On September 14The tenthThe California government announced antitrust action against Amazon. The The New York Times It impressively sums up the gist of this procedure, a complaint about the way Amazon deals with the many third-party merchants who offer their merchandise for sale on the Amazon website:
The lawsuit largely focuses on the way Amazon penalizes sellers for listing products at low prices on other websites. If Amazon discovers a product listed at a cheaper price on a competitor’s website, it often removes important buttons like “buy now” and “add to cart” from the product listing page.
These buttons are a major driver of sales for companies that sell through Amazon, and losing them can quickly damage their business.
This creates a dilemma for sellers in the market. Sometimes they can offer products at lower prices on sites other than Amazon because the cost of using these sites can be lower. Because Amazon is by far the largest online retailer, the complaint said, citing interviews with sellers, competitors and industry consultants, sellers would rather raise their prices on other sites than risk losing their sales on Amazon.
“Without basic price competition, and without different Internet sites trying to outperform each other at lower prices, prices are artificially settling at higher levels than they would in a competitive market,” the complaint said.
On the surface, Amazon’s policy of dealing with third-party merchants who sell on its site actually appears to be anti-competitive. If Amazon does not interact as it does with third-party merchants who offer their merchandise on other sites at lower prices than those merchants who charge for those items on Amazon, the merchants will reduce the prices they charge on other sites more easily. It seems that the prices on average will be lower and, accordingly, consumers will be better served.
But as always in economics, what we see does not reveal the whole, or even the most important part, of the relevant reality.
For a more complete and clear view of this reality, ask: Since Amazon discourages third-party merchants who use its site to sell their merchandise on other sites at low prices, why do these merchants nonetheless continue to display their merchandise on Amazon? The mere fact that California has a problem means that the Amazon platform is not the only one available for use by these merchants. So obviously the problem isn’t that Amazon literally monopolizes the market for online platforms that merchants can use. Merchants have, in practice, the option to use platforms in addition to Amazon’s platforms.
These other platforms open to merchants are not owned by Night Flight Operations. One is owned and operated by Target, and the other is owned by Walmart.
So the California complaint against Amazon boils down to this: Amazon has made its platform so attractive to third-party merchants that large numbers of them willingly pay a premium to keep using Amazon. These merchants pay this premium to Amazon when they actually agree not to lower the prices they charge for items for sale on non-Amazon sites.
What exactly does Amazon offer third-party merchants in return for paying this premium? I don’t know, I am not a third party merchant. but me an act Know that Amazon offers Something Valuable, otherwise outside merchants won’t agree to the terms Amazon asks for, or won’t care if Amazon reduces the visibility of their offerings on its platform.
Amazon’s platform may outperform other platforms in drawing consumers’ attention to third-party merchant offerings. Amazon may provide better product descriptions or more reliable customer reviews. Or maybe Amazon is offering consumers an extraordinarily easy, secure, and fast way to pay for their purchases. But whatever the correct answer is, the fact that Amazon offers some uniquely valuable service (or services) to third-party merchants is verified by the willingness of third-party merchants to pay a premium for using the Amazon platform.
If California succeeds in antitrust measures, we cannot expect the immediate impact on costs consumers will incur to purchase goods online from outside merchants, except to say that these effects will not be positive.
On the one hand, if the superior performance of Amazon’s platform is due to some features that Amazon must maintain regularly, then it is unlikely that successful use of antitrust to challenge Amazon’s business dealings with external merchants will improve consumer welfare. Under these circumstances, since Amazon can no longer reap a revenue to compensate for the effort it must regularly put in to continue providing differential superior service, Amazon will stop doing whatever it does to maintain its superior efficiency. With Amazon’s superior efficiency damaged by antitrust, online retail itself will become less competitive and efficient. The costs to consumers of acquiring goods online from third-party merchants may rise almost immediately, even if the prices of these goods remain the same or even fall.
On the other hand, if the superior performance of the Amazon platform is due to some irreversible features of that platform, it will result in a government ban on Amazon’s efforts to discourage merchants from lowering prices on other platforms. in the short term In lower prices for consumer goods without any reduction in the quality of services that merchants and consumers get from their continued use of the Amazon platform. But this improvement in consumer welfare will in fact be short-lived.
Whatever the source of the durability of the differential superior service is now available on the Amazon Cannes platform created from amazon. The company was not gifted with this competitive advantage by luck or by culprits. The Amazon platform’s superiority is the result of entrepreneurial creativity, risk-taking, and hard work. The differential revenue that Amazon now receives as a result of successfully discouraging outside merchants from selling their merchandise on competitive platforms at lower prices is Amazon’s entrepreneurial profit. earn As a result of this pioneering achievement.
Attempts to stop Amazon from making this profit from entrepreneurship will discourage not only it, but other companies and entrepreneurs, from trying differentially better ways to create value for customers. Thus, even if California succeeds in using this antitrust measure to lower the prices of goods sold online by third-party merchants, consumers will find that tomorrow’s prices and quality are worse because online retail platforms and platform features fail to improve as quickly. As much as they would have been better if this ploy by the California government had not worked.
Since it began in the United States in 1889, antitrust has often been fueled by the arrogance of intellectuals and government officials who do not realize that what the late economist Oliver Williamson called the “economic institutions of capitalism” are in fact mind-bogglingly creative, subtle, and complex. These thinkers and officials arrogantly assume that any contractual term or regulatory arrangement they cannot immediately understand as serving competition must therefore be deceptive practices of monopoly power or attempts to secure such power. Such is the case with the new California antitrust attack on Amazon. However, only a little honest thinking about the facts of this case shows that interference with third-party merchants’ contractual arrangements with Amazon is very likely to make consumers worse off even in the near term, and will almost certainly make consumers worse off over time.