FTC vs. Amazon (and Small Business?)

By SBE Council at 5 September, 2023, 8:50 pm

SMALL BUSINESS INSIDER

by Raymond J. Keating –

According to its economically baseless assumption that “big” equates with “bad” when it comes to business, the Federal Trade Commission (FTC) apparently seems bent on breaking up the online retailer Amazon.

In her effort to distort economic reality to fit her assumptions, FTC Chair Lina Khan pushes the idea that Amazon somehow rules over retail like a monopoly, or with monopoly-like power (whatever that is). Therefore, according to Khan and Company, Amazon is hurting small businesses and consumers by – try to follow this – emphasizing low prices, rewarding business partners and good customers, and offering customers appealing packages of products.

Never mind what smaller businesses actually are doing and saying, this is an ideological crusade led by a regulator disconnected from the facts as they pertain to the economy, to businesses, and to consumers.

Market Realities vs. Unsubstantiated Assumptions

Consider some market realities about Amazon, as opposed to assumptions and assertions made by zealous government regulators and their supporters. As far as the facts are concerned, InfluenceMarketingHub.com recently reported the following about Amazon.

First, Amazon claims 10.4 percent of the total U.S. retail market. That’s certainly not a monopoly. Remember, a monopoly means a single seller of a product for which there are few good substitutes, and the industry has high barriers to entry given the current market, never mind what might lie ahead from current, emerging and future competitors in a highly dynamic market.

Second, an increasing share of sales on Amazon actually are made by third party sellers, that is, made overwhelmingly by small and medium-sized businesses. The latest tally is 59 percent. As noted by InfluenceMarketingHub.com: “Third-party seller share is steadily increasing. In Q2 of 2022, third-party sellers accounted for 57 percent of the total units sold. This shows only a slight increase from 56 percent in the second quarter of 2021. Nevertheless, we see a steady increase in third-party sales, with numbers climbing from 53 percent (Q2 2020) to 59 percent (Q4 2022). It remained at 59 percent in Q1 2023.”

In its latest “Small Business Empowerment Report,” Amazon points to an even higher percent of sales by independent sellers:

“Today, more than 60 percent of sales in Amazon’s store come from independent sellers – most of which are small and medium-sized businesses.” Amazon added that “in 2022, independent sellers in our U.S. store sold more than 4.1 billion products—an average of 7,800 every minute—and averaged more than $230,000 in sales in Amazon’s store. Selling in Amazon’s store has enabled independent sellers to employ an estimated 1.5 million people in the U.S., and during the 2022 holiday season alone, Amazon customers purchased nearly half a billion products from small businesses in the U.S., leveraging Amazon’s significant investments in customer traffic, a trusted shopping experience and fulfillment and logistics capabilities that enable fast and convenient delivery.”

Small business reality: Meeting customers “where they are.” As noted in the latest SBE Council “Small Business Checkup Survey,” small businesses see the benefits of using Amazon to sell their goods. But this is far from any kind of monopoly scenario, as other avenues of reaching customers are significant, robust and necessary. Consider the following findings from this survey:

● 22 percent of small businesses surveyed sell products on Amazon.

● Amazon accounts for 23 percent of total sales for its users.

● 69 percent of Amazon users also utilize their own websites for sales.

● 64 percent of Amazon users also utilize social media platforms, like Facebook, for sales.

● 41 percent of Amazon users utilize other tech platforms, such as Etsy, Shopify and eBay, for sales.

● 35 percent use brick-and-mortar storefronts; 23 percent use buy online, pick-up-in-store (BOPIS); and 16 percent tap into larger company platforms like Walmart.

FTC action against Amazon will harm small businesses, and their customers. Finally, regarding FTC antitrust action against Amazon, such as breaking the company up or regulatory actions that would end Amazon’s practice of permitting third-party sellers to access and use the Amazon marketplace, the consequences would prove quite harmful for many small businesses.

Disrupting (or ending) this sales channel in a challenging economy when every dollar of revenue counts would hit small businesses hard: 79 percent of small businesses expect a negative impact for their enterprises.

Concerns included sales disruption (31 percent), employee layoffs (22 percent), loss of customer base (17 percent), potential business closure (16 percent), and increased sales/marketing costs (15 percent).

Hyper-regulatory FTC actions to break up Amazon or to limit its ability to offer various services to customers – negatively affecting small businesses as consumers and as suppliers – ignore economic, business and consumer realities, and if allowed to become reality, would impose real harm on existing small businesses, as well as reducing opportunities for future entrepreneurs, and generally working to disincentivize entrepreneurship.

This is another example of government regulators attacking innovative businesses – for no sound reason – with the costs and ills hitting small businesses hard.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.