Amazon’s poses “anticompetitive concerns—yet it has escaped antitrust scrutiny”

In the Yale Law Journal, Lina M. Khan makes the case that Amazon, as a platform, is not being considered correctly in terms of antitrust issues, often at the expense of other businesses in Amazon’s Antitrust Paradox.

Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny. This Note argues that the current framework in antitrust—specifically its pegging competition to “consumer welfare,” defined as short-term price effects—is unequipped to capture the architecture of market power in the modern economy.

These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.

It’s a lengthy read that includes a discussion of marketplace economics, Amazon’s strategy in undercutting competitors, and the effect they’ve had on other online retailers:

Does online retailing of baby products resemble shoe retailing or railroading? Given the absence of formal barriers, entry should be easy: unlike railroading, selling baby products online requires no heavy investment or fixed costs. However, the economics of online retailing are not quite like traditional shoe retailing. Given that attracting traffic and generating sales as an independent online retailer involves steep search costs, the vast majority of online commerce is conducted on platforms, central marketplaces that connect buyers and sellers. Thus, in practice, successful entry by a potential diaper retailer carries with it the cost of attempting to build a new online platform, or of creating a brand strong enough to draw traffic from an existing company’s platform. As several commentators have observed, the practical barriers to successful and sustained entry as an online platform are very high, given the huge first-mover advantages stemming from data collection and network effects

If you run an independent shop, you certainly understand the difficulty in competing with Amazon. Many of the most successful eccommerce shops do a majority of their sales on Amazon, which is great for them until Amazon increases fees, changes polices, issues a penalty, etc.

Andrew @ EcomLoop
EcomLoop founder. I've worked in ecommerce since 2005, beginning with my own ebay store. I've run multiple independent ecommerce businesses on Magento, Joomla, and more recently, Shopify and WooCommerce. I believe marketplaces should be looked at as a sales channel and that all independent businesses should strive to build a direct connection with their audience for long-term success.

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