After many decades of protecting the consumer against antitrust law enforcement, regulators have begun to explore new ways to contain big tech. But judging by Italy’s recent fine on Amazon, more dominant players could soon be penalized for their success.
MILAN – This month the Italian antitrust authority, the AutoritÃ Garante della Concorrenza e del Mercato (AGCM), fined Amazon 1.13 billion euros (1.28 billion US dollars) for abusing its market dominance and forcing third parties to use its in-house logistics service. The fine is remarkably high, even for a company as large as Amazon, which had global sales of $ 386 billion in 2020 but net income of $ 21.3 billion.
The AGCM decision will certainly be popular as there is broad consensus that something should be done against the exploitation of people’s data by big tech companies and their attendant power to wipe out other business models. Since the browser wars of the 1990s, the impact of new technology on the marketplace has been considered an antitrust matter. Under US President Bill Clinton, antitrust authorities did targeted at Microsoft because it tried to use its position as the dominant provider of desktop operating systems to secure the dominance of its Internet browser, Explorer. In fact, we now know that the Netscape did not survive, Microsoft’s dominance was about to end – just when regulators and the public feared it most.
At the time, avid Trustbusters economists and legal scholars from the Chicago School resisted, who argued that antitrust authorities were distancing themselves from the concept of Consumer welfarerather than some absurd calculation of the optimal number of competitors in an industry. However, consumer protection considerations do not appear in the latest Italian decision.
Amazon is both a retailer and a platform because it provides a marketplace where consumers can compare options and buy the product they prefer, and where small businesses can reach more consumers than ever before. The AGCM fined Amazon as a marketplace, on the grounds that sellers who want to benefit from their Prime service must also register for their own logistics service Fulfillment by Amazon (FBA). Since Prime subscribers get free shipping and fast delivery of packages on select goods, many merchants pay Amazon to make sure their products fall into this category (including being featured in promotions like Black Friday, Cyber ââMonday, and Prime Day).
It is not surprising that Amazon would combine these two services. In order to keep its promise to Prime subscribers, it needs to ensure on-time deliveries, and this is best done through direct control of logistics. This approach is hardly unique to the digital economy or big tech. Amazon deals with a fundamental problem of commercial sales. A company can only promise you an express delivery if it believes it can keep this promise. Otherwise, its business model would be exposed to variables beyond its control, such as the reliability of the providers or the efficiency of the postal service.
Surprisingly, AGCM fined Amazon precisely because the company understands this problem. A marketplace’s success depends on its reputation, and Amazon has built its platform’s reputation on reliability. It takes a long time to build a record of reliability, and it inevitably raises the bar for new entrants. By declaring the relationship between Amazon’s Prime service and its logistics infrastructure to be abuse, the Italian Trustbusters are implying that the two can be unbundled. On the theory that Amazon is killing off competition from independent (albeit presumably less reliable) couriers, it did ordered the company to give merchants access to Prime without logging into FBA.
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Much of the 250-page verdict is an overview of how Amazon works. The authors complain that the retailer offers âa one-stop-shop solution for storage, shipping and customer serviceâ within a âclosed and complete ecosystemâ. Still, buyers and sellers alike seem to appreciate the convenience of the Amazon system. After all, the proportion of the total offer from third-party providers has grown steadily over the years, from 40% in 2013 to 56% in 2021.
Amazon marketplaces have opened up new opportunities for niche sellers by enabling them to reach customers worldwide. In interviews with the Italian antitrust authorities, third-party dealers confirmed that their Prime Listing helps their products. The AGCM ruling also notes that Prime subscribers in Italy tend to spend at least twice as much on the platform as non-subscribers. It notes that while other marketplaces have invested heavily to bring their services to a level comparable to Amazon’s, they still can’t match it. Marketplaces enjoy one major advantage over proprietary websites, and that being so most visited market place, Amazon enjoys the greatest advantage of all. Hence the AGCM concludes that it should be sanctioned.
The ruling is hailed as a potential option for dealing with big tech and could open the door to similar antitrust action elsewhere. However, the consumer’s point of view is only taken into account to the extent that it is reflected âin the preferences of the retailersâ, that is, in the sellers’ decision to use the hypermarkets to which Amazon offers access.
Where is the principle of consumer protection? Will the fine give people more choice and lower prices? These questions go unanswered because they weren’t even asked. AGCM paid an embarrassingly expensive compliment to Amazon’s logistics department. In this new age of the cartel, the consumer does not seem to be a factor.