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Amazon, Antitrust, Auctions

https://www.nytimes.com/2018/09/19/technology/amazon-europe-margrethe-vestager.html

 

The explosive growth of Amazon as a company and the powerful effect it has had on society – changing the way we shop and even threatening certain industries with obsoletion – has brought about antitrust concerns among the American and European public. Not only does Amazon have huge depth in its primary area of business – ecommerce – but it is also steadily increasing its breadth and reach into other industries and services, such as Amazon Web Services (AWS),  AmazonFresh and Prime Pantry, and Amazon Music. Thus, it is unlike a traditional monopoly in that it dominates one industry, but also controls a large part of economic activity in general.

 

The question about Amazon’s antitrust status also relates to game theory. Amazon is currently under scrutiny by the EU for potentially using data from third-party sellers, who provide most of the products sold on the site, to improve the prospects of Amazon’s own products, giving the company an anticompetitive edge. Clearly, it is to Amazon’s benefit to maximize its profits – that is, at least, until the company pushes the boundaries enough to trigger a regulatory backlash.

 

These data issues are not the only controversy Amazon has had to deal with recently. Amazon’s current strategy is to undercut prices of local, physical stores until they are forced into bankruptcy, eliminating the competition, after which Amazon is free to set prices as it wishes. Amazon also relies on a very fast, efficient, and reliable transportation network for the continuing success of its ecommerce business, but uses questionable methods to achieve this goal.  These strategies have earned Amazon the ire of European regulators, and increasingly the suspicion of the general American public. Amazon’s business practices, tax payments,  treatment of workers, and even the wealth of Jeff Bezos himself, have increasingly come into scrutiny. Amazon can continue business as usual and still grow as a company, but it risks repercussions from regulators and politicians.

 

The path forward for regulators is unclear. In the US, antitrust laws have not been used to enforce a major split-up in decades, and nationalization is extremely unlikely. As difficult as it may be to break up Amazon, any antitrust action or settlement would spur a huge auction-type scenario, both for Amazon’s assets and for shares of the new companies. Amazon controls a wide transportation network with extensive infrastructure all over the world, which is crucial to Amazon’s own success – but can another entity make effective use of only a small fragment of this network? Is it even possible for a new company to compete with Amazon by providing a niche service, let alone challenging Amazon with a full-scale ecommerce service?

 

Questions about Amazon have also spurred conversation about the monopolistic nature of other tech giants, such as Google and Facebook. Some take issue with the dominance each company has over its nearly insignificant competitors, in addition to the access of a massive amount of data that these companies control. How can something as intangible as a social network or a search engine be broken up? What, exactly, is proprietary – data, algorithms, ?  Any action taken towards Amazon will set a precedent and could likely affect others in the tech industry. As such, many players have have a stake in the strategy Amazon chooses. Amazon must choose its next strategy carefully, and be careful not to dabble with anticompetitive practices – the world will be watching closely.

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