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There are genuine "disruptive innovations" that are not rent seeking, but by and large that is not what we've seen. Picking on Amazon for a moment, their origi

There are genuine "disruptive innovations" that are not rent seeking, but by and large that is not what we've seen. Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Technically customers were supposed to pay a self-reported use tax but many did not. The relevant laws have changed since then, but the general point still stands. Does mere tax and legal arbitrage count as rent-seeking? Absolutely.

gruez 5y ago
>Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Sales tax in california was 7.25%. While not having to charge tax was a competitive advantage, I'm skeptical that was the defining factor that led to amazon's success. This is further compounded by how prices work in the US (taxes are not included), so I doubt this even made a conscious difference to most people. Finally, the exemption isn't limited to e-commerce sites. According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". Why did amazon dominate while sears languished?
- dragonwriter 5y ago
  > Finally, the exemption isn't limited to e-commerce sites. It isn't really an exemption, anyway, it is a limitation under then-existing federal law on the power of states to impose taxes. > According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". That's misleading. What it actually applied to, at the time, was companies without physical presence in the state into which the sale was being made. So companies that exclusively did those things would be covered (except in the State they operated from, but they could operate in a no sales tax state), but companies that did them alongside physical operations would not, and before the web, those other models alone had so much less access to customers that the sales tax hack wasn't worthwhile. > Why did amazon dominate while sears languished? Because while Sears also had mail order business, it was a ubiquitous brick-and-mortar retailer, and thus was paying sales tax on its mail order sales, because they had retail everywhere.
  - gruez 5y ago
    1. What changed with the internet? When amazon was started in the 90s, was the ubiquity of computer+internet access anywhere close to the ubiquity of the sears catalog? 2. I'm not really convinced that "the sales tax hack wasn't worthwhile". How expensive would it be to spin off your mail order division? Lawyers might be expensive, but 7.25% of your revenue is also a lot of money.
    - dragonwriter 5y ago
      > What changed with the internet? Someone could click a link on an ad and be on your “catalog” and able to order with very low friction, rather than seeing an ad, ordering a catalog, getting the catalog, then calling in or mailing an order. (Also, Amazon was initially specifically in books, and got started just after a few giants like B&N and Borders had crushed local independent bookstores and replaced them with giant, discounting, but more impersonal and on average more distant from the customer big box stores, so they were hitting a market uniquely (or at least particularly) primed for a convenient to access heavily discounting remote seller; not only was the internet a sea change

gruez 5y ago

>Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Sales tax in california was 7.25%. While not having to charge tax was a competitive advantage, I'm skeptical that was the defining factor that led to amazon's success. This is further compounded by how prices work in the US (taxes are not included), so I doubt this even made a conscious difference to most people. Finally, the exemption isn't limited to e-commerce sites. According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". Why did amazon dominate while sears languished?

dragonwriter 5y ago
> Finally, the exemption isn't limited to e-commerce sites. It isn't really an exemption, anyway, it is a limitation under then-existing federal law on the power of states to impose taxes. > According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". That's misleading. What it actually applied to, at the time, was companies without physical presence in the state into which the sale was being made. So companies that exclusively did those things would be covered (except in the State they operated from, but they could operate in a no sales tax state), but companies that did them alongside physical operations would not, and before the web, those other models alone had so much less access to customers that the sales tax hack wasn't worthwhile. > Why did amazon dominate while sears languished? Because while Sears also had mail order business, it was a ubiquitous brick-and-mortar retailer, and thus was paying sales tax on its mail order sales, because they had retail everywhere.
- gruez 5y ago
  1. What changed with the internet? When amazon was started in the 90s, was the ubiquity of computer+internet access anywhere close to the ubiquity of the sears catalog? 2. I'm not really convinced that "the sales tax hack wasn't worthwhile". How expensive would it be to spin off your mail order division? Lawyers might be expensive, but 7.25% of your revenue is also a lot of money.
  - dragonwriter 5y ago
    > What changed with the internet? Someone could click a link on an ad and be on your “catalog” and able to order with very low friction, rather than seeing an ad, ordering a catalog, getting the catalog, then calling in or mailing an order. (Also, Amazon was initially specifically in books, and got started just after a few giants like B&N and Borders had crushed local independent bookstores and replaced them with giant, discounting, but more impersonal and on average more distant from the customer big box stores, so they were hitting a market uniquely (or at least particularly) primed for a convenient to access heavily discounting remote seller; not only was the internet a sea change