PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

OPINION: District of Columbia’s Antitrust Fantasies Vs. Amazon

By at 8 June, 2021, 2:27 pm

by RAYMOND J. KEATING –

It’s not unusual for politicians to deal in economic fictions. Indeed, many politicians build entire careers by contradicting basic, sound economics. Nonetheless, there’s something particularly fanciful about the antitrust lawsuit being brought by Karl Racine, the District of Columbia’s attorney general, against Amazon.

Amazon and the Retail Market

It’s important to first understand that the success of Amazon has been built on bringing low prices and quality service to consumers. Indeed, that’s what revenues, market share and profits depend upon in the marketplace.

Next, consumers have a wide variety of choices on the retail front, both offline and online. And it’s important to acknowledge that fact, as politicians are notorious for trying to define markets so narrowly that they point to monopolies, or “monopoly power,” seemingly everywhere, which, of course, would fit their antitrust regulatory desires.

The retail market is not just ecommerce retail, but the full retail scenario presented to consumers. And retailers grasp this obvious fact, with offline retailers understanding that they compete with online retailers, and vice versa, and of course blended retailers seeing full retail market realities.

So, even with Amazon’s notable achievements in serving consumers, including its recent gains during the pandemic, Amazon’s share of total U.S. retail sales, according to a report from PYMNTS.com, registered 9.2 percent in 2020, up from 6.8 percent in 2019.

Amazon’s share puts it in second place behind Walmart, which earned 9.5 percent of retail sales in 2020 versus 9.2 percent in 2019. There are no monopolies at work here, nor does any threat of monopolization exist.

Amazon and Small Business

For good measure, when it comes to Amazon and small businesses, there are multiple relationships at work.

First, small businesses are Amazon customers for many and varied products, such as mailing and office supplies, laptops, furniture, and so much more.

Second, small business retailers compete with Amazon in assorted ways, depending upon the industry, with smaller firms working to provide products and service that Amazon does not or even cannot offer, including more personalized service.

Third, Amazon serves as a marketplace for, or partner to millions of small businesses who benefit from Amazon’s large customer base, as well as assorted services provided by Amazon. SBE Council explained this in a recent analysis. In that brief, SBE Council laid out the following:

On February 3, 2021, Amazon.com reported that it supports “more than 1.7 million small and medium-sized businesses (SMBs) around the world that are selling their products in our store.” Amazon.com went on to point out: “SMBs now makeup close to 60% of the sales in our store, and they have created more than 2.2 million jobs globally as a result of selling on Amazon. In fact, SMBs from all 50 states that sell with Amazon are more than twice as likely to see 25-50% hiring growth compared to those that do not, according to research by IDC.” More broadly, Amazon.com has noted, “In the U.S., Amazon works with more than 2 million independent sellers, authors, content creators, developers, delivery businesses and IT solution providers.”

Amazon is an option among many for most small businesses: In addition, small businesses that benefit from working with and selling on Amazon rarely limit themselves to only selling via Amazon. For example, according to research by IDC, “81% of Amazon sellers sell via other online channels, and generate, on average, 54% of their revenue from offline channels.”

D.C.’s Antitrust Lawsuit: “Completely Mystifying”

Given that consumers have wide-ranging retail choices; that such a large percentage of Amazon sales are dependent upon small business partners; and that the dynamic marketplace means that industries can and do quickly change so that businesses are competing with current and future rivals, the notion that Amazon is a monopoly or possesses “monopoly power” simply fails to line up with economic reality.

Indeed, understanding market realities and the many benefits that a firm like Amazon brings to consumers and small businesses, the antitrust lawsuit brought by the D.C. attorney general becomes completely mystifying.

Amazon has pricing policies, along the lines of other large retailers, like Walmart and Target, that encourage or push third-party sellers to offer their lowest prices on Amazon. That makes sense, given that consumers have a wide array of retail shopping choices and retailers like Amazon don’t want to be offering the same products at higher prices.

And suppliers have the freedom to price their products as they see fit, and can offer those products offline and via a wide array of online avenues, from their own websites to such marketplaces as Walmart, Etsy, eBay, Facebook Marketplace, Wish, Poshmark, and many others.

But the D.C. attorney general somehow accuses Amazon of raising prices for consumers and suppressing innovation. If that doesn’t sound like it makes any sense, well, that’s because it doesn’t make any sense.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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