If you’ve recently browsed Amazon for electronics, chances are you’ve stumbled across a brand called Amazon Basics. Amazon Basics is an Amazon house label which specialises in electronics and household goods. This includes items such as cables, ink cartridges, portable speakers, batteries, air conditioners, paper shredders, toasters, blenders, kettles, etc.
Amazon also has other house labels, albeit most with names that bear a less obvious connection to it e.g. Lark & Co, North Eleven and Society New York, to name just a few.
The products sold under these brand names are often priced incredibly low. As with most private labels, Amazon can undercut competitors by forgoing advertising and expensive packaging. Sweetening the deal even further, Amazon offers prime members additional incentives such as free shipping and a generous multiple on their cashback points. These can be considered legitimate synergies which Amazon exploits to gain a competitive advantage.
However, there are indications that Amazon may also use data to gain a competitive advantage in developing and selling these product lines — namely, the data it gets from Amazon Marketplace. Marketplace is the platform where third-party vendors can sell their goods on Amazon’s website. Amazon can (in theory at least) exploit this data -particularly when deciding regarding their private label products: It knows what products are in demand, at what price point and in what quantities — all without having to take any risks. Armed with this kind of information, Amazon can then easily muscle into any market it chooses to.
To make matters worse, Amazon typically dominates the online retail sector in the markets where it’s present. In Germany, (Amazon’s biggest market outside of the US) the e-commerce giant has nearly three times the revenue of its closest competitor, the homegrown former direct mail retailer Otto. The story is similar throughout Central and Western Europe, where Amazon is the top online retailer in most of the continent’s largest economies including the UK and France. Most merchants, therefore, cannot compete in online retail unless they sell on Amazon.
In its defence, Amazon claims “that it does not use data from one seller to compete directly with that seller”. However, this statement seems to leave open the possibility of collecting and using data across broader product categories. In addition, Amazon claims that its house labels constitute only 1 percent of revenue. However, it’s not clear why this would be reassuring to fledgeling small businesses like those which typically sell on Amazon Marketplace.
This is what regulators and lawmakers refer to as Amazon’s ‘dual role’: it is simultaneously a retailer and a marketplace. On the one hand, it creates the market by operating the infrastructure. On the other hand, it is also a player in this very same market:
“Operating both on an upstream intermediation market for businesses (“merchants”) and downstream retail markets vis-à-vis its end customers (“shoppers”) has created a strong conflict of interest for Amazon.”
However, to be fair, it must be said that the sales data which Amazon is collecting from Marketplace could possibly be used for entirely benign purposes — such as improving the platform. However, the potential for a conflict of interest exists and regulators have deemed it worth investigating — especially after allegations have surfaced that Amazon might be strong-arming some merchants which use its marketplace service.
Both EU-level and national regulators have recently launched investigations into Amazons conduct, looking specifically at its dual role.
The European Commission’s (EC) is looking into Amazon’s use of data by investigating whether the company sold the same products as the merchants which use its platform. The EC distributed Requests for Information (RFI) to merchants asking whether Amazon at some point sold the same products which they offered separately and, if so, how did Amazon treat the merchants once it entered the market. The RFIs also inquire regarding the data which merchants made available to Amazon “including (average) prices, quantities sold, specific conversion rates, rebate campaigns or quantities stocked.”
The European Commission has not yet specified whether the case against Amazon is under Article 101 or 102 of the Treaty on the Functioning of the European Union — or both. Article 102 forbids the abuse of dominant position while Article 101 prohibits collusion through an “exchange of information among competing merchants.”
For its part, Germany’s Bundeskartellamt (Federal Cartel Office) is looking specifically into Amazon’s “terms of business and practices on its German marketplace”.
While the cases are broadly similar, there is an important distinction between them: The EC is looking at ‘exclusionary abuse’ (conduct hindering the competitive opportunities of its rivals) which the Bundeskartellamt is probing alleged ‘exploitative abuse’ (imposing burdensome restrictions on Marketplace retailers which would not otherwise exist in a competitive environment.)
Amazon is even coming under fire in the US, where there has historically been far greater tolerance for dominant companies.
Presidential hopeful Elizabeth Warren’s plan to break up big tech calls for legislation that will designate some of these companies as “platform utilities” which will have to be “broken apart from any participant on that platform.”
This approach to anticompetitive practices can be considered an unusual and even radical turn of events in the United States, where there historically been a certain tolerance for dominant companies. In fact, if consumer prices did not increase, dominance was even considered the inevitable consequence of doing good business.
Considering these developments, it seems reasonable to conclude that a general antipathy is setting in towards the inescapable market dominance of tech giants.
Originally published at http://sebastian-andrei.com on June 2, 2019.