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A High-Stakes Game of Monopoly

Irwin M. Stelzer

In that wonderful movie Patton, George C. Scott’s title character imagines himself in a one-on-one tank battle with Field Marshal Erwin Rommel—the winner wins the war. Donald Trump, who hates the Washington Post and therefore its owner, founder Jeff Bezos, may have a similar vision of “his” Department of Justice taking on Bezos’s billions in a battle that would warn Bezos to have his newspaper begin printing “the truth” rather than “fake news.”

The president has taken to asking businessmen he invites to the White House whether Amazon is a monopoly. Presumably, if the answer is “yes,” he will unleash the dogs of war—in this case the Department of Justice—on the company, with free one-day delivery of an antitrust complaint. Never mind that such use of presidential power would take us a step down the road to becoming a banana republic. That would matter little to Trump, whose view of what is fair in love and war is based solely on what wins.

Bezos would not be unprepared to counter with his best weapon, wealth of $100 billion. That’s $100,000,000,000. Besides his newspaper, he also has a Washington base to woo political support, and quite a base it is: a 27,000-square-foot former museum in the ecumenical Kalorama neighborhood that is now home to the Obamas and the Kushners. The mansion was purchased last year for $23 million according to the Washington Post, which must be considered a reliable source in this matter, since Post fact-checkers would not want to make a mistake obvious to their proprietor. It will be remodeled to serve as a pied-à-terre for the Seattle-based Bezos family, and would also of course lend itself to entertaining politicians and others with an influence on antitrust policy.

So the weapons are at the ready and the battle lines drawn as Trump seeks ways to hit Bezos where it hurts—in his Amazon. The problem is, the answer to the president’s oft-put question, “Is Amazon a monopoly?” is “No,” at least not as that term is generally understood. About 10 percent of all retail business is done online, and best estimates are that Amazon accounts for about half of that, or 5 percent of all retail sales. That’s a lot of sales, but hardly a monopolist’s share. Moreover, Amazon’s far larger retail rival Walmart has net revenue more than three times that of Amazon and just dropped “Stores” from its corporate name in recognition of its belated but serious and thus far successful thrust into online retailing.

That does not mean Justice’s antitrust division shouldn’t take a look at Amazon’s competitive tactics to determine whether some of them might, only might, be something more than the application of efficiency and data-mining nous. They should do so not because the president wants them to but because it needs doing in an age when more and more segments of the economy are coming under the control of a very few firms. If competitors are, as business jargon has it, “Amazoned” because they are less efficient than Bezos’s firm, good for the economy. If they succumb to anti-competitive tactics deployed by a firm with far deeper pockets, not so beneficial for consumers.

Start with the fact that Amazon is a very different economic animal from its competitors. Jeff Bezos’s control allows him to take short-term losses without fear of a shareholder uprising in order to eliminate competition and then return prices to profitable levels. He clearly has neither the need nor desire to satisfy the quarterly, short-run earnings demands beloved of Wall Street but derided by those who fear that short-termism is sapping market capitalism of the long-run investment and strategies it badly needs. But the line between such enlightened long-termism and predation is not always entirely clear. For Amazon has the means and the incentive to strangle competitors in the cradle.

Competition benefits consumers by enforcing rules that allow the race for their patronage to be won by the competitor that provides the best quality at the best prices. Consumers do not benefit if a seller with the most financial power wins the game by cutting prices so low that a competitor who is or might become more efficient cannot even get to the starting line because potential investors know that it will be tripped up by such as Amazon at the first sign of success. To draw the line between tactics that produce winners based on efficiency and winners based on financial staying power is not easy. It requires trying to determine if a dominant firm is cutting prices with the intent of forcing out its rivals and eventually recouping those losses, either by raising prices or accumulating such a large market share that pressures for continuous innovation are relieved. Not easy, but doable.

One sign that we might be dealing with a firm intent on distorting competition by creating barriers to entry is the practice of pre-announcement. A newcomer appears and offers a better mousetrap. It shows signs of winning a place in the hearts and purses of consumers and being able to raise capital to enable it to become a competitor of the dominant incumbent, in one or more markets. So the dominant firm announces that it, too, is planning to enter that market, perhaps not tomorrow, but soon enough to persuade venture capitalists and other investors that they do not want to risk money on the newcomer.

Absent careful investigation of the facts it is impossible to know whether Amazon deployed just such a tactic when, for instance, it pre-announced its plan to offer a food-preparation and delivery service just as Blue Apron was preparing to tap capital markets last summer for funds to finance its expansion, with a very negative effect on Blue Apron’s initial stock offering. Amazon might reasonably have feared that the tiny newcomer’s success would interfere with whatever plans it has for developing the position in food retailing it obtained with its acquisition of Whole Foods. Or perhaps not. That’s the sort of thing antitrust investigations aim to find out.

Add to that the fact that Amazon’s low share of the retail business—that 5 percent figure mentioned above—might well conceal a dominant share of particular market sectors, perhaps won more by muscle than by efficiency. We might not have reason to worry about Amazon’s share of food sales. But (estimates vary with definitions and sources) one important source estimates the company accounts for 41 percent of new books purchased, 65 percent of all new online book units, and 67 percent of the ebook market. It has used its high market share to make (some) publishers and authors unhappy, which might be good news for discount-hungry readers. Or might not, if it is creating a margin squeeze that will eventually shrivel any ability to pressure Amazon to maintain its large discounts. Again, there is only one way to find out—investigate.

And not only Amazon. Google enriched the world by making a search of accumulated recorded knowledge easier and cheaper. But that does not mean it should be allowed to leverage its search-engine success into an unfair advantage over competitors in other businesses, if that is indeed what it is doing, as antitrust authorities in Europe say they have found to be the case. Facebook has connected billions of people eager to share information with one another. Good thing, I suppose. But that does not mean that closer examination of its more than 50 acquisitions might not have found some with the effect of reducing potential competition, of nipping competition in its incipiency, to use the jargon of the antitrust trade.

Antitrust enforcers have had a good long rest in recent years, as the Obama administration relied on direct regulation rather than competition to serve consumers’ interests. Trump is now unwinding the regulatory state. That increases the weight we must put on competition to prevent mistreatment of consumers. A hard look at the competitive practices of and acquisitions by the Internet giants might be a good place to start.

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