Amazon’s latest deal puts growth in focus
Plan to buy Whole Foods, on surface, doesn’t raise any antitrust issues.
Amazon.com, America’s fifth-largest company by market value, is still growing like an adolescent and planting flags in new markets.
That is prompting some policymakers and legal experts to ask: How big is too big?
It’s a key issue for an economy being rapidly reshaped by e-commerce, a sector where Amazon and the merchants operating on its platform account for up to a third of all U.S. sales, according to some estimates.
E-commerce is not Amazon’s only game. It also dominates cloud computing, and it may soon have a significant brick-and-mortar presence, with its pending acquisition of Austin-based Whole Foods Market. The unexpected $13.7 billion deal announced in June spurred an outcry from critics and some members of Congress who asked the Federal Trade Commission to take a close look at the deal.
Last month Marc Perrone, president of the United Food and Commercial Workers International Union, which represents grocery workers, wrote to the FTC that Amazon’s proposed takeover of the organic food purveyor “is a competitive threat to our economy that will hurt workers and communities.”
Legal experts, however, say it’s hard to build an antitrust case against the Whole Foods deal, because it would give Amazon just a small percentage of the U.S. grocery market.
Amazon’s budding dominance in other markets, too, is likely to remain unchallenged in the long term, unless the philosophy
underlying antitrust regulations changes. In fact, U.S. regulators have sided with Amazon against its rivals’ anti-competitive moves — such as when they charged Apple Inc. and top New York publishers with conspiring to raise prices for e-books, a market Amazon dominates.
Under the current U.S. antitrust view, how consumers are treated is the prime factor, not the company’s dominance in a market. To take antitrust action against Amazon, regulators would have to prove that the company somehow harms shoppers — for example, by conspiring to make the products they buy artificially more expensive. Another way Amazon could run into trouble is by undermining rivals with strategies such as sustained predatory pricing or forcing suppliers to lock out competitors.
But rather than using tactics like that, some experts say, Amazon has built its empire just by giving customers what they want — products at low prices with lots of choices — which is not against the rules, no matter how big it grows.
“Antitrust law doesn’t make it illegal to get market power,” provided it was done properly, said A. Douglas Melamed, a professor of antitrust law at Stanford University and a former U.S. Department of Justice antitrust official.
Amazon’s humongous size is “politically important,” but not an antitrust issue. “Not if they got there by being more innovative and more creative than the next guy,” he said.
At the same time, the huge role occupied by Amazon — and other big tech firms such as Google and Facebook — is fostering a rethinking among policy wonks about how government can oversee the power of these large tech companies.
“A lot of people are waking up to the fact that Amazon has positioned itself as a central piece of infrastructure for the 21st century economy,” said Lina Khan, a fellow at the New America Foundation, a Washington, D.C., think tank. She also is author of “Amazon’s Antitrust Paradox,” which has attracted widespread attention since it was published in January by the Yale Law Journal.
“We need to rethink how to go about preserving competition,” she said in an interview.
Amazon downplays the antitrust issue. During a recent call with reporters, Amazon Chief Financial Officer Brian Olsavsky said that “the businesses we are in are all very large market segments with lots of very serious competition.”
Nevertheless, the company last year hired a veteran D.C. antitrust adviser, Seth Bloom.
Making rivals quake
Amazon’s North American retail sales, which include Canada, totaled about $80 billion in 2016. That doesn’t include sales by third-party merchants operating on Amazon’s site, which some experts estimate to be about the same, or more.
Together, Amazon and its merchants account for about a third of all online sales. But e-commerce is a tiny part — about 8.15 percent — of the huge U.S. retail sector.
Amazon grows fast, however. In the latest quarter, the company’s sales grew 25 percent, to $38 billion, and the company is on track to becoming the second-largest U.S. employer among the Fortune 500, after Wal-Mart.
It dominates some markets, such as e-books. In others, it’s growing so quickly that it makes incumbents quake. For instance, analysts with Cowen estimate that Amazon might surpass Macy’s as the biggest seller of clothes this year.
When a rumor arises that Amazon might dip its toe in a new market, stocks for potential rivals tremble, as happened to Zillow in June amid reports of a potential Amazon service for real-estate agents.
Even more important than its retail power, in the eyes of some policymakers, is Amazon’s increasingly central role as a platform widely used by other retailers. Brands now feel compelled to hawk their wares on Amazon’s site, the biggest destination for online shoppers.
Many merchants also pay to use Amazon’s logistics, having their products stored and shipped by the Seattle giant. Amazon, the largest purveyor of cloud computing, even rents competitors the computing capacity they need to operate their businesses.
Khan, the New America fellow, likens Amazon to the 19th century railroad empires that farmers and manufacturers relied on to get their products to market — and whose power generated public concern that led to the creation of the first federal antitrust laws.
“Today you have to ride Amazon’s rails,” she said.
Current antitrust laws, which focus on protecting efficiency and consumer prices, are ill-suited to regulate that type of power. They also don’t fully take into account how Amazon’s bevy of mutually reinforcing businesses can undermine competition, Khan said.
Still, experts say the Whole Foods deal is likely to sail through the approval process.
Melamed, the Stanford professor, said that the grocery chain and Amazon today barely compete. Whole Foods, with annual sales of about $16 billion, represents a tiny sliver of the $600 billion U.S. grocery market. And Amazon’s U.S. grocery and pantry sales totaled just $400 million in the first quarter of 2017, according to calculations by One Click Retail, an e-commerce consultancy.
In the longer term, Melamed said he sees a relatively clear runway for Amazon — as long as it behaves.