Amazon Is Not a Monopoly

Employees push empty carts as they prepare to process customer orders ahead of shipping at one of Inc.'s fulfillment centers in Rugeley, U.K., on Monday, Dec. 2, 2013. Online retailers in the U.K. are anticipating their busiest day as shoppers flush with end-of-month pay-checks seek Christmas deals on the Web. Photographer: Simon Dawson/Bloomberg via Getty Images
Photo: Simon Dawson/Bloomberg via Getty Images

Franklin Foer has an interesting new essay at New Republic arguing that Amazon is a monopoly trampling the public good and necessitating a vigorous public response, à la Ma Bell or U.S. Steel before it. There’s just one problem with his argument: Amazon is not a monopoly.

Foer starts off with a compelling insight: that monopolies act differently in the digital age. They do not corner a market and then start raising prices, to the detriment of the consumer. (Nobody expects that Google will start charging for searches, for instance.) Rather, they corner a market and put a vice on their suppliers.

In its pursuit of bigness, Amazon has left a trail of destruction – competitors undercut, suppliers squeezed – some of it necessary, and some of it highly worrisome,” Foer writes. “In its confrontation with the publisher Hachette, it has entered a phase of heightened aggression.”

Amazon is a fearsome competitor forcing other retailers to compete or die, to be sure. It also might be a bad actor, and its harassment of Hachette might necessitate a legal, regulatory, or even legislative response. But it is hard to see how it is a monopoly.

To demonstrate that it is, Foer cites its dominance of the market for hardcover, softcover, and e-books: 

A recent survey conducted by the Codex Group, released in March, found that Amazon commands a 67 percent share of the e-books market (not at all surprising given that it invented a wildly popular device for consuming digital tomes). And when it comes to the sale of all new books – hard, soft, and electronic – Amazon accounts for 41 percent. Even though the five major publishing houses have political connections and economic power of their own, they just can’t compete.

Amazon does have something like a monopoly over the books market, and that monopoly has become harmful, as evidenced by its deplorable treatment of Hachette. But this is cherry-picking. Books are Amazon’s oldest business, and the one where it controls the biggest market share.

Foer argues not just that Amazon has a monopoly over book-selling, but a monopoly writ large. The evidence for this is thin. Amazon is surely the biggest player in e-commerce, with about $75 billion in revenue last year. But that comes out of a $263 billion market, and the National Retail Federation estimates that Amazon makes up only about 15 percent of total e-commerce sales. Of late, it has started to face more serious competition from the big brick-and-mortar chains, which have the capital to compete with Amazon on price and service. Walmart’s e-commerce sales are growing about as fast as Amazon’s, for instance. It is also facing more competition from technology companies, most notably Google

Moreover, Amazon faces fierce competition from traditional retailers, taking but a tiny slice of the $4.5 trillion overall retail pie. Amazon is about the same size as Target, sales-wise, and a little smaller than Kroger. All three get dwarfed by Walmart, which generated about half a trillion in revenue last year. And in strategic areas where Amazon has set its sights on growth — like same-day delivery and cloud computing — the company also faces fierce competition from well-funded rivals, as my colleague Kevin Roose has noted.

Foer waives this competitive pressure away, arguing that Amazon has done nothing but eat its rivals. “It has a record of shredding young businesses, like Zappos and, just as they begin to pose a competitive challenge,” he writes. “It uses its riches to undercut opponents on price – Amazon was prepared to lose $100 million in three months in its quest to harm – then once it has exhausted the resources of its foes, it buys them and walks away even stronger.”

But what Foer is describing is not the nefarious actions of a monopolist but the normal actions of a big, well-funded firm in a spirited market. Businesses compete. Very often the bigger one wins. Foer argues, however, that Amazon’s “big-footing necessitates a government response,” without really explaining why.

Who is losing when Amazon is winning? Does the government really need to step in to protect Amazon’s rivals, provided that the market remains a market? Why is it wrong for Amazon to demand more and more from its suppliers? Is there any evidence that Amazon controls other markets like it controls the books market? All this is unclear.

At the same time, Foer underplays how good these modern business behemoths are for the consumer, unlike the Ma Bells and U.S. Steels of yore. He describes us all as complicit in … something. I’m not sure what: “We’ve all been seduced by the deep discounts, the monthly automatic diaper delivery, the free Prime movies, the gift wrapping, the free two-day shipping, the ability to buy shoes or books or pinto beans or a toilet all from the same place,” he writes. “But it has gone beyond seduction, really. We expect these kinds of conveniences now, as if they were birthrights.”

Is that really such a bad thing? Amazon relentlessly drives down prices for goods and services and delivers them fast and cheap. It plows its profits into price cuts and innovation rather than putting them in the hands of its investors. That benefits millions of families — full stop. In the artful phrasing of Matthew Yglesias, it seems like “a charitable organization being run by elements of the investment community for the benefit of consumers.”

None of this is to say that Amazon should not face new regulations to force it to treat its workers better. None of this is to say that Amazon could not become a monopoly by pushing out or buying up more of its e-commerce rivals. None of this is to say that its harassment of Hachette is right or should be legal or should not face some serious pushback from the government and consumers. None of this is to say, either, that our legal framework should not view seemingly benign monopolies, like Google, with anything other than skepticism.

But Amazon being a shitty, vicious competitor and Amazon being a monopoly are hardly the same thing. 

Amazon Is Not a Monopoly