In June 2017, The City University of New York (CUNY)/Queens professor of digital economics Douglass Rushkoff penned one of the more compelling arguments on the future of Amazon (AMZN) and the U.S. economy. 

His title was simple: “It’s Time to Break Up Amazon.”

The thesis came in the wake of Amazon’s $13.7 billion bid for Whole Foods (WFM), a move that led to a sharp sell-off of grocery rivals’ stocks. The Amazonization of the American economy is rife with concerns about the effect on labor, anti-competitive threats and chatter about a potential monopoly that will suck value out of every market Amazon enters. With 30% of all online and offline retail sales growth and 40% of Internet cloud service demand, what will stop Amazon from dominating everything? 

More importantly, what exactly has helped the company reach this point? 

Rushkoff explains that past antitrust efforts to end monopolies in the 20th century industrial economy centered on efforts to prevent companies from gaining control of the distribution platforms.
Whether it be a trucking company trying to control roads, an oil company owning pipelines or a telephone company owning the wires; the distribution platform is a critical consideration. 

In this digital economy, the e-commerce “platform is the business.” Rushkoff writes, “Netflix content sells its platform, Apple’s devices sell its supposed ‘ecosystem.’ Amazon’s book business, like Uber’s cab business, was just an easy foothold—the low-hanging fruit of an existing but inefficient marketplace—through which to establish a platform monopoly. From that beachhead, the company then pivots to other verticals.”

Amazon has a unique competitive advantage that provides key research data that competitors simply lack. Amazon had 43% of all online retail sales in 2016, according to Slice Intelligence. As an individual product category grows in popularity, Amazon can then develop its own private label version of the product and begin to sell it on the platform in direct competition. 

From there, Rushkoff proceeds to argue that the company doesn’t consider its long-term influence as it expands. In the digital age,
Rushkoff argues that Internet services and capital can scale up in a way that real companies and the real world cannot in the future. 

Rushkoff is arguing, in theory, the idea that Amazon’s monopoly potential is unlike anything that the world has seen. Not only is it a threat to capitalism, but it is also a potential dagger into the heart of the world economy. 

While the author seems uncertain that current antitrust regulations can be applied to this issue, his article is the reason we are exploring this issue today. For a better understanding of Amazon, the current state of antitrust laws and why this company is unlikely to face legal retribution, we turned to an expert. 

We sat down with Diana Moss, president of the American Antitrust Institute (AAI) in Washington, for more insight into Amazon’s legal issues, problems facing antitrust advocates and a better understanding of the role of digital platforms in the 21st century economy.

Moss, an economist who has been with AAI for 17 years, argues that Amazon’s story is part of a broader narrative on antitrust issues that have been building for three decades. 

“Over 30 years of lax enforcement with declining competition, as indicated by higher levels of market concentration, we’ve got growing inequality gaps, slower rates of market entry and a number of other problems,” she says.

However, in the case of Rushkoff’s argument, she unpacks a handful of issues at the heart of Amazon’s platform and antitrust matters. 

“The development of the online platform and the coverage of platforms across multiple, adjacent markets on which other technologies reach is — from an economics standpoint — not a new idea. Network platforms and interoperability are old, fleshed out economic ideas. What is interesting is how enforcement approaches them,” she says. 

At the core of the issue on the platform is the economic concept called the essential facility. 

“The essential facility is typically a network — whether it’s a transport system, a pipeline, a transmission system, a railroad — that displays, in many cases, natural monopoly types of characteristics. For market entrants, rivals and competitors to reach the consumer, they have to go through the essential facility. They have to gain access because it really doesn’t make sense in some cases to have more than one big network,” Moss says. 

In the public utility, having more multiple transmissions lines would be duplicative and wasteful. For this reason, the markets have true monopoly regulation. However, Moss notes that online platforms are a way to think of modern essential facilities that are based on digital platforms. 

She notes, however, that this doesn’t necessarily require regulation. 

“Regulation is really reserved to the most extreme mortgage failures that we can identify in our economy. There is a lot of talk right now about regulating these platforms. We do not think that’s a great idea at all. ”

At the core of this sentiment is the notion that Amazon and Google (GOOG) are not carbon copies of the old essential facilities and networks that the United States saw in the 20th century manufacturing and transportation-based industrial economy. 

“We still have regulation in many public utilities because of these older facilities. But online platforms as essential facilities are different. There has to be some form of access to the facility, to the technology, to the platform, so that rivals can operate on top, adjacent to, or in a complimentary non-restrictive way to bring value, new products and services to consumers,” Moss says. “Antitrust [experts] are grappling with this over these platforms. What is complicating this is that the Googles and the Amazons and the Facebooks of the world have engaged in acquisitions and consolidation in markets that may not immediately raise antitrust concerns.”

On the matter of antitrust issues, there is a fine line between technological progress and the goals of breaking up firms due to market share growth tied to that progress. Moss argues that the future requires more than just thinking about the concept of breaking up monopolies or platforms.

“You can’t stop innovation,” Moss adds. “I don’t think we all want to be Luddites. Technological progress brings many benefits in
many ways, but it is a process that requires more guidance and structure through a more coherent policy that includes more than just antitrust. Antitrust is really important, but when it comes to
promoting competition in the economy and technological progress, you need a national policy on promoting innovation that’s pro-competitive and pro-consumer.”
 

The Path to Antitrust

Is it possible that Federal agencies or a state’s attorney eyeing a governor’s mansion will target Amazon in the months or years ahead? It depends on the context. 

“One thing antitrust must do is continue to look forward,” Moss says. “All merger analysis is forward-looking; it looks at markets, not as they currently are but as they are likely to be. Antitrust has to broaden the lens within using existing tools to make the connections between the types of acquisitions and consolidations in conduct in these very complex ecosystems that the platforms live in. And to do that, you need smart, creative, aggressive enforcers.”

She adds that the current political environment isn’t up to meeting those challenges; citing the lack of leadership at key agencies, unfilled positions and the threat of using anti-trust as a political weapon instead of smart policy. 

In the current environment, Moss doesn’t expect that the Federal Communications Commission or the Department of Justice would bring a large antitrust case against Amazon. The idea that the agencies would bring an amorphous case that posed concerns about competition and how Amazon might be leveraging its market power doesn’t lend itself to the current system. 

“The laws and the guidance of the agencies are not built that way,” Moss says. 

It is more likely that agencies would address Amazon the same way that we have witnessed antitrust efforts with Google in recent years. 

“They would look at conduct, how the platforms conduct themselves, and whether they’re engaging in exclusionary conduct that’s limiting competition and or misdirecting resources. Or they would look at mergers and acquisitions,” Moss says. 

If agencies bring a case against Amazon and Whole Foods, Moss argues they would take a fairly specific view to that particular transaction and how it affects competition. In this case, they may examine the space of procurement of natural and organic foods, and the logistical distribution segment in terms of how those products are distributed to consumers.

“It has to look through the lens of merger control by defining markets and looking at how the transaction could harm consumers, choice and innovation; and how it would affect price. And then the answer will be whether there is a competitive issue or not. Antitrust has less ability to bring much broader concerns to bear on how a company is behaving in its ecosystem. There has to be a hook through the law, she says. 

Moss adds that there is a possibility that Federal agencies bring a case over Amazon and Whole Foods. It may come down to how much competitors begin to complain. 

“The agencies really listen hard to how other smaller firms are going to be affected by this type of transaction,” she says. “The more vocal smaller entrepreneurial, innovative competitors can be about this type of consolidation, the more it will get on the radar screens of the agency. The problem is they have to sort of beat the fear factor, the intimidation factor.”

Such drum-beating is common in the agribusiness industry. However, companies that step forward and compete do fear retaliation. “We saw, this was an issue in Sysco-U.S. Foods. There were smaller alternative suppliers and food systems that absolutely would’ve been affected by that. But they think twice about stepping forward because they’re dealing a very large and powerful company,” Moss says. 

However, when it comes to Amazon’s platform, antitrust will remain on alert but open to growing progress. 

“Technological innovation, digitalization, development of platforms is fine, as long as antitrust takes an active role in promoting one of two strategies. One is to promote access to platforms. We call this intra-system competition. So that’s having a Google or an Amazon [with] an access system that is really open and non-discriminatory. And because folks have to use a platform that that access is open and available.”

Moss’ other strategy is that antitrust groups promote the development of multiple platforms that compete head to head. 

Unfortunately, it appears that we operate in a world right now that doesn’t have either strategy in place. “We have neither good intra-system competition where you know because we see competitive issues emerging around the platforms; nor do we have good intra-system competition because we don’t have competing, multiple platforms,” Moss says.

In the end, there may be an attorney general in a state somewhere who is eyeing the governor’s mansion who will want to generate a name. The laws are not in the favor of anyone seeking a broad swipe at the firm. More important, the acceleration of the Amazon economy will continue, and simply breaking the firm up into separate pieces certainly isn’t going to alter the decline of jobs and dramatic overhaul of the economy.   

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