India has framed stricter rules for foreign online sellers. But it’s not as if the likes of Amazon aren’t attracting questions elsewhere. US President Donald Trump’s frequent outbursts against the Jeff Bezos-owned online retail giant may be influenced by the latter’s ownership of a newspaper. But thoughtful critics of Amazon’s business practices have also found place in America’s national conversation. The prime example is a paper by Yale University law student Lina Khan in the Yale Law Journal. ET does an executive summary of the case against Amazon as articulated by some American voices.
The Main Pitch
Cheap is always not good. It is difficult to understand the potential harm to competition posed by Amazon’s dominance if we measure competition primarily through price and output. This goes to the heart of Amazon’s argument that low prices are the biggest proof of its beneficial effects.
How big losses, multiple businesses made Amazon scrutiny-free
1. Amazon grew huge by willing to sustain losses and integrate across several business lines
2. Scale was established by taking losses, and customers were made loyal via low prices. When prices were hiked, for example in Prime, most customers stayed on
3. But because losses were accrued, the legal trigger for predatory pricing was never fired. Predatory pricing laws apply usually when the firm in question makes super profits through such pricing
4. Amazon became many things — a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of TV programmes and films, a fashion designer, a hardware manufacturer and a leading provider of cloud server space and computing power
5. That meant many of Amazon’s rivals are also its customers and hence depend on it
6. And this totally confounds contemporary antitrust analysis, which assumes that rational firms seek to drive their rivals out of business. Amazon doesn’t, it simply coopts rivals in its ecosystem
So, what’s the result?
Amazon has a dominant structural role in the market. It’s not just a seller of goods and services, its actions are determining the shape and dynamics of the market
Current US laws are not equipped to tackle this ‘structural dominance’ and therefore can’t tackle ‘potential anti-competitive’ practices.
So, what should be done?
Khan has suggested 2 possible approaches:
1. Governing online platform markets via competition: That is, limit dominance by restoring traditional antitrust and competition policy principles that looks at market structures, not just at pricing
2. Governing dominant platforms as monopolies through regulation: That is, apply common carrier obligations and duties, that means, treating all vendors and/or stakeholders on a platform equally, as is enjoined in communications businesses.