Every year Americans make more and more purchases online, many of them at Amazon.com. What shoppers don’t see when browsing the selections at Amazon are the many ways the online store is transforming the economy. Our country is losing small businesses. Jobs are becoming increasingly insecure. Inequality is rising. And Amazon plays a key role in all of these trends.
Stacy Mitchell believes Amazon is creating a new type of monopoly. She says its founder and CEO, Jeff Bezos, doesn’t want Amazon to merely dominate the market; he wants it to become the market.
Amazon is already the world’s largest online retailer, drawing so much consumer Web traffic that many other retailers can compete only by becoming “Amazon third-party sellers” and doing business through their competitor. It’s a bit like the way downtown shops once had to move to the mall to survive — except in this case Amazon owns the mall, monitors the other businesses’ transactions, and controls what shoppers see.
From early in her career Mitchell has focused on retail monopolies. During the 2000s she researched the predatory practices and negative impacts of big-box stores such as Walmart. Her 2006 book, Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses, documented the threat these supersized chains pose to independent local businesses and community well-being. (stacymitchell.com)
Now Amazon is threatening to overtake Walmart as the biggest retailer in the world. Mitchell says she occasionally shops at Amazon herself, when there’s something she can’t find locally, but this hasn’t stopped her from being a vocal critic of the way the company uses its monopoly power to stifle competition. She’s among a growing number of advocates who are calling for more vigorous enforcement of antitrust laws. (...)
Frisch: Many consumers welcome Amazon as a wonderful innovation that makes shopping more convenient, but you say the corporation has a “stranglehold” on commerce. Why?
Mitchell: Without many of us noticing, Amazon has become one of the most powerful corporations in the U.S. It is common to talk about Amazon as though it were a retailer, and it certainly sells a lot of goods — more books than any other retailer online or off, and it will soon be the top seller of clothing, toys, and electronics. One of every two dollars Americans spend online now goes to Amazon. But to think of Amazon as a retailer is to miss the true nature of this company.
Amazon wants to control the underlying infrastructure of commerce. It’s becoming the place where many online shoppers go first. Even just a couple of years ago, most of us, when we wanted to buy something online, would type the desired product into a search engine. We might search for New Balance sneakers, for example, and get multiple results: sporting-goods stores, shoe stores, and, of course, Amazon. Today more than half of shoppers are skipping Google and going directly to Amazon to search for a product. This means that other companies, if they want access to those consumers, have to become sellers on Amazon. We’re moving toward a future in which buyers and sellers no longer meet in an open public market, but rather in a private arena that Amazon controls.
From this commanding position Amazon is extending its reach in many directions. It’s building out its shipping and package-delivery infrastructure, in a bid to supplant UPS and the U.S. Postal Service. Its Web-services division powers much of the Internet and handles data storage for entities ranging from Netflix to the CIA. Amazon is producing hit television shows and movies, publishing books, and manufacturing a growing share of the goods it sells. It’s making forays into healthcare and finance. And with the purchase of Whole Foods, it’s beginning to extend its online presence into the physical world. (...)
Frisch: We hear a lot about the power of “disruptive” ideas and technologies to transform our society. Amazon seems like the epitome of a disrupter.
Mitchell: Because Amazon grew alongside the Internet, it’s easy to imagine that the innovations and conveniences of online shopping are wedded to it. They aren’t. Jeff Bezos would prefer that we believe Amazon’s dominance is the inevitable result of innovation, and that to challenge the company’s power would mean giving up the benefits of the Internet revolution. But history tells us that when monopolies are broken up, there’s often a surge of innovation in their wake.
Frisch: You don’t think e-commerce in itself is a problem?
Mitchell: No. There’s no reason why making purchases through the Internet is inherently destructive. I do think a world without local businesses would be a bad idea, because in-person, face-to-face shopping generates significant social and civic benefits for a community. But lots of independent retailers have robust e-commerce sites, including my local bookstore, hardware store, and several clothing retailers. Being online gives customers another way to buy from them. We can even imagine a situation in which many small businesses might sell their wares on a single website to create a full-service marketplace. It wouldn’t be a problem as long as the rules that govern that website are fair, the retailers are treated equally, and power isn’t abused.
Frisch: But that’s not the case with Amazon?
Mitchell: No. As search traffic migrates to Amazon, independent businesses face a Faustian bargain: Do they continue to hang their shingle on a road that is increasingly less traveled or do they become an Amazon seller? It’s no easy decision, because once you become a third-party seller, 15 percent of your revenue typically goes to Amazon — more if you use their warehouse and fulfillment services. Amazon also uses the data that it gleans from monitoring your sales to compete against you by offering the same items. And it owns the customer relationship, particularly if you use Amazon’s fulfillment services — meaning you store your goods in its warehouses and pay it to handle the shipping. In that case, you cannot communicate with your customer except through Amazon’s system, and Amazon monitors those communications. If you go out of bounds, it can suspend you as a seller.
Frisch: What’s out of bounds? Let’s say a customer wants to know which product would be better, A or B. Can a seller tell them?
Mitchell: You’re allowed to respond to that question, but if, in the process of responding, you violate Amazon’s rules, you can be suspended from Amazon and see your livelihood disappear. An example of this is a small company that made custom-designed urns for ashes.
Frisch: For people who’ve been cremated?
Mitchell: Yes. They sold these urns through their website and also through Amazon. A customer contacted the urn-maker through Amazon to ask about engraving. The company responded truthfully that there was no way to place an order for engraving through Amazon, but it could be done through the company’s website. Within twenty-four hours the urn maker got slapped down by Amazon. The rules for third-party sellers say you can never give a customer a URL, because Amazon does not want that customer going anywhere else — even in a case where Amazon can’t provide what the customer wants.
An independent retailer’s most valuable assets are its knowledge of products and ability to spot trends. Once you become a seller on Amazon, you forfeit your expertise to them. They use your sales figures to spot the latest trends. Researchers at Harvard Business School have found that when you start selling through Amazon, within a short time Amazon will have figured out what your most popular items are and begun selling them itself. Amazon is now producing thousands of products, from batteries to blouses, under its own brands. It’s copying what other companies are selling and then giving its own products top billing in its search results. For example, a company called Rain Design in San Francisco made a popular laptop stand and built a business selling it through Amazon. A couple of years ago Rain Design found that Amazon had introduced a nearly identical product. The only difference is that the company’s raindrop logo had been swapped for Amazon’s smiling arrow. (...)
Frisch: You’ve characterized Amazon as a throwback to the age of the robber barons. How so?
Mitchell: The robber barons were nineteenth-century industrialists who dominated industries like oil and steel. During the Gilded Age, toward the end of the nineteenth century, these industrialists gained control of a technology that was opening up a new way of doing business: the railroad. They used their command of the rails to disadvantage their competitors. John D. Rockefeller, who ran Standard Oil, for example, conspired with the railroad magnate Cornelius Vanderbilt to charge competing oil companies huge sums to ship their product by rail. The first antitrust laws were written in response to industrialists’ attempts to control access to the market.
It’s striking how similar this history is to what Amazon has done: a new technology comes along that gives people a novel way to bring their wares to market, but a single company gains control over it and uses that power to undermine competitors and create a monopoly.
Amazon sells nearly half of all print books and has more than 80 percent of the e-book market. That’s enough to make it a gatekeeper: if Amazon suppresses a book in its search results or removes the book’s BUY button, as it has done during disputes with certain publishers, it causes that book’s sales to plummet. That is a monopoly.
Frisch: When did the Gilded Age monopolies get broken up?
Mitchell: A turning point came in the 1930s, during Franklin D. Roosevelt’s second term as president. Roosevelt concluded that corporate concentration was impeding the economy by closing off opportunity and slowing job and wage growth. So he set about dusting off the nation’s antitrust policies and using them to go after monopolies. This aggressive approach lasted for decades. Republican and Democratic presidents alike talked about the importance of fighting monopolies.
Then in the 1970s a group of legal and economic scholars, led by Robert Bork, argued that corporate consolidation should be allowed to go unchecked as long as consumer prices stayed low. The Reagan administration embraced this view. Under Reagan the antitrust laws were left intact, but how the antitrust agencies interpret and enforce the laws was radically altered. Antitrust policy was stripped of its original purpose and power. Subsequent administrations, including Democrats, followed suit.
All of the concerns that used to drive antitrust enforcement have collapsed into a single concern: low prices. But we aren’t just consumers. We’re workers who need to earn a living. We’re small businesspeople. We’re innovators and inventors. As the economy has grown more consolidated, with fewer and fewer companies dominating just about every industry, one consequence is lower wages. Economic consolidation means workers have fewer options for employment. This appears to be a big reason why wages have been stagnant now for decades. We should also remember that our antitrust laws, at their heart, are about protecting democracy. Amazon shouldn’t be allowed to decide which books succeed or fail, which companies are allowed to compete. (...)
Frisch: Before you took on Amazon, you helped galvanize community opposition to Walmart. Why should people be against the big-box retailer coming to their town?
Mitchell: Walmart’s pitch to communities is always that it will offer low prices and create jobs and tax revenue. Particularly for smaller communities, this seems like a great deal. But an overwhelming majority of research has found that Walmart is much more of an extractive force. Poverty actually rises in places where Walmart opens a store.
Independent businesses, on the other hand, help communities thrive, because they buy many goods and services locally. When a small business needs an accountant, it’s likely to hire someone nearby. When it needs a website, it hires a local web designer. It banks at the local bank and advertises on the local radio station. It also tends to carry more local and regional products. An independent bookstore, for example, might feature local authors prominently.
Economic relationships often involve other types of relationships, too. When you shop at a small business, you’re dealing with your neighbors. You’re buying from someone whose kids go to school with your kids. That matters for the health of communities.
When Walmart comes in, it systematically wipes out a lot of those relationships. Instead of circulating locally, most dollars spent at the Walmart store leave the community. You’re left with fewer jobs than you had to start with, and they’re low-wage positions.
Stacy Mitchell believes Amazon is creating a new type of monopoly. She says its founder and CEO, Jeff Bezos, doesn’t want Amazon to merely dominate the market; he wants it to become the market.
Amazon is already the world’s largest online retailer, drawing so much consumer Web traffic that many other retailers can compete only by becoming “Amazon third-party sellers” and doing business through their competitor. It’s a bit like the way downtown shops once had to move to the mall to survive — except in this case Amazon owns the mall, monitors the other businesses’ transactions, and controls what shoppers see.
From early in her career Mitchell has focused on retail monopolies. During the 2000s she researched the predatory practices and negative impacts of big-box stores such as Walmart. Her 2006 book, Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses, documented the threat these supersized chains pose to independent local businesses and community well-being. (stacymitchell.com)
Now Amazon is threatening to overtake Walmart as the biggest retailer in the world. Mitchell says she occasionally shops at Amazon herself, when there’s something she can’t find locally, but this hasn’t stopped her from being a vocal critic of the way the company uses its monopoly power to stifle competition. She’s among a growing number of advocates who are calling for more vigorous enforcement of antitrust laws. (...)
Frisch: Many consumers welcome Amazon as a wonderful innovation that makes shopping more convenient, but you say the corporation has a “stranglehold” on commerce. Why?
Mitchell: Without many of us noticing, Amazon has become one of the most powerful corporations in the U.S. It is common to talk about Amazon as though it were a retailer, and it certainly sells a lot of goods — more books than any other retailer online or off, and it will soon be the top seller of clothing, toys, and electronics. One of every two dollars Americans spend online now goes to Amazon. But to think of Amazon as a retailer is to miss the true nature of this company.
Amazon wants to control the underlying infrastructure of commerce. It’s becoming the place where many online shoppers go first. Even just a couple of years ago, most of us, when we wanted to buy something online, would type the desired product into a search engine. We might search for New Balance sneakers, for example, and get multiple results: sporting-goods stores, shoe stores, and, of course, Amazon. Today more than half of shoppers are skipping Google and going directly to Amazon to search for a product. This means that other companies, if they want access to those consumers, have to become sellers on Amazon. We’re moving toward a future in which buyers and sellers no longer meet in an open public market, but rather in a private arena that Amazon controls.From this commanding position Amazon is extending its reach in many directions. It’s building out its shipping and package-delivery infrastructure, in a bid to supplant UPS and the U.S. Postal Service. Its Web-services division powers much of the Internet and handles data storage for entities ranging from Netflix to the CIA. Amazon is producing hit television shows and movies, publishing books, and manufacturing a growing share of the goods it sells. It’s making forays into healthcare and finance. And with the purchase of Whole Foods, it’s beginning to extend its online presence into the physical world. (...)
Frisch: We hear a lot about the power of “disruptive” ideas and technologies to transform our society. Amazon seems like the epitome of a disrupter.
Mitchell: Because Amazon grew alongside the Internet, it’s easy to imagine that the innovations and conveniences of online shopping are wedded to it. They aren’t. Jeff Bezos would prefer that we believe Amazon’s dominance is the inevitable result of innovation, and that to challenge the company’s power would mean giving up the benefits of the Internet revolution. But history tells us that when monopolies are broken up, there’s often a surge of innovation in their wake.
Frisch: You don’t think e-commerce in itself is a problem?
Mitchell: No. There’s no reason why making purchases through the Internet is inherently destructive. I do think a world without local businesses would be a bad idea, because in-person, face-to-face shopping generates significant social and civic benefits for a community. But lots of independent retailers have robust e-commerce sites, including my local bookstore, hardware store, and several clothing retailers. Being online gives customers another way to buy from them. We can even imagine a situation in which many small businesses might sell their wares on a single website to create a full-service marketplace. It wouldn’t be a problem as long as the rules that govern that website are fair, the retailers are treated equally, and power isn’t abused.
Frisch: But that’s not the case with Amazon?
Mitchell: No. As search traffic migrates to Amazon, independent businesses face a Faustian bargain: Do they continue to hang their shingle on a road that is increasingly less traveled or do they become an Amazon seller? It’s no easy decision, because once you become a third-party seller, 15 percent of your revenue typically goes to Amazon — more if you use their warehouse and fulfillment services. Amazon also uses the data that it gleans from monitoring your sales to compete against you by offering the same items. And it owns the customer relationship, particularly if you use Amazon’s fulfillment services — meaning you store your goods in its warehouses and pay it to handle the shipping. In that case, you cannot communicate with your customer except through Amazon’s system, and Amazon monitors those communications. If you go out of bounds, it can suspend you as a seller.
Frisch: What’s out of bounds? Let’s say a customer wants to know which product would be better, A or B. Can a seller tell them?
Mitchell: You’re allowed to respond to that question, but if, in the process of responding, you violate Amazon’s rules, you can be suspended from Amazon and see your livelihood disappear. An example of this is a small company that made custom-designed urns for ashes.
Frisch: For people who’ve been cremated?
Mitchell: Yes. They sold these urns through their website and also through Amazon. A customer contacted the urn-maker through Amazon to ask about engraving. The company responded truthfully that there was no way to place an order for engraving through Amazon, but it could be done through the company’s website. Within twenty-four hours the urn maker got slapped down by Amazon. The rules for third-party sellers say you can never give a customer a URL, because Amazon does not want that customer going anywhere else — even in a case where Amazon can’t provide what the customer wants.
An independent retailer’s most valuable assets are its knowledge of products and ability to spot trends. Once you become a seller on Amazon, you forfeit your expertise to them. They use your sales figures to spot the latest trends. Researchers at Harvard Business School have found that when you start selling through Amazon, within a short time Amazon will have figured out what your most popular items are and begun selling them itself. Amazon is now producing thousands of products, from batteries to blouses, under its own brands. It’s copying what other companies are selling and then giving its own products top billing in its search results. For example, a company called Rain Design in San Francisco made a popular laptop stand and built a business selling it through Amazon. A couple of years ago Rain Design found that Amazon had introduced a nearly identical product. The only difference is that the company’s raindrop logo had been swapped for Amazon’s smiling arrow. (...)
Frisch: You’ve characterized Amazon as a throwback to the age of the robber barons. How so?
Mitchell: The robber barons were nineteenth-century industrialists who dominated industries like oil and steel. During the Gilded Age, toward the end of the nineteenth century, these industrialists gained control of a technology that was opening up a new way of doing business: the railroad. They used their command of the rails to disadvantage their competitors. John D. Rockefeller, who ran Standard Oil, for example, conspired with the railroad magnate Cornelius Vanderbilt to charge competing oil companies huge sums to ship their product by rail. The first antitrust laws were written in response to industrialists’ attempts to control access to the market.
It’s striking how similar this history is to what Amazon has done: a new technology comes along that gives people a novel way to bring their wares to market, but a single company gains control over it and uses that power to undermine competitors and create a monopoly.
Amazon sells nearly half of all print books and has more than 80 percent of the e-book market. That’s enough to make it a gatekeeper: if Amazon suppresses a book in its search results or removes the book’s BUY button, as it has done during disputes with certain publishers, it causes that book’s sales to plummet. That is a monopoly.
Frisch: When did the Gilded Age monopolies get broken up?
Mitchell: A turning point came in the 1930s, during Franklin D. Roosevelt’s second term as president. Roosevelt concluded that corporate concentration was impeding the economy by closing off opportunity and slowing job and wage growth. So he set about dusting off the nation’s antitrust policies and using them to go after monopolies. This aggressive approach lasted for decades. Republican and Democratic presidents alike talked about the importance of fighting monopolies.
Then in the 1970s a group of legal and economic scholars, led by Robert Bork, argued that corporate consolidation should be allowed to go unchecked as long as consumer prices stayed low. The Reagan administration embraced this view. Under Reagan the antitrust laws were left intact, but how the antitrust agencies interpret and enforce the laws was radically altered. Antitrust policy was stripped of its original purpose and power. Subsequent administrations, including Democrats, followed suit.
All of the concerns that used to drive antitrust enforcement have collapsed into a single concern: low prices. But we aren’t just consumers. We’re workers who need to earn a living. We’re small businesspeople. We’re innovators and inventors. As the economy has grown more consolidated, with fewer and fewer companies dominating just about every industry, one consequence is lower wages. Economic consolidation means workers have fewer options for employment. This appears to be a big reason why wages have been stagnant now for decades. We should also remember that our antitrust laws, at their heart, are about protecting democracy. Amazon shouldn’t be allowed to decide which books succeed or fail, which companies are allowed to compete. (...)
Frisch: Before you took on Amazon, you helped galvanize community opposition to Walmart. Why should people be against the big-box retailer coming to their town?
Mitchell: Walmart’s pitch to communities is always that it will offer low prices and create jobs and tax revenue. Particularly for smaller communities, this seems like a great deal. But an overwhelming majority of research has found that Walmart is much more of an extractive force. Poverty actually rises in places where Walmart opens a store.
Independent businesses, on the other hand, help communities thrive, because they buy many goods and services locally. When a small business needs an accountant, it’s likely to hire someone nearby. When it needs a website, it hires a local web designer. It banks at the local bank and advertises on the local radio station. It also tends to carry more local and regional products. An independent bookstore, for example, might feature local authors prominently.
Economic relationships often involve other types of relationships, too. When you shop at a small business, you’re dealing with your neighbors. You’re buying from someone whose kids go to school with your kids. That matters for the health of communities.
When Walmart comes in, it systematically wipes out a lot of those relationships. Instead of circulating locally, most dollars spent at the Walmart store leave the community. You’re left with fewer jobs than you had to start with, and they’re low-wage positions.
by Tracy Frisch and Stacy Mitchell, The Sun | Read more:
Image: uncredited
