“The trusts are hijous monsters. On the one hand they must be crushed underfoot; on the other hand not so fast.” So spake Mr. Dooley, the fictitious Irish bartender and font of wisdom created by Finley Peter Dunne in the late 19th century. Trusts were the form monopolies took at the time. Dooley captured Americans’ schizophrenic attitude toward successful big businesses. We make them big and successful by buying their products—J.D. Rockefeller’s petrol, Andrew Carnegie’s steel, J.P. Morgan’s loans, Ma Bell’s telephone network, American Tobacco’s cigarettes—then worry that they have too much power and call in the trust busters.
In fact, schizophrenia is something of a misdiagnosis. Bigness alone has never been considered by the courts to be an evil. In the language of the Supreme Court, monopoly power that is the result of “a superior product, business acumen, or historic accident” is unobjectionable. So why, then, are some hedge funds shorting the stock of Amazon in anticipation of a government move to break up Jeff Bezos’ creation or somehow restrain its growth? And why do we see articles in the New York Times headlined “Amazon’s Growing Monopoly Bite” and “Is it Time to Break Up Google?” And why is the Wall Street Journal warning that “Tech Companies Spread Their Tentacles” thus “concentrating power and wealth in the hands of a few companies in a way not seen since the Gilded Age.” Not to be outdone by the Economist, which leads with “A giant problem” and goes on to what for it is a near-hysterical statement, “The rise of the corporate colossus threatens both competition and the legitimacy of business … using the dark arts of management to stay ahead.”
Let’s start with some facts, using Amazon as the poster boy for a possible new documentary, The Company That Ate the U.S. Economy. Statistics about the company are hard to come by, so we must rely on probably the best guesses available, those of Consumer Intelligence Research Partners (CIRP). Amazon Prime, the offering that provides “free” shipping, exclusive access to movies, television shows, photo storage and a host of other goodies, costs $99 per year, counts as members some 80 million U.S. households, about two out of every three in the country, up from 58 million only one year ago. That certainly is a lot of customers. But unless the hedge funds shorting the stock are worried that President Trump means what he says when he promises to “get” Bezos, owner of the anti-Trump Washington Post, they should consider whether Amazon has the sort of monopoly power that trust busters typically go after. And whether Attorney General Jeff Sessions would launch an antitrust investigation merely to please a boss to whom he owes less every day.
According to the Department of Commerce, online, or e-commerce sales account for 8.5 percent of all retail sales. Amazon’s share of those sales is 43 percent. Which means Bezos’ powerhouse rakes in 3.66 percent of all the dollars handed over by Americans to retailers. Amazon’s worldwide revenues total $136 billion, not small change, but only about one-quarter the total of Walmart, known as the Beast of Bentonville, after the Arkansas headquarters to which suppliers trek to plead to be allowed at least a tiny margin on the products that will line the shelves in Walmart’s 6,363 stores around the world, 4,177 here in the U.S.
Walmart is gearing up to regain ground it lost to Amazon by failing early on to realize the potential of the Internet. It has shelled out $3 billion for Amazon-like multiproduct Jet.com, and about $50 million each for online sellers of men’s and women’s clothing, and outdoor gear. The late entry into the e-commerce race reports that its online sales grew 63 percent in the latest quarter, from an admittedly low base. Walmart has the advantage of a reputation for low prices and the thousands of stores that can serve as pickup points for orders placed online, or dispatch points for orders to be delivered directly to homes.
Meanwhile Amazon has produced a bit of nervousness among the upper classes by acquiring Whole Foods for $13.7 billion. Food and drink account for about 2 percent of retail sales, and it is not a sector in which Amazon’s previous incursions have produced much by way of results—not counting the accumulation of intellectual capital and a place to test cashier-free transactions and two-hour delivery techniques. Food will be a test of the ability of Amazon’s massive logistics system to adapt to the food business, involving a product more perishable than sneakers and books.
This does not mean that Amazon has not had a devastating effect on some sectors, books being the most notable: I can’t help but believe that many of the pieces that are so hostile to Amazon in the “intellectual” magazines and on the op-ed pages are written by those who have had their bookstores put out of business and now see their organic way of life threatened. It’s a class thing: these scribblers would need a GPS to find a Walmart, and probably feel they need a passport to gain entry.
Nor does it mean that other FANGs (Facebook, Amazon, Netflix, Google) do not present policy problems. Google’s share of search is said by antitrust authorities to be above 80 percent, but even they concede that it was won by superior “business acumen.” The problem arises if Google uses that alleged monopoly power to favor its own services such as maps, travel, shopping and many others. Facebook is “far and away the most common source of news about government and politics” among millennials, according to the nonpartisan Pew Research Center, and has had a distinct liberal tilt to its “trending” and fact-checking features. And along with Google, it is gaining control over the digital distribution of news. Netflix is causing angst in the cable and movie industries.
Some competitors make the valid point that if these new giants increase their sway by acquiring potential competitors, it is time for the competition authorities to intervene, although preventing acquisition of startups by deep-pocketed FANGs might deprive the newcomers of needed capital and expertise. If the ability to crush competition as it rears its lovely (for consumers) head, mandatory restructuring might be the only solution. After all, Amazon’s entry into the food business, followed by registration of a trademark, “We do the prep. You be the chef.” was the likely cause of at least part of the one-third plunge in the value of the shares of relatively tiny meal-kit company Blue Apron.
A final set of objections are better addressed by sociologists than economists. Ashlee Vance put it this way in Bloomberg Businessweek,
Google and Facebook are unlike any other two companies in history. They’re technology-and-advertising hybrids - strange amalgams with incredible power. They’re building the tools we use to communicate, to do business, to form and maintain relationships. To learn, to travel to and fro, and to relax. And they’re doing all of this while being wholly dependent on ad dollars. Never have advertising companies had such all-encompassing influence on our life. And next year it will be even greater.”
Meanwhile, according to a study by Michael Mandel, an economist at the left-leaning Progressive Policy Institute, the reduced need to drive to the mall, park, shop and bring stuff home has reduced shopping hours by 64 million per week in the past decade. More free time to, er, shop on Amazon, search Google, watch Netflix, and show your Facebook “friends” pictures of your cat.