Amazon & Antitrust: The Cheat Sheet
If you aren’t familiar with Amazon’s prominence (some would say dominance) in the online market, you need to leave the cave you’re living inside and soak in the sunshine. If you are interested in Amazon’s ability to navigate the murky waters of antitrust regulations and anti-competitive practices, you’ve come to the right place.
Background
What started over 20 years ago as a small, online book seller based out of a two-car garage has grown into an online retail empire. Amazon has gained a loyal following of consumers due to its floor pricing strategies. The majority of the products it sells cannot be found for a lower price anywhere else.
Although Amazon’s roots are entrenched in the book industry, it has expanded to include so many other services that the books market is no longer its primary focus. Nevertheless, the books market is where the bulk of antitrust cases and arguments against Amazon stem from.
Fast Forward to 2010
Apple’s release of the iPad in 2010 coincides with the Big 5 publishers’ push for “fairer” e-book prices. Fairer for whom, you may ask? At the time, Amazon had approximately 90% market share in the e-books market, and Apple, along with the Big 5, wanted to disrupt Amazon’s dominance in this area.
These companies tried to dismantle Amazon’s share of this market by raising e-book prices. The publishers claimed that Amazon’s lower prices were “unfair” in relation to writing quality. These publishers believed they couldn’t adequately subsidize authors’ writings while still remaining competitive compared to Amazon’s prices.
The Big 5 did not want to compromise written quality for lower prices, stating that Amazon’s low prices were prioritizing price over quality, something they deemed as “unfair” to consumers. Apple’s iPad was released with the hope of wrestling part of the digital book market out of Amazon’s hands.
2012–2016: The Antitrust Backfire
Apple and the Big 5’s plan to unseat Amazon’s dominance in the e-book market backfired. They felt Amazon was acting anti-competitively, crowding competitors out of the e-book market. Their collusion to raise digital book prices was in response to fears about Amazon’s large, monopolistic market share.
However, monopolies are not inherently illegal. A monopoly obtained through superior product and/or performance is difficult to build a case against. (Source: Girard Gibbs)
Additionally, many antitrust cases are focused on the harm being caused to consumers. Amazon, with its low prices, was not seen as a nuisance to consumers enjoying widespread book availability at floor prices.
Rather than prosecuting Amazon in court, Apple and the five publishers were cited for conspiring to raise e-book prices. Deliberate, collusive price-raising is in violation of the Sherman Act. The case, filed in 2012 and settled in 2013, ended with the five publishers settling their claims and Apple being scheduled for a trial to determine the actual damages.
After several appeals, the Supreme Court ruled Apple must pay $450 million for attempting to fix e-book prices.
Amazon Wins Again
Office Depot and Staples, both of which have closed hundreds of stores in the last couple years, felt Amazon was stealing market share away from them. The two stated that in order to stay competitive in the office supply market, a merger was necessary to stay afloat with Amazon.
The Federal Trade Commission ruled that the proposed merger would greatly affect business consumers, and would be seen as anti-competitive. In May 2016, the court rejected the proposed merger between the companies.
The court decided that Amazon had no track record of being the company of choice for businesses searching for office supplies. Bulk purchases were still mainly conducted at Office Depot and Staples, and the merger would potentially result in raised prices for bulk office items, without an alternative.
The court acknowledged Amazon’s large share of the market and history of innovation, but determined that in the near future, no harmful practices toward consumers were being executed by the online behemoth. Amazon was mainly a place for individual consumers, not a place for business customers like Office Depot and Staples.
Is it Antitrust Immunity? Are they a monopoly?
Amazon, contrary to what some critics argue, is not “immune” to antitrust laws. Whether Amazon is becoming a monopoly is still up for debate, although this likely wouldn’t change anything.
As stated earlier, a monopoly is legally considered harmful when it negatively impacts consumers. In the case of Apple and the Big 5, the claims that Amazon was affecting book quality were not tangible enough to the court. More tangible were the concrete ways these companies tried to increase and fix e-book prices, an anti-competitive tactic.
Amazon’s low-price strategy is a blessing to consumers, something antitrust laws would view favorably, as the consumers’ best interests are at the forefront of their decisions.
While companies have accused Amazon of predatory pricing to eliminate competition in the market, Amazon has not raised their prices when there is a notable lack of competition. Without documented price increases, Amazon is not using its potential monopoly power to hurt consumers, but rather quite the opposite.
Concerns will continue to be raised about the future of consumers’ choices, but for now, Amazon’s low prices continue to keep market prices low and competitive.
Originally published to the Seamgen blog.
