MIKE WACKER: Amazon acts more like a Soviet commissar than a company

In the classic movie Miracle on 34th Street, the Cole’s Santa Claus became famous for telling parents where to find the lowest price for toys—even if it was at Cole’s rival, Shopper’s Express. By contrast, Amazon—which achieved a degree of market dominance that Cole’s could only dream of—took a different tack to help customers find the lowest prices. Via a tactic known as anti-discounting, they punished sellers for offering lowering prices elsewhere, so that Amazon would have the lowest price.
Not only is that tactic not as endearing as Miracle on 34th Street, it also got Amazon into legal trouble—in the form of an antitrust lawsuit filed by the Federal Trade Commission (FTC).

Imagine a competitive world with 100 online superstores, each with 1% of the market. If one store decided to both raise its fees for sellers and prohibit sellers from offering lower prices elsewhere, sellers in a free market would tell that store to take a hike.
The real world, however, is more like a Soviet Russia joke where Amazon tells sellers to take a hike. Per the lawsuit, not only has Amazon hiked its fees for sellers—in some cases taking nearly half of every dollar—it also punishes sellers for offering lower prices on sites where they pay lower fees. As one seller said, “we have nowhere else to go and Amazon knows it.”

Some have naively claimed that Amazon just wants to ensure that its customers see the lowest price, pretending that Amazon is as benevolent as the Cole’s Santa Claus. But make no mistake, if Amazon has the lowest price, it matters whether they achieved that result through genuine price competition, or through anticompetitive price controls, i.e., anti-discounting.

If a competitor innovates and finds ways to offer the same services as Amazon at a lower cost to sellers, then they should reap the fruits of their labor in the form of lower prices and more customers. Amazon’s price controls, however, deny them those hard-earned fruits. Likewise, when Amazon raises its own fees, sellers have to increase their prices not just on Amazon, but on other online stores—lest they get punished by Amazon’s anti-discounting tactics for offering lower prices elsewhere.

Simply put, price controls are bad—regardless of whether they are socialist price controls imposed by the government, or corporatist price controls imposed by a market-dominant corporation.

Of course, that hasn’t stopped certain economic experts and think-tank theoreticians who live north of Richmond from arguing otherwise. But before you doubt yourself when faced with their sophisticated statistical arguments, you should first listen to a wise man who grew up south of Richmond in Hannibal, MO: Mark Twain. As he once said, “There are three kinds of lies: lies, damned lies, and statistics.”

As an engineer who does have some statistical literacy, I can tell you that even the fanciest statistical model is useless if the thing that it models is not the real world. Understanding the real world, however, is not a skill that they typically teach north of Richmond. Economists can nitpick market definitions, but they can’t explain how Amazon can get away with a tactic as anticompetitive as anti-discounting.

In any antitrust debate, critics will often reflexively invoke the “consumer welfare standard”—to the point where Mark Meador, a former antitrust staffer for Sen. Mike Lee, once quipped, “Is it too much to ask for a world in which corporate shills don’t treat ‘consumer welfare’ like some shamanic incantation that wards off any antitrust scrutiny?”

Admittedly, “anti-discounting is good for consumer welfare” is quite the take; it makes you wonder if those who invoke the consumer welfare standard actually know what it is. In the definitive tome on that theory, The Antitrust Paradox, Robert Bork uses the following definition of competition:

“’Competition’, for purposes of antitrust analysis, must be understood as a term of art signifying any state of affairs in which consumer welfare cannot be increased by judicial decree.”

If we had a football game where Amazon has five downs to gain ten yards and the opposing team has four downs, the critics would tweet a hot take every time the opposing team scores points—claiming that it’s proof that competition does exist.

Bork’s definition of competition, however, cuts to the heart of the question: if a judicial decree outlawed Amazon’s price controls and anti-discounting tactics, would that lead to more competition and ultimately more consumer welfare? You don’t have to be an expert economist to see that the answer is yes.
 

Image: Title: Amazon boxes
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