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I am a pretty prolific user of Amazon, probably like many on this board. My brother and I had a recent competition and I think he won, but we were both close, in having well over the mid-100 deliveries last year.

I think it was 6-8 months ago Amazon opened a warehouse in the next town over, maybe 15 miles up the road, so this morning I thought to do some “tracking” of past and future shipments, and except for one (remanufactured Garmin GPS for the boat) every single item has originated at that warehouse.

There is a breathtaking assortment of stuff I’ve bought, everything from a replacement Nest thermostat to an ear/nose hair trimmer to cat grass to a special boat mirror to door latches to a Tesla-to-1772 converter connector to USB-C right angle plugs to solar charge controller to hot water heater coil to well, lots …and more.

Where I used to get stuff from two or three centers (Kentucky, Illinois, etc.) everything now comes from just up the road. I’ve seen the videos of inside an Amazon warehouse, but the ability to have so much stuff on hand, dispatchable in an instant is truly mind-boggling, at least to me.

Which brings me to another story: about two weeks back I was driving one of the back-roads to an artist supply store to avoid the main road, except that road crosses a railroad track and I was stopped by a train. A long train. So my shortcut didn’t exactly save me any time, eh? And here’s my memory of what the boxcars said on the side as they went past:

Amazon. Amazon. Amazon. Walmart. Amazon. Amazon. {some unknown freight company}.
Amazon. Amazon. {unknown}. Amazon. Amazon. Walmart. Amazon.

Then there was an interlude of maybe 8-10 tanker cars, followed by a series of intermodals, or 18-wheeler trailers on flat cars. Ready?

Amazon. Amazon. {unknown}. Amazon. Amazon. WalMart. Amazon [unknown} {unknown}
Amazon. Amazon. And it continued…

I have to say I was mesmerized, and I wish I had thought to whip out the camera and take a picture of it. The scale of this industrial behemoth, having come into existence just 30 years ago is/was just amazing. (No great point here, just wanted to tell somebody the story.)

The scale of this industrial behemoth, having come into existence just 30 years ago is/was just amazing. (No great point here, just wanted to tell somebody the story.)

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There IS a great point to make here... The US has utterly failed in enforcing anti-trust regulations for the past forty years. The last key trust-busting effort was the AT&T breakup that took effect in 1984 but had legal roots dating back to 1974. And think of what that breakup did... It broke the monopoloy that ignored newer packet switching technologies in favor of existing time-division multiplexing technologies. It spurred investment in fiber technologies that began pushing their way from the long-distance cores of telecom networks to the edge, increasing customer bit rates far beyond what copper twisted pair and T1 circuits could provide. In short, it triggered a change in markets from a world of $0.44/minute long distance to one where nationwide free long-distance is the norm and even international phone calls can be made over IP networks for free.

The RBOCs were still deluded as recently as the early 1990s that ISDN was state of the art networking technology. "We'll bond TWO 64,000 bits/sec channels together and give you... wait for it... 128,000 bits/sec. Oooooooh."

There is no way a properly functioning economy and a properly functioning judiciary should have allowed Amazon to reach even half its current size in the retailing and distribution of so many products in so many sectors. Its current size provides an illusion of choice but a reality consisting of a world where many of the goods sold are cheap throwaways driving worthless returns that get tossed into landfills or serve their purpose for a few months and still wind up in the landfill. Amazon uses its sales insights to identify products it can make on its own after someone else proves the viability then drives the originator out of business. The very definition of monopolistic abuse of market power.


WTH

There is no way a properly functioning economy and a properly functioning judiciary should have allowed Amazon to reach even half its current size in the retailing and distribution of so many products in so many sectors.

Antitrust doesn’t prevent a company from being big, even huge. It prevents (supposedly) a company from abusing that position to disadvantage competitors, and thereby keep the monopoly for itself. With AT&T it was the refusal to let other non-AT&T devices connect to the network (or other networks like MCI’s microwave network). With Microsoft it was the use of the OS to capture the market for middleware or top level software. For Standard Oil it was, well, we all know the story.

So a couple questions: (1) what would you say the anticompetitive things are that Amazon has done or is doing to achieve their positions, and (2) what remedies would you use if you were in a position to eliminate/dismantle/ or otherwise fix the problem?

How would you fix it?

(1) What would you say the anticompetitive things are that Amazon has done or is doing to achieve their positions?

The FTC did a pretty good job summarizing the pattern of behavior in its September 2023 lawsuit filed against Amazon.

https://www.ftc.gov/news-events/news/press-release...

The FTC suit cites issues I hadn't even been aware of...

Anti-discounting measures. -- Amazon's "marketplace" isn't exactly free. If seven different makers including Amazon sell a particular product, any maker selling their product for LESS than Amazon's brand may suddenly find itself at the bottom of search results, making it far less likely the offer will be seen and far more likely that Amazon's competing product will be seen and purchased.

Illegal tie-ins. -- Many regular (daily?) shoppers of Amazon are Prime members and if faced with a choice between two products, one eligible for "Prime" shipping and one not eligible, they will pick the eligible product over the non-eligible. Amazon requires merchants to use its higher cost fulfillment system in order to be "Prime" eligible, thus steering volume to its internal system and unduly inflating its revenue.

Distorting search results with paid ads. -- This is two tactics in one. Rather than (say) listing 20 available sellers all offering the same or similar product based on search criteria in results, results are cluttered up with often duplicative ads of some of the higher ranked results, further pushing down the appearance of lesser ranked sellers and serving as another source of revenue that is eating into margins of sellers. The FTC alleges Amazon ad fees are nearly 50% of sales for some sellers. This is the equivalent of searching Google for "restaurants near me", finding 100 results returned but finding 30 of the top fifty are for three fast foot chains that are all paying premium fees to Google to crowd out mention of any competitors.

Intellectual property theft? -- I didn't see this listed in the FTC lawsuit but another pattern I have heard about involves small sellers of unique manufactured goods selling through Amazon who see their sales volume take off as consumers discover the product and find value, only to be approached by Amazon to see about selling their design to Amazon for IT to make. If they refuse, wanting to stay independent, they can find competitors cropping up making cheap clones that begin appearing higher in search results while their product gets buried further down in results or vanished entirely. Related to this, Amazon allows virtually any seller to register to appear on the market place and literally dozens (hundreds?) of names can appear as sellers with seemingly random, computer-generated names. Sellers are doing this not only to gain more appearances in search results to increase sales but to acclimate buyers to non-sensical names so when actual disputes over shipping, quality, returns or intellectual property theft of the product arise, it becomes easier for the seller to disappear. This also masks the fact that many sellers are fencing stolen goods, a practice Amazon obviously does not support or condone but made news as recently as June and July of 2023 as more crackdowns on the sale of stolen goods occurred with the involvement of DOJ and online sellers alike.

(2) What remedies would you use if you were in a position to eliminate/dismantle/ or otherwise fix the problem?

To understand the suggestions on fixing the current problem, it helps to first review the value proposition of the original Amazon business model then see how far Amazon has strayed from that mode of operation. Originally, the operating model for an online bookstore provided value by

a) Digitizing a much larger catalog of books than any single store or chain would likely be able to stock, thus exposing CUSTOMERS to the AVAILABILITY of a much larger universe of books, regardless of WHO eventually sold the book purchased by the customer. This helped consumers, publishers and sellers alike.

b) Shipping from a central location to make it more practical to carry lower-volume titles rather than only blockbuster high-volume titles. In industry lingo that applies equally well to other content like music and movies, this concept of making more off the entire universe of content exploitable for sales is called "monetizing the tails" as in making money not only by selling high volume titles in the middle of the bell curve of demand but also on titles further to both sides ("tails") of the bell curve. Again, the ability to "monetize the tails" helped customers, publishers and sellers (not just Amazon) alike. (This concept was NOT new with Amazon. Those of us of a certain age saw this model at work in the 1970s with Peaches Records & Tapes, which opened maybe 20-30 stores across the country that were the size of a supermarket and stocked EVERY title of EVERY artist of EVERY genre of music you could imagine. At the time, this model was only practical because record labels had generous return policies and stores could ship back the hundreds of copies they bought of "I'm in You" by Peter Frampton after realizing they weren't selling like "Frampton Comes Alive.")

Decisions about pursuing anti-trust litigation against a business always boil down to a few key considerations:

a) Is the nature of the business one that lends itself to a "natural monopoly"? This typically occurs in business involving services or manufactured goods with extremely high capital outlays (massive hydraulic presses for stamping out F-150 parts or thousands of miles of underground pipes or cables) that require years of predictable revenue to offset the up-front outlay. It can also occur when the "product" or service has "network effects." In a wired world, telephone service was a prime example. The value of the product was ENHANCED by only having one provider so everyone using the product could be reached on one phone. (Seen in photo of a window of a downtown business in 1910... "We have BOTH phones!") In a digital world, having only three or four operating systems for computers and now smartphones and tablets makes much more sense for developers and consumers than having thirty operating systems.

b) Is the business that might enjoy a natural monopoly in one realm using that market power to dominate other businesses? In the twisted-pair phone era, AT&T abused its natural monopoly for long distance and local phone service to dominate equipment manufacturing and business advertising. In the software realm, Microsoft abused its monopoly in operating systems (first MS-DOS, then Windows) to dominate application software with MS Office then with browsers.

c) Is the harm being generated by the monopoly firm's abuse outweighed by the "benefits" to consumers created by the scale at which the monopoly is operating? In the phone world, AT&T argued no other mode of operation would provide the ubiquity and bullet-proof reliability it created via the Bell System. That might be easy for someone outside the technology sector to believe if they didn't understand the impact of all of the looming technologies AT&T was ignoring in favor of milking its prior capital investments.

In the case of Amazon, after they won 20-30% of nationwide book sales in a country of 320,000,000 people, how much more upside is there in

a) maintaining a list of books, albums, books and household goods for sale?
b) seeing real-time sales data for 30% of sales against 300 million customers to predict what should be stocked?
c) running warehouses at a scale to serve 30% of sales across so many categories for 300 million people?
d) branching into actual delivery of said products to cut costs paid to other dominant shippers?

The answer is simple. NONE. If you can see directly into 30% of US sales into anything, you pretty much can extrapolate what you need to maximize efficiency in terms of WHAT you stock, WHERE you stock it to match demand and WHEN you need to re-order. Amazon warehouses have a great deal of sophisticated "picking automation" but MILLIONS of products are still packaged in ways that require human labor to "pick" and "package". You can see stories on any local news channel in a city with an Amazon warehouse about how workers literally break down in about 6-8 months from repetitive stress injuries from working at the pace Amazon expects in its warehouses. Amazon delivery drivers aren't 30% more productive or efficient than UPS or FedEx or USPS drivers just because Amazon is selling so much stuff. In fact, it can be argued Amazon drivers are less effective because they lack the safety training and onboard metrics UPS and FedEx use to ensure safety but Amazon doesn't care as long as they don't unionize. If you need to drive around with an empty pickle jar to pee in to meet delivery quotas, hey... That's a decision you have to make as an Amazon "associate."

When Amazon started selling books in the mid-1990s, they obviously didn't control 100% of the book market - they still had competition from Borders, B. Dalton, Barnes and Noble, and thousands of independent sellers. Amazon was founded in 1994 but didn't turn a profit until fourth quarter 2001. As the company expanded into music on CDs and movies on DVD then into more general merchandise, Amazon realized the investment in its "back office" systems for running the web site, settling payments and driving fulfillment itself was a product it could sell -- both the logic of the software used to maintain system uptime and physical computing resources -- and launched Amazon Web Services which has become one of its most profitable ventures. AWS nets an astonishing 27.5% profit margin -- $22 billion in operating income off $80 billion in revenue in 2022. This is the equivalent of Standard Oil owning every well head and refinery in its system then realizing they might as well own the railroads hauling all those barrels around then becoming a dominant shipper then abusing that market power as well.

How should Amazon be fixed?

Separate AWS from Amazon. AWS is the most profitable division within Amazon and is essentially subsidizing market abuses in retail while building and maintaining a one-third monopoly share in cloud computing (along with Microsoft Azure and Google). At this point, AWS itself is an abusive monopoly that attracts compute customers with low costs for new customers then traps them with astronomically high "switching costs" if a customer ever decides to migrate away from AWS.

Separate "marketplace" from Amazon Retail. The current operation of the Amazon marketplace is a sham and makes about as much ethical sense as a car dealer claiming to sell every make and model on the planet with "low, low overhead cuz I own my building and lot" when the dealer has minimum volume commitments to Ford and only 3 acres of space. If Amazon thinks "marketplace" by itself adds value to consumers, then spin it off to a separate, independent entity to operate. Otherwise, it is simply a means of maintaining the illusion of choice and price competitiveness while actually manipulating customers for Amazon's benefit and to the detriment of independent sellers.

More aggressive enforcement of OSHA regulations at warehouses and with drivers. Working conditions are appalling for warehouse workers and drivers. Amazon can't even bring itself to evacuate a warehouse in the path of an observed tornado.

https://www.firstalert4.com/2024/02/02/whats-being...


WTH

That is a fabulous list, even if some of it came from the government. I was aware of some, disagree with a few, and found some new along the way.

My disagreement comes with the argument that Amazon can see trends and then jump on them itself to produce “like” products and sell them to consumers. Sears did exactly that same thing a century ago; the word “Kenmore” comes to mind. Walmart has done the same thing, if not owning the product then taking the category to a new supplier who promises to make similar items more cheaply. (Think: China, even as American flags wave in the aisle.)

This is not new, nor stoppable, nor should it be. Where it goes over the edge, in my view, is in then disadvantaging the originator by product placement in the lineup over the original - although I’m not sure how that’s different than Sears putting the new item in the catalog or Walmart moving one product off the shelf in favor of the Chinese one. But I’m willing to say that Amazon using its “listing” power to advantage its own products is, per se, anticompetitive.

Similarly, I cannot expect Amazon to offer “Prime” service on drop-ship orders not fulfilled by them and sent, instead, from a manufacturer’s warehouse over which Amazon exerts no control. And yes, they should be paid for warehousing products in their many distribution centers around the country, just as grocers are (often) paid to display products on their shelves.

But I do find that “Prime” may (now) be anticompetitive, locking consumers into an ecosystem which gives them a perverse incentive not to use other merchants, and it seems unlikely that consumers are going to pay for more than one such “membership.” Is there a big cohort of people who are members both of Costco and Sam’s (or BJ’s?) I don’t know, but I’d be surprised.

The idea that Amazon started with books and therefore should be confined to that (or perhaps I’ve misread the argument) strikes me as folly. The “long tail” for books only existed for a few years, and only in Seattle. As the company grew parts of the long tail were sequestered at various places and then Amazon opened up to other vendors and eventually the “long tail” of books retreated in the face of “the store that will sell everything and anything”. This, I submit was a profoundly positive development and led to a business model unmatched by anyone, even Walmart (which had 20x the number of “distribution points”, but not the depth of selection at any of them.)

Yes, it also led to the development of the tech infrastructure, from which AMZN now derives a majority of profit. Whether that should be divested is an interesting question, and I am not convinced. Perhaps it should be segregated, but that is a different thing. And - perhaps not.

I would agree that the “have you seen this more cheaply” gambit is (perversely) anticompetitive, as it mandates vendors give Amazon the best price, even as they ratchet up their internal costs of warehousing and shipping, while limiting vendors other distribution venues or marketing efforts elsewhere. This stops vendors from competing on price even as it restricts manufacturers from seeking new markets by holding one arm (price) behind their back.

Likewise the encroaching ad business is fraught. Don’t buy ads, don’t show up in the listing (or show up 43 lines down). Of course you are free not to use Amazon at all, but with such market power that’s a hobson’s choice.

There’s more but this is already too long. I’m not sure what I’d do about it; maybe I’ll put some brain to words later on the issue. Thanks for the thoughtful post.

I have a relative that lives in a part of Maryland that now seems to be nothing but warehouses just a few miles down his home (built in the 1930s and was purchased by my grandparents). Not exactly where I'd want to live but he doesn't like change. The number/sizes of the warehouses is just amazing.

Sidebar here:

https://www.wsj.com/tech/microsoft-hit-with-eu-ant...

Microsoft Hit With EU Antitrust Charges Over Teams
Charges put tech giant back in the regulatory spotlight over competition concerns

BRUSSELS—The European Union charged Microsoft with antitrust violations related to the company’s bundling of its Teams collaboration tool with Office 365 and Microsoft 365.

The European Commission, the bloc’s antitrust enforcer, said Tuesday it has informed Microsoft of its preliminary view that the company broke antitrust rules by tying Teams to popular productivity offerings that include Microsoft Word and Excel. The commission said Microsoft may have given Teams an advantage by not giving customers a choice about whether they would get access to the software when subscribing to other products.

Changes that Microsoft made last year to the way it distributes Teams didn’t go far enough to address the competition concerns, the commission said. It also flagged concerns about the extent to which rival collaboration tools can integrate with Microsoft’s other products.

“The conduct may have prevented Teams’ rivals from competing, and in turn innovating,” to the detriment of European customers, the commission said. Microsoft President Brad Smith said the company appreciates the additional clarity it received on Tuesday “and will work to find solutions to address the commission’s remaining concerns.”

I am not a user of Microsoft products, nor am I in business, so this is pretty much irrelevant (and not entirely understandable) to me. I find it interesting that the EU is doing so much of what US antitrust law is supposed to do , while our government - no matter which party controls - looks the other way with a big “Meh.”

Later the article notes that if Microsoft does not satisfy the Commission with a sufficient remedy, is 10% of global revenue , which is a prodigious number and surely enough to get MS’s attention. They skated before, they will probably skate again, but this seems, well, BIG.

So a couple questions: (1) what would you say the anticompetitive things are that Amazon has done or is doing to achieve their positions, and (2) what remedies would you use if you were in a position to eliminate/dismantle/ or otherwise fix the problem?


Producing their own branded products that are often a direct copy of other successful products (they identify these products using sales and behavior data that only they have access to).

tecmo
...

" Amazon uses its sales insights to identify products it can make on its own after someone else proves the viability then drives the originator out of business. The very definition of monopolistic abuse of market power."

Amazon is also able to engineer its "search" function to promote and insert its own preferred products to the very top of the selection list. (Note that one can't use quotes to for exact match of a term nor can one select "closest match" (or something like that) for search results. I know that more than once I've given up on Amazon because they bury what I'm looking for under so many unrelated things.

I know that more than once I've given up on Amazon because they bury what I'm looking for under so many unrelated things.

It is called "e-shittification." At one time, most product searches started on Amazon. That still might be true, but Jassy has promoted ads and sponsored product to the point where finding products on Amazon sucks. Bezos' philosophy was to make the customer happy first, then the money would followed. Jassy is doing it backwards, IMO. AWS is printing money, which is covering up a lot of sins on the retail side.

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