Authorities on both sides of the pond are now looking into whether Amazon behaves anti-competitively.
It was tough week for the Seattle e-commerce giant on the regulatory front. It started Tuesday with an antitrust hearing before the U.S. House Judiciary Committee. Although Apple, Facebook, and Google also sent representatives, Amazon fielded the most pointed questions. A few hours later, the European Union launched a formal investigation into the company, focusing on how it treats third-party sellers in the Amazon marketplace.
We explore why Amazon is in the hot seat, how the company is responded, what comes next on this episode of the GeekWire Podcast.
Listen below, or subscribe in your favorite podcast app, and continue reading to catch up on everything you need to know.
Why is this happening now? Amazon has become emblematic of income inequality in the U.S. with its stratified workforce, appetite for growth and the richest person in the world at the helm. In this politically divided moment, apprehension about the power and scale of the tech industry is a rare issue with supporters on both sides of the aisle. Politicians are scrutinizing corporate consolidation across industries, but tech has provided the clearest example — and flashiest headlines — about what can happen when big companies become dominant.
Why is Amazon under fire? Most of the antitrust scrutiny is focused on Amazon’s marketplace, where third-party retailers and the tech giant sell goods. Critics claim that Amazon uses the massive trove of data it has as the operator of the marketplace to gain a competitive advantage. For example, Amazon could hypothetically observe a spike in sales of insulated water bottles, create its own private label dupe of the product, and sell it for half the cost.
How much market share does Amazon have? It depends how you look at it. A big part of Amazon’s antitrust defense is this idea that the company represents less than 1 percent of global retail sales and less than 4 percent in the U.S. But online retail paints a different picture. Amazon is responsible for 37.7 percent of online sales in the U.S., according to EMarketer. That makes Amazon look a lot more dominant. The company insists that it doesn’t make sense to segment retail this way because it also competes with brick-and-mortar stores.
What does Amazon say in response? Amazon’s strategy is to emphasize the competitors it faces in each sector where it operates. The company says it represents a small percentage of overall retail and notes that it competes with a variety of businesses in cloud, streaming, grocery, and other sectors. An Amazon spokesperson said the company will cooperate fully with the European Union’s investigation.
Why did Amazon face the toughest questions during the hearing? Experts like Dan Ives, managing director of equity research firm Wedbush Securities, believe U.S. regulators have the best antitrust case against Amazon out of the four companies that testified. Amazon is undoubtedly an innovator but it still operates a marketplace. It’s easier for regulators to wrap their arms around a company that sells goods to consumers, versus the more disruptive business models of Facebook and Google. Amazon is also a notoriously private company so it’s possible lawmakers seized on the opportunity to ask their questions.
How does the $5 billion fine against Facebook impact the mood in D.C.? When the FTC issued the long-expected penalty, several politicians criticized it as a slap on the wrist even though it is the largest fine the federal government has ever levied against a tech company. It’s a sign of the times that shows how serious some members are about reining in the company. It’s also a sign of the record profits the tech industry brings in, that $5 billion does not meaningfully affect Facebook’s business. One of the key questions Congress is trying to answer in its antitrust inquiry is whether existing regulatory tools are sufficient to prevent Big Tech from abusing its power. That was the backdrop for the hearing.
What’s at stake? Although U.S. lawmakers grilled Amazon, antitrust experts are skeptical of whether any real action will come out of the hearing. That’s because in the U.S., prosecutors have to show that a company is using its monopolistic power to raise prices for consumers, which isn’t Amazon’s model.
European competition law takes a broader view of market dominance. The current European competition chief, Margrethe Vestager, has repeatedly gone after American tech companies, slapping Google with fines that amount to $9.3 billion over the past few years. Facebook, Apple, and Qualcomm have also found themselves in the EU’s crosshairs over competition issues.
If the EU investigation finds Amazon behaved anti-competitively, the company could face billions of dollars in fines and orders to change the way it operates.