An essay on criticism amazon

There would be no obvious conclusions if some consumers faced higher prices while others enjoyed lower ones. But given the magnitude and accuracy of data that Amazon has collected on millions of users, tailored pricing is not simply a hypothetical power.

It is true that brick-and-mortar stores also collect data on customer purchasing habits and send personalized coupons.

But the types of consumer behavior that internet firms can access—how long you hover your mouse on a particular item, how many days an item sits in your shopping basket before you purchase it, or the fashion blogs you visit before looking for those same items through a search engine—is uncharted ground. The degree to which a firm can tailor and personalize an online shopping experience is different in kind from the methods available to a brick-and-mortar store—precisely because the type of behavior that online firms can track is far more detailed and nuanced.

And unlike brick-and-mortar stores—where everyone at least sees a common price even if they go on to receive discounts —internet retail enables firms to entirely personalize consumer experiences, which eliminates any collective baseline from which to gauge price increases or decreases.

The decision of whichproduct market in which Amazon may choose to raise prices is also an open question—and one that current predatory pricing doctrine ignores. Courts generally assume that a firm will recoup by increasing prices on the same goods on which it previously lost money. But recoupment across markets is also available as a strategy, especially for firms as diversified across products and services as Amazon.

Although current predatory pricing doctrine focuses only on recoupment through raising prices for consumers, Amazon could also recoup its losses by imposing higher fees on publishers. For example, when renewing its contract with Hachette last year, Amazon demanded payments for services including the pre-order button, personalized recommendations, and an Amazon employee assigned to the publisher.

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The fact that Amazon has itself vertically integrated into book publishing—and hence can promote its own content—may give it additional leverage to hike fees. While not captured by current antitrust doctrine, the pressure Amazon puts on publishers merits concern. Traditionally, publishing houses used a cross-subsidization model whereby they would use their best sellers to subsidize weightier and riskier books requiring greater upfront investment. Under the predatory pricing jurisprudence of the early and mid-twentieth century, harm to the diversity and vibrancy of ideas in the book market may have been a primary basis for government intervention.

For instance, the risk that Amazon may retaliate against books that it disfavors—either to impose greater pressure on publishers or for other political reasons—raises concerns about media freedom. A market with less choice and diversity for readers amounts to a form of consumer injury. First, Amazon is positioned to recoup its losses by raising prices on less popular or obscure e-books, or by raising prices on print books.

In either case, Amazon would be recouping outside the original market where it sustained losses bestseller e-books , so courts are unlikely to look for or consider these scenarios. Additionally, constant fluctuations in prices and the ability to price discriminate enable Amazon to raise prices with little chance of detection.

Lastly, Amazon could recoup its losses by extracting more from publishers, who are dependent on its platform to market both e-books and print books. This may diminish the quality and breadth of the works that are published, but since this is most directly a supplier -side rather than buyer-side harm, it is less likely that a modern court would consider it closely.

In addition to using below-cost pricing to establish a dominant position in e-books, Amazon has also used this practice to put pressure on and ultimately acquire a chief rival. While theory may predict that entry barriers for online retail are low, this account shows that in practice significant investment is needed to establish a successful platform that will attract traffic.

Amazon intervened and made an aggressive counteroffer. Amazon achieved this by slashing prices and bleeding money, losses that its investors have given it a free pass to incur—and that a smaller and newer venture like Quidsi , by contrast, could not maintain. After completing its buy-up of a key rival—and seemingly losing hundreds of millions of dollars in the process—Amazon went on to raise prices.

In November , a year after buying out Quidsi , Amazon shut down new memberships in its Amazon Mom program. Does online retailing of baby products resemble shoe retailing or railroading? Given the absence of formal barriers, entry should be easy: unlike railroading, selling baby products online requires no heavy investment or fixed costs. However, the economics of online retailing are not quite like traditional shoe retailing.

Given that attracting traffic and generating sales as an independent online retailer involves steep search costs, the vast majority of online commerce is conducted on platforms, central marketplaces that connect buyers and sellers. As several commentators have observed, the practical barriers to successful and sustained entry as an online platform are very high, given the huge first-mover advantages stemming from data collection and network effects.

Investment in online platforms lies not in physical infrastructure that might be repurposed, but in intangibles like brand recognition. These intangibles can be absorbed by a rival platform or retailer with greater ease than a railroad could take over a competing line. Courts also tend to discount that predators can use psychological intimidation to keep out the competition. Even as Amazon has raised the price of the Amazon Mom program, no newcomers have recently sought to challenge it in this sector, supporting the idea that intimidation may also serve as a practical barrier.

However, even this strategy has skeptics. In this case, Amazon raised prices by cutting back discounts and at least temporarily refusing to expand the program. Even if a firm viewed the unmet demand as an invitation to enter, several factors would prove discouraging in ways that the existing doctrine does not consider. In theory, online retailing itself has low entry costs since anyone can set up shop online, without significant fixed costs.

But in practice, successful entry in online markets is a challenge, requiring significant upfront investment. It requires either building up strong brand recognition to draw users to an independent site, or using an existing platform, such as Amazon or eBay, which can present other anticompetitive challenges. The fact that no real rival has emerged, even after Amazon raised prices, undercuts the assumption embedded in current antitrust doctrine. Amazon has translated its dominance as an online retailer into significant bargaining power in the delivery sector, using it to secure favorable conditions from third-party delivery companies.

This in turn has enabled Amazon to extend its dominance over other retailers by creating the Fulfillment-by-Amazon service and establishing its own physical delivery capacity. This illustrates how a company can leverage its dominant platform to successfully integrate into other sectors, creating anticompetitive dynamics. Retail competitors are left with two undesirable choices: either try to compete with Amazon at a disadvantage or become reliant on a competitor to handle delivery and logistics.

What then becomes a virtuous circle for the strong buyer ends up as a vicious circle for its weaker competitors.

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To this two-fold advantage Amazon added a third perk: harnessing the weakness of its rivals into a business opportunity. Amazon had used its dominance in the retail sector to create and boost a new venture in the delivery sector, inserting itself into the business of its competitors. Amazon has followed up on this initial foray into fulfillment services by creating a logistics empire. Building out physical capacity lets Amazon further reduce its delivery times, raising the bar for entry yet higher. Most recently, Amazon has also expanded into trucking.

Last December, it announced it plans to roll out thousands of branded semi-trucks, a move that will give it yet more control over delivery, as it seeks to speed up how quickly it can transport goods to customers. The way that Amazon has leveraged its dominance as an online retailer to vertically integrate into delivery is instructive on several fronts. First, it is a textbook example of how the company can use its dominance in one sphere to advantage a separate line of business. To be sure, this dynamic is not intrinsically anticompetitive.

Because Amazon was able to demand heavy discounts from FedEx and UPS, other sellers faced price hikes from these companies—which positioned Amazon to capture them as clients for its new business. By overlooking structural factors like bargaining power, modern antitrust doctrine fails to address this type of threat to competitive markets.

Second, Amazon is positioned to use its dominance across online retail and delivery in ways that involve tying, are exclusionary, and create entry barriers. For example, sellers who use FBA have a better chance of being listed higher in Amazon search results than those who do not, which means Amazon is tying the outcomes it generates for sellers using its retail platform to whether they also use its delivery business.

In interviews with reporters, venture capitalists say there is no appetite to fund firms looking to compete with Amazon on physical delivery. The fact that Amazon competes with many of the businesses that are coming to depend on it creates a host of conflicts of interest that the company can exploit to privilege its own products. Amazon has already raised Prime prices. As described above, vertical integration in retail and physical delivery may enable Amazon to leverage cross-sector advantages in ways that are potentially anticompetitive but not understood as such under current antitrust doctrine.

The clearest example of how the company leverages its power across online businesses is Amazon Marketplace, where third-party retailers sell their wares. Since Amazon commands a large share of e-commerce traffic, many smaller merchants find it necessary to use its site to draw buyers. Third-party sellers using Marketplace recognize that using the platform puts them in a bind.

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By going directly to the manufacturer, Amazon seeks to cut out the independent sellers. In other instances, Amazon has responded to popular third-party products by producing them itself. Last year, a manufacturer that had been selling an aluminum laptop stand on Marketplace for more than a decade saw a similar stand appear at half the price. The manufacturer learned that the brand was AmazonBasics , the private line that Amazon has been developing since The difference with Amazon is the scale and sophistication of the data it collects.

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Whereas brick-and-mortar stores are generally only able to collect information on actual sales, Amazon tracks what shoppers are searching for but cannot find, as well as which products they repeatedly return to, what they keep in their shopping basket, and what their mouse hovers over on the screen. In using its Marketplace this way, Amazon increases sales while shedding risk.

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It is third-party sellers who bear the initial costs and uncertainties when introducing new products; by merely spotting them, Amazon gets to sell products only once their success has been tested. The anticompetitive implications here seem clear: Amazon is exploiting the fact that some of its customers are also its rivals. The source of this power is: 1 its dominance as a platform, which effectively necessitates that independent merchants use its site; 2 its vertical integration—namely, the fact that it both sells goods as a retailer and hosts sales by others as a marketplace; and 3 its ability to amass swaths of data, by virtue of being an internet company.

Notably, it is this last factor—its control over data—that heightens the anticompetitive potential of the first two.

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  5. Evidence suggests that Amazon is keenly aware of and interested in exploiting these opportunities. For example, the company has reportedly used insights gleaned from its cloud computing service to inform its investment decisions. How Amazon has cross-leveraged its advantages across distinct lines of business suggests that the law fails to appreciate when vertical integration may prove anticompetitive. This shortcoming is underscored with online platforms, which both serve as infrastructure for other companies and collect swaths of data that they can then use to build up other lines of business.