Don't fear Amazon's profits, fear its monopolistic nature

Don't fear Amazon's profits, fear its monopolistic nature
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The Federal Trade Commission (FTC) will kick off public hearings Thursday on competition and consumer protection in the 21st century, and one of several key topics will be whether the U.S. economy has become more concentrated and less competitive.

These hearings mark a critical step forward in scrutinizing the harmful business practices of a handful of dominant tech companies, but FTC leadership should focus on the one company whose business model is harming small businesses and everyday Americans the most: Amazon.

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Amazon was founded in the mid-90s as a small online bookseller and in just over 20 years has grown into a global e-commerce and cloud computing behemoth. Today, Amazon is the third-richest company in the world, and it recently eclipsed a $1 trillion market capitalization for a time.

But the company’s profits should not be what stokes fear into the hearts of regulators — its relentless pursuit of gobbling up its competition should.   

In the last five years alone, Amazon has acquired more than 35 companies, infiltrating industry after industry. In 2017, Amazon paid $13.7 billion for grocery giant Whole Foods. This year, Amazon paid $1 billion for home doorbell-maker Ring and roughly the same for online pharmacy startup PillPack.

The results are clear: Just about half of all online retail sales in the United States make their way into the company’s coffers. It is exactly this kind of acquisition strategy, designed to stamp out competition, which is also contributing to such low rates of new business creation.      

The FTC should start by challenging Amazon’s hybrid business model in which the tech giant acts both as a platform for sellers and a seller itself, amassing troves of consumer data as well as data on third-party sellers that do business on Amazon’s site.

It is a model replete with conflicts of interest, enabling Amazon to influence sales trends, manipulate prices and drive consumers to its own products, which third-party sellers have long complained about.

Experts recently noted that powerful word-search algorithms derived from competitors’ sales enable Amazon to drive its own private labels at the expense of other brands. The consequences of this unprecedented concentration of power were clear this year when Amazon hit third-party sellers with increased fees just to run discounts during Prime Day. 

Worse, Amazon’s share of online commerce combined with its dominant share of search for goods leaves sellers with few choices but to continue offering their products and services on these platforms — further fortifying Amazon’s dominance and continuing this vicious cycle that eats into sellers’ own operating margins.

Regulators need to carefully consider whether they can continue to allow one of the richest companies to be both the ends and the means of online retail.

Perhaps the reason Amazon has escaped the scrutiny directed at Facebook, Google and others by lawmakers and regulators is because it is has increased its lobbying expenditures in Washington over the last 10 years by a factor of seven.

Now it is time for Amazon, which has raked in a staggering $1.5 billion in taxpayer subsidies since 2000, to respond to the same questions that Mark ZuckerbergMark Elliot ZuckerbergChina may be copying Facebook to build an intelligence weapon Facebook announces verification to images and video on platform Hillicon Valley: North Korean IT firm hit with sanctions | Zuckerberg says Facebook better prepared for midterms | Big win for privacy advocates in Europe | Bezos launches B fund to help children, homeless MORE fielded during his three-day, 10-hour testimony and provide the American people with answers.

In the meantime, the FTC has the best opportunity yet to take a serious look at the harmful business practices of Amazon. 

Robert B. Engel, retired CEO of CoBank, is the chief spokesperson for the Free & Fair Markets Initiative.