what the 'market' is?
oli5679 10y ago
I think you have to have a really high standard of evidence for predation, because the cost of intervention to adress false positives (efficient firms undercutting incumbents) is so expensive. Think about the short run consumer harm that would be caused by Uber, YouTube, Southwest, Walmart or Amazon being restricted to charging higher prices. You have to be sure that the prevented predation is sufficiently risky. In all cases incumbents have made predation claims. No price hikes have materialised so far in any of the markets.
djyaz1200 10y ago
What this really is that Amazon is boot stomping their competitors so hard that they are positioning for the government to step in and break up the fight.
msandford 10y ago
The idea that Amazon isn't profitable is laughable at best. Examine what they're doing. If they stopped constantly creating new business divisions they'd be super profitable. They continue to invest in new businesses, though, so on the whole they're "unprofitable" on a cashflow basis. On a sales basis though? Immensely profitable. Just because Amazon has ideas about how to reinvest doesn't mean they're only breaking even on their sales or selling at a loss. Starting new businesses every year costs money. Amazon might not have balance sheet profits but the company continues to grow. How could they do that if they were making a loss on everything? They aren't issuing anywhere NEAR enough shares to keep the loss-leader scheme going on investor money: https://ycharts.com/companies/AMZN/shares_outstanding https://ycharts.com/companies/AMZN/shares_outstanding
- sbierwagen 10y ago
  http://www.dcvelocity.com/articles/20170202-amazons-shipping-costs-soared-in-fourth-quarter-far-exceeding-revenue/ http://www.dcvelocity.com/articles/20170202-amazons-shipping... "Amazon.com Inc. said late today that its fourth-quarter global shipping costs soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with increases in fulfillment demand brought on by another peak-season quarter of double-digit sales growth. At the same time, fourth-quarter global shipping revenue came in at slightly more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of shipping costs exceeding revenue. For the year, Amazon spent about $16 billion on shipping services and took in about $9 billion in revenue."
  - ne0n 10y ago
    Sure, and then there's Prime, which they're reveiving revenue for and providing many different services. That revenue is probably not counted as shipping, yet they have costs to send out those free Prime packages.
  - abtinf 10y ago
    If your point is that this is somehow damning to Amazon, it is an extremely silly metric. At least Amazon is collecting some revenue for shipping. I pay zero shipping costs to Costco, or Walmart, or Target, most Newegg items, gas stations, or grocery stores. Because it has become customary to package shipping costs into unit prices. I know people who buy everything, like toilet paper, from Amazon. I think they are crazy, because Amazon prices are generally at least double or triple for similar items from Costco. They like paying for the convenience. To each their own.
koga-ninja 10y ago
I wonder what Amazon's exit plan is. At what sum of Money would they shut their doors. I know they are publically traded, but every successful Company has a mission statement of sorts.
- matt4077 10y ago
  Are you saying companies hang a "mission accomplished" sign on the door and just close down? Is that the George W. Bush economic doctrine? In any case: if you really want Amazon to shut down, the cost is the current market capitalization, plus a healthy surcharge to convince enough shareholders to sell. In practical terms, there may be large shareholders looking unfavourable on your plans such as Bezos.
  - koga-ninja 10y ago
    Bezos is an outlier case, since every hedge fund is Watching if he buys or sells Amazon stock. There are successful publically traded companies that do Not care anymore. Seagate comes to mind. I remember a Pronouncement from the CEO a few years ago, in which He said that our customers use our product to store Porn. In other words, please don't invest in our Company anymore.
Animats 10y ago
Amazon achieved dominant market share more or less legitimately. It wasn't done by merger. It was done competing with bigger competitors, including WalMart and Sears. (Sears should have been huge in online commerce. They were once the biggest name in mail order. They blew it.) There's no public utility type monopoly with Amazon, compared to Comcast and AT&T, who have wires and poles. It wasn't done by selling at a heavy loss, like Uber. Amazon runs close to break-even, while building and operating expensive physical assets. The author is arguing that the old pre-Chicago School antitrust theory should be revived to protect Amazon's suppliers. Yet WalMart is much more heavy-handed in that area. They continually squeeze suppliers to cut their prices. Amazon squeezed booksellers hard to get them to provide e-books, but outside of that, Amazon is usually content to let their suppliers set prices and let them compete with each other. Amazon doesn't have a shelf space constraint in the way that WalMart does. There's a need for stronger antitrust enforcement in communications services and pharmaceuticals. They have real monopoly power. But Amazon? Probably not.
- caminante 10y ago
  Wonderfully said! Even with the book case (h/t phonon's link above), AMZN was still making money in the aggregate in its e-book business, despite the loss-leader bestsellers being sold at $9.99 and below their wholesale price. That's starkly different than firms (e.g. industrial) over-producing, under-pricing, and losing money (in aggregate) to gain market-share.
Booktrope 10y ago
This article repeats the canard that Amazon has been selling ebooks at a "loss", using this as a key example for its thesis. In actuality, Amazon wanted to discount ebooks, but the big publishers wanted no discounts so they could maintain ebook prices higher than paperbacks generally. Take the example in the article, where the publisher set an ebook price at $12.99. The standard publishing contract required a retailer to pay the publishing company about 50% of this amount, or about $6.50. Amazon paid approximately this royalty, and retailed for $9.99, making a gross profit of about $3.49 per unit. This is clearly not selling the item at a loss. The author of the article, claiming to be an expert on business, thinks that any discount from list price is selling at a loss - in other words, the article author, who claims to propose a better way to approach a fundamental part of business law (antitrust) doesn't understand the first thing about retail business. Discounts are not selling at a loss, unless the retailer sells for less than its cost. I suppose you could try to make some argument that it cost Amazon more than $3.50 a ebook over and above the cost of the product itself, but the author makes no effort to do so. And Amazon clearly has not been selling its products below cost generally, though in a business of its size, of course its likely that there are some exceptions. Consider, if Amazon really was selling books and other products below its cost, losing money on each transaction, where would the money come from to invest in all the new businesses like AWS, production of films and TV shows, etc, that the article's author thinks are such a problem? So here's a proposal for a "better" idea for antitrust law based on an article demonstrating lack of understanding of the first thing about business.
- phonon 10y ago
  You are incorrect. From Judge Cote's Opinion & Order, U.S. v. Apple, Inc., et al. https://www.justice.gov/atr/case-document/opinion-order https://www.justice.gov/atr/case-document/opinion-order One of the strategies that they [the publishers] employed was the elimination of the existing discount on wholesale prices of e-books. This meant that the wholesale price for e-books would equal the wholesale price for physical books, and as a result, the wholesale price that Amazon paid for an e-book would be set at several dollars above Amazon’s $9.99 price point. This tactic, however, failed to convince Amazon to change its pricing policies and it continued to sell many NYT Bestsellers as loss leaders at $9.99.
threepipeproblm 10y ago
TLDR: Amazon doesn't meet the definition of harm that has always been used in antitrust. Since they clearly need to be punished for their success we should expand the definition of harm to include whatever they are doing.

116 points by urs2102 10y ago

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

kuschku 10y ago
Eh, Amazon actually has recently raised prices. Many products are now only available to Prime users, or are more expensive if you search it via Amazon than if you get it linked by someone else.
Klathmon 10y ago
But Amazon can lower their prices and snuff out any threats before they get too big. Not to mention that price isn't the only reason why monopolies are bad. I had a period of about 3 months where Amazon just couldn't deliver to my house. They switched to using their own carriers, and they would just never be able to find my place. I actually had a hard time finding another retailer that would ship to my house for less than double the total price of some of the things I was buying. Plus the (very real) threat that they can just remove an item from their store for any reason (the one that comes to mind is that Amazon doesn't allow anyone to sell chromecasts' on their store. Rokus, Fire Sticks, and various other streaming "devices" are fine, but chromecast is banned completely) means they also have a monumental amount of power to hurt anyone selling through them at a moment's notice. I'm not in a position to say whether or not Amazon is a monopoly, and I wouldn't even know the first thing about solving the problem, but IMO the fact that they haven't raised prices isn't exactly proof that they aren't a monopoly.
- kemayo 10y ago
  Not just Chromecast -- they also completely ban Apple TVs. It's pretty sketchy.
- urs2102 10y ago
  A great example is their Diaper.com fight with their launch of Amazon Mom [0]. [0]: https://www.bloomberg.com/news/articles/2013-10-10/jeff-bezos-and-the-age-of-amazon-excerpt-from-the-everything-store-by-brad-stone https://www.bloomberg.com/news/articles/2013-10-10/jeff-bezo...
- naranana 10y ago
  >I had a period of about 3 months where Amazon just couldn't deliver to my house. And Amazon can also ban you forever from their service, for example if you return too many things in a short period. Imagine if that meant you couldn't buy anything at all because there aren't any competitors.
  - joemi 10y ago
    Loss of selling privileges can be a big problem too, and incredibly hard to fight. The store I work for once lost selling privileges for spurious copyright claims regarding books we had bought directly from large established publishers. Even with the publishers themselves (and sometimes the authors, too) writing on our behalf to state that there were no violations, it still took about two weeks to regain privileges. During a busy season, two weeks is a long time to be without profits for a small retailer.
btilly 10y ago
I wish more people knew the basic economic theory of monopolies. Because virtually all common public arguments, including yours, show abysmal misunderstanding of the issues. First let's start with something that your article got right. Virtually every monopoly is worth more in pieces than it is together. That is because maintaining the monopoly requires having profitable parts of the business subsidize other parts which are running at at unprofitable prices to shut down potential competition. The result is the sum of the pieces of monopolies that were divided by law were worth more than the original monopoly was. And THAT means that a divided monopoly almost immediately COSTS consumers more. So, as your article concludes, saving consumers money in the short run is not a reason to shut down monopolies. This immediately raises the question of why monopolies come around. If a monopoly is worth less than separate companies, why make one? The answer is that a monopoly is worth less than the entire area of business that it would monopolize, but it is worth more than any individual piece of that business. Therefore creating a monopoly is personally profitable to the one who does. OK, with that out of the way, why should we object to monopolies? The answer is simple. Monopolies are about establishing control. In the area that is controlled, the monopoly can make any unilateral decision that it wants. This is really, really bad for innovation. Innovation requires many different players trying many different things. With innovation, in time it is quite possible for consumers to get both better features and more competitive pricing than the monopoly would have managed. Getting rid of the monopoly is essentially always bad for consumers in the short run. But the long run could be a different story? As a concrete example, one contributor to the dot com boom was that the web offered a way to create businesses that Microsoft's monopoly could not squish. As another example, before the breakup of Bell Telephone, customers couldn't even choose what color they wanted for their phone! If they had not been broken up then it is unlikely that we'd have seen the rapid spread and improvement in things like smartphones. The long and short of it is that we should expect (relatively) cheap prices from a monopoly. And saving money is not reason to break one up. Our areas of concern should be continued innovation and availability of customer features.
- meanduck 10y ago
  And I cant believe I have to type this on HN of all places. No one denies that monopolies are risky. In fact this is the argument against anti-trust regulations, which is basically a monopoly granted to very few people (which in practice, means a guranteed monopoly to a colluding subgroup of political class). There are probably more cases of harm done by this monopoly than by corporations monopolies. Also one major difference, Corporations have to earn their monopolies where the political class dont. Only one of these two will not think twice before abusing it. We already have a protection agaisnt monopolies aka free market.
deleted 10y ago
[deleted]

What_an_idea 10y ago

Nobody is saying anything because everyone owns a piece of AMZN..

gthtjtkt 10y ago

I feel like we're already starting to see the effects of Amazon's attempts to become profitable. Their customer service has certainly gone down the drain, and their whole website is littered with cheap garbage from Alibaba. To me, it looks like they pulled the typical bait-and-switch we see every day with mobile apps: Offer something great for free. Then, once you've cornered the market, start squeezing every penny out of your users and cutting corners everywhere.

gdulli 10y ago
Since I don't have Prime I'm not locked into Amazon. I've noticed in the last few years that the assumption that Amazon will have the best deal is no longer a safe one. I'm not surprised they push Prime so aggressively. The fewer people paying attention, the better.
- rootusrootus 10y ago
  I have Prime and I don't feel the list bit locked in. I get enough value from the streaming video to justify the cost, free 2-day-ish shipping is just a nice bonus now. I'm also definitely aware of how their prices are no longer automatically the lowest. I shop around, factor in 'how soon do I want it', and sometimes I buy from Amazon, sometimes not.
gowld 10y ago
Alibaba garbage exists because the modern manufacturing and logistics economy makes it easy to deploy that stuff, and it overwhelms very similar looking quality stuff. You can shop sold-by-Amazon.com only if you only want highly reputatable stuff
- deleted 10y ago
  [deleted]
- mattpavelle 10y ago
  Actually, "sold-by-Amazon.com only" doesn't help avoid knock-offs. "For Faster Shipping, Items Are Commingled at Warehouses, Opening the Door to Knockoffs" (https://www.wsj.com/articles/on-amazon-pooled-merchandise-opens-door-to-knockoffs-1399852852 https://www.wsj.com/articles/on-amazon-pooled-merchandise-op...). Basically if a third party seller says it's a "Genuine Apple iPhone Charger" (whether it is or not) and the packaging looks real enough, it gets thrown in with all the other sellers (including Amazon) who have genuine chargers. Thus "sold by Amazon.com" means just what it says - "sold" by. Not "sourced" by...

chx 10y ago

Reminder: http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_profits_fall_45_percent.html http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro... > That's because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don't even buy anything from Amazon.

gowld 10y ago
Yglesias is a political pundit, not so much an economic expert. He doesn't understand reinvesting profits to grow a business.
- superbatfish 10y ago
  You are mistaken. For example: - He wrote Slate's economics column, "MoneyBox," for a number of years. - He wrote a book about the economics of the housing market. - He co-founded Vox.com, which -- presumably -- reinvests its profits to grow the business.
  - johncolanduoni 10y ago
    I don't personally know much about him, but your first two points do nothing to make him look less like a political pundit.
    - caminante 10y ago
      I submit the points address questions over his economic analysis credibility. I'll add that his writing was good enough to trigger a response from Bezos in a letter to shareholders.

sosuke 10y ago

I don't understand the argument that they don't profit. All of their people get their pay. Instead of sitting on giant piles of cash they use it all to invest in more stuff. That sounds like a great idea! I never understand it when I hear such and such company has billions of dollars of cash just sitting around. If they spent that money wouldn't that help themselves and the economy? Truly I am no economist. Edit: I kept reading and I have to stop. I have too many counter arguments to each paragraph and I know I'm missing some larger picture they want to paint because of it. Without a significant investment of time which they've obviously devoted. I feel like they just really want to have an anti-trust lawsuit and are trying to fit the argument to available companies.

gowld 10y ago
companies have billions of dollars in cash often because they are waiting for a tax holiday before they move it from where it is to where they want to use it
caminante 10y ago
edit: ha! your edit nails it. You share a feature with the author in that neither of you are economists! ;-) I skimmed the writing to create a skeleton of the argument. The claims and solutions are wild. No, AMZN doesn't have a "free pass to grow without any pressure to show profits." This is evidenced by investor reactions to their Q4 earnings call. Her solution is a solution in search of a problem: More specifically, restoring traditional antitrust principles to create a presumption of predation and to ban vertical integration by dominant platforms could help maintain competition in these markets. If, instead, we accept dominant online platforms as natural monopolies or oligopolies, then applying elements of a public utility regime or essential facilities obligations would maintain the benefits of scale while limiting the ability of dominant platforms to abuse the power that comes with it.
- pitaj 10y ago
  Please don't use code blocks to quote. Use `>` meme arrows instead.

deleted 10y ago

[deleted]

yeslibertarian 10y ago

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

devwastaken 10y ago
Can you define what the 'market' is?

oli5679 10y ago

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

djyaz1200 10y ago

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

msandford 10y ago

The idea that Amazon isn't profitable is laughable at best. Examine what they're doing. If they stopped constantly creating new business divisions they'd be super profitable. They continue to invest in new businesses, though, so on the whole they're "unprofitable" on a cashflow basis. On a sales basis though? Immensely profitable. Just because Amazon has ideas about how to reinvest doesn't mean they're only breaking even on their sales or selling at a loss. Starting new businesses every year costs money. Amazon might not have balance sheet profits but the company continues to grow. How could they do that if they were making a loss on everything? They aren't issuing anywhere NEAR enough shares to keep the loss-leader scheme going on investor money: https://ycharts.com/companies/AMZN/shares_outstanding https://ycharts.com/companies/AMZN/shares_outstanding

sbierwagen 10y ago
http://www.dcvelocity.com/articles/20170202-amazons-shipping-costs-soared-in-fourth-quarter-far-exceeding-revenue/ http://www.dcvelocity.com/articles/20170202-amazons-shipping... "Amazon.com Inc. said late today that its fourth-quarter global shipping costs soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with increases in fulfillment demand brought on by another peak-season quarter of double-digit sales growth. At the same time, fourth-quarter global shipping revenue came in at slightly more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of shipping costs exceeding revenue. For the year, Amazon spent about $16 billion on shipping services and took in about $9 billion in revenue."
- ne0n 10y ago
  Sure, and then there's Prime, which they're reveiving revenue for and providing many different services. That revenue is probably not counted as shipping, yet they have costs to send out those free Prime packages.
- abtinf 10y ago
  If your point is that this is somehow damning to Amazon, it is an extremely silly metric. At least Amazon is collecting some revenue for shipping. I pay zero shipping costs to Costco, or Walmart, or Target, most Newegg items, gas stations, or grocery stores. Because it has become customary to package shipping costs into unit prices. I know people who buy everything, like toilet paper, from Amazon. I think they are crazy, because Amazon prices are generally at least double or triple for similar items from Costco. They like paying for the convenience. To each their own.

koga-ninja 10y ago

I wonder what Amazon's exit plan is. At what sum of Money would they shut their doors. I know they are publically traded, but every successful Company has a mission statement of sorts.

matt4077 10y ago
Are you saying companies hang a "mission accomplished" sign on the door and just close down? Is that the George W. Bush economic doctrine? In any case: if you really want Amazon to shut down, the cost is the current market capitalization, plus a healthy surcharge to convince enough shareholders to sell. In practical terms, there may be large shareholders looking unfavourable on your plans such as Bezos.
- koga-ninja 10y ago
  Bezos is an outlier case, since every hedge fund is Watching if he buys or sells Amazon stock. There are successful publically traded companies that do Not care anymore. Seagate comes to mind. I remember a Pronouncement from the CEO a few years ago, in which He said that our customers use our product to store Porn. In other words, please don't invest in our Company anymore.

Animats 10y ago

Amazon achieved dominant market share more or less legitimately. It wasn't done by merger. It was done competing with bigger competitors, including WalMart and Sears. (Sears should have been huge in online commerce. They were once the biggest name in mail order. They blew it.) There's no public utility type monopoly with Amazon, compared to Comcast and AT&T, who have wires and poles. It wasn't done by selling at a heavy loss, like Uber. Amazon runs close to break-even, while building and operating expensive physical assets. The author is arguing that the old pre-Chicago School antitrust theory should be revived to protect Amazon's suppliers. Yet WalMart is much more heavy-handed in that area. They continually squeeze suppliers to cut their prices. Amazon squeezed booksellers hard to get them to provide e-books, but outside of that, Amazon is usually content to let their suppliers set prices and let them compete with each other. Amazon doesn't have a shelf space constraint in the way that WalMart does. There's a need for stronger antitrust enforcement in communications services and pharmaceuticals. They have real monopoly power. But Amazon? Probably not.

caminante 10y ago
Wonderfully said! Even with the book case (h/t phonon's link above), AMZN was still making money in the aggregate in its e-book business, despite the loss-leader bestsellers being sold at $9.99 and below their wholesale price. That's starkly different than firms (e.g. industrial) over-producing, under-pricing, and losing money (in aggregate) to gain market-share.

Booktrope 10y ago

This article repeats the canard that Amazon has been selling ebooks at a "loss", using this as a key example for its thesis. In actuality, Amazon wanted to discount ebooks, but the big publishers wanted no discounts so they could maintain ebook prices higher than paperbacks generally. Take the example in the article, where the publisher set an ebook price at $12.99. The standard publishing contract required a retailer to pay the publishing company about 50% of this amount, or about $6.50. Amazon paid approximately this royalty, and retailed for $9.99, making a gross profit of about $3.49 per unit. This is clearly not selling the item at a loss. The author of the article, claiming to be an expert on business, thinks that any discount from list price is selling at a loss - in other words, the article author, who claims to propose a better way to approach a fundamental part of business law (antitrust) doesn't understand the first thing about retail business. Discounts are not selling at a loss, unless the retailer sells for less than its cost. I suppose you could try to make some argument that it cost Amazon more than $3.50 a ebook over and above the cost of the product itself, but the author makes no effort to do so. And Amazon clearly has not been selling its products below cost generally, though in a business of its size, of course its likely that there are some exceptions. Consider, if Amazon really was selling books and other products below its cost, losing money on each transaction, where would the money come from to invest in all the new businesses like AWS, production of films and TV shows, etc, that the article's author thinks are such a problem? So here's a proposal for a "better" idea for antitrust law based on an article demonstrating lack of understanding of the first thing about business.

phonon 10y ago
You are incorrect. From Judge Cote's Opinion & Order, U.S. v. Apple, Inc., et al. https://www.justice.gov/atr/case-document/opinion-order https://www.justice.gov/atr/case-document/opinion-order One of the strategies that they [the publishers] employed was the elimination of the existing discount on wholesale prices of e-books. This meant that the wholesale price for e-books would equal the wholesale price for physical books, and as a result, the wholesale price that Amazon paid for an e-book would be set at several dollars above Amazon’s $9.99 price point. This tactic, however, failed to convince Amazon to change its pricing policies and it continued to sell many NYT Bestsellers as loss leaders at $9.99.

threepipeproblm 10y ago

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