A clean, sharply boxed order arrives at the doorstep of a satisfied customer within the standard, two-day shipping window. Amazon collects its money, and the customer enjoys their new product. Such transactions make everyone better off. How is it that such a free market exchange could possibly result in societal negatives?
According to recent statements by United States regulators, Amazon Web Services, the larger, data-gathering arm of Amazon, creates externalities overshadowing the benefits other parts of Amazon’s business provides. Such negative externalities stem from Amazon’s use of data and their domination of the online retail market.
Last month, the Federal Trade Commission began an investigation to determine whether Amazon engages in practices harmful to competition. Small business selling their products through Amazon’s online store may lack alternative marketplaces, completing ninety percent of their sales on the Amazon platform, according to federal investigators. This is in large part due to the size of Amazon’s share of the United States e-commerce market, estimated by widely-cited e-commerce researchers to be approximately forty percent. Regulators insist that Amazon dominates a significant portion of the market, allowing them to crowd out alternative marketplaces for third party sellers. Complicating matters, Amazon maintains its status as a retailer. Such a categorization places the company in a much larger market, allowing Amazon to self-report only a fourteen percent market share. Thus, substantial difficulty exists in merely determining the relative size of Amazon’s operation.
Previously, Amazon underwent investigations in the European Union for their supposed suppression of competition. European investigators indicated that Amazon uses customer data to determine which products sold through its site were most viable. The company then moved to make similar products part of its line brands, such as Amazon Essentials, promoting such products over the originally popular ones of the third-party retailers. European officials claimed that Amazon’s use of data in this way served to eliminate the wealth of options and lower prices traditionally categorized as benefits of online retail.
Amazon has been largely unresponsive to requests for comments, maintaining that the FTC is simply carrying out its due diligence. Compelling evidence exists for their stance, as the initial probe conducted by attorney generals was a part of a broader antitrust review of major tech companies. Despite such facts, in a thinly veiled statement, Federal Trade Commission chairman Joe Simons spoke of the possibility of breaking up “major tech firms” in an effort to limit anticompetitive practices. Furthermore, presidential hopeful Elizabeth Warren indicated that she would strive to break up tech giants, directly naming Amazon, should she gain the presidency. Clearly, despite Amazon’s maintenance of innocence regarding antitrust violations, major governmental players aim to prove otherwise.
Both European and American antitrust investigations are ongoing, with no date specified for closure. Meanwhile, Amazon complies with investigators while stressing their innocence, creating an interesting juxtaposition. Regardless of the outcome of the investigations, the decisions will likely serve as landmark cases, setting a precedent for the manner in which massive corporations are allowed to utilize customer data, and what level of market share dominance is acceptable given the ambiguity of markets in an online marketplace.
In much the same way that Facebook’s Congressional hearings shaped the way lawmakers, and to a larger extent, the American people, conduct their relationship with data-mining corporations, the ongoing investigation into Amazon’s practices will have reverberating effects on the scope of the tech sector. Should Amazon succeed, customers may have to be more diligent in fighting algorithms directing them to featured products in their search for the best deal. Should regulators prevail, Amazon and other tech giants may have to drastically alter their operations and face the possibility of being forced to separate into multiple business units. Such drastic measures are supported with growing momentum from major political players such as Elizabeth Warren and Bernie Sanders, as well as many other Americans from across the political spectrum. The investigation concerns new legal territories, invoking questions rarely confronted by policymakers prior to the technological boom.
Thus, the customer speedily receiving their pristine package on their doorstep may unknowingly possess a surprisingly more limited range of choices than they think, as they are directed to the products Amazon wishes to promote for the purposes of gathering targeted data, or simply generating more revenue through line brands.
John Wilkins is a Freshman in The Wharton School intending to concentrate in Finance and Business Analytics. His interests include consulting and business policy. He is from Wilmington, Delaware, and enjoys skiing, running, and playing classical piano in his free time.
Sources:
https://europa.eu/rapid/press-release_IP-19-4291_en.htm
https://www.cnn.com/2019/03/08/politics/elizabeth-warren-amazon-google-facebook/index.html
https://lifehacker.com/what-happened-at-the-congressional-hearing-on-facebook-1839307832