Should Amazon Be Considered a Monopoly?

Although it doesn’t fall into our traditional definition of a monopoly, some researchers argue that Amazon’s scope calls for a new definition. Learn why in this episode.

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Episode Transcript

Speaker 1 (00:02):
Welcome to brain Stuff from How Stuff Works, Hey, brain
Stuff Lauren Bogelbaum Here, economists and policymakers have a huge
question about Amazon. How big is too big? The five
and sixty billion dollar company first made its name selling
books online, but it is rapidly morphed into an everything
store with his hands in just about every retail sector

(00:22):
in America. There's no question that Amazon dominates e commerce.
In its online sales were six times greater than those
of Walmart, Target, Best Buy, Nordstrom, Home Depot, Macy's, Cole's,
and Costco combined. But as Amazon's incredible success bad for
consumers and the economy, we spoke with Lina Khan, director
of Legal policy at the Open Markets Institute, a think

(00:44):
tank that warns about the dangers of monopolies. They believe
that Amazon represents a new kind of monopoly for the
digital economy. The problem is not only that Amazon commands
such a huge share of all online sales, but that
so much of the rest of the digital economy is
dependent on Amazon's technology platform. Com compares Amazon to a
nineteenth century railroad company that decides which oil drillers and

(01:06):
wheat farmers can ship on its tracks and at what cost.
Because of Amazon's e commerce dominance, smaller retailers feel compelled
to sell on Amazon's third party marketplace platform. Amazon has
been accused of using its market position to bully book
publishers over prices and to introduce its own cheaper products
when a third party retailer has a hot seller. We
also spoke with John Rossman, a former Amazon executive and

(01:29):
managing director at the Seattle consulting firm Alvarez and Marcel.
He doesn't see Amazon's behavior as monopolistic, just a classic
example of coopetition, a combination of competition and cooperation. He said,
you're competing with Amazon, you're partnering with Amazon. You're using
their services yourself, so your customer of them as an organization,
You've got a very complex relationship. The problem with accusing

(01:51):
Amazon of being a monopoly is that it doesn't quite
fit with the prevailing definition of monopoly, which has been
used by courts and the Federal Trade Commission since the
nineteen seventies. Mark Scriber of the Competitive Enterprise Institute, a
free market libertarian think tank, says the issue isn't bigness,
but consumer welfare in general. A company can grow as
much as it wants and control as much of the
market as it wants, as long as prices don't go

(02:12):
up and consumers don't suffer. You can make the opposite
case about Amazon. The online retailer is so wildly popular
with American consumers a one in four US adults that's
sixty three million people are Amazon Prime members, precisely because
of its low prices and mostly free shipping. But Cohn
and others would argue that the consumer welfare focus of
antitrust law is outdated and misplaced. Yes, consumers love low prices,

(02:35):
but at what cost. More and more market power and
influence is being consolidated in the hands of one company.
With Amazon's practice of buying up competitors like Zappos dot
Com and Diapers dot Com and expanding into new markets.
For example, when Amazon acquired Whole Foods in seventeen with
plans to disrupt the grocery industry, its grip on the
economy is only likely to tighten. But again, does Amazon's

(02:58):
rapid expansion and increasing market dominance mean that it's doing
anything illegal? Scriber says there's no evidence that Amazon is
using its market power to engage in anti competitive practices
right now. Instead, Amazon's critics are always warning about what
might happen in the future, like leverage Whole Foods four
and fifty locations to push out competition in the grocery
delivery business. And despite its size, Amazon currently only makes

(03:21):
up three point six percent of annual retail revenue in
the United States. Walmart is still much larger. Scriptner said
that isn't how anti trust law works. There isn't an
antitrust pre crime. There has to be actual anti competitive
conduct that occurred for someone to be convicted. But what
about updating the anti trust laws as con has called
for to reflect the danger posed by a single technology

(03:42):
company not only acting as a gatekeeper to the digital economy,
but expanding its reach into the physical world. Kurt Hessler,
a former economist with the Carter Administration and a lecturer
in anti trust law at the u c l A
School of Law, says that Amazon's business model is unprecedented
and we simply don't know enough about them to rewrite
the anti trust law us. Hessler said economists don't know

(04:02):
enough about how all this works and where it's going
and how fast it can change to be able to
change the whole legal landscape intelligently anyway. Any general principles
that are established in Amazon's case will be applied across
the whole digital economy, and nobody knows what sort of
effects those would have. Today's episode was written by Dave

(04:23):
Ruse and produced by Tristan McNeil. For more on this
and lots of other tricky legal topics, visit our home planet,
how stuff Works dot com.