Amazon Must Be Stopped

[Vasilisa]

Amazon Must Be Stopped
It's too big. It's cannibalizing the economy. It's time for a radical plan.
By Franklin Foer
October 9, 2014
The New Republic | New Republic

Excerpt:
Before we speak ill of Amazon, let us kneel down before it. Twenty years ago, the company began with the stated goal of creating a bookstore as comprehensive as the great Library of Alexandria, and then quickly managed to make even that grandiloquent ambition look puny. Amazon could soon conjure the full text of almost any volume onto a phone in less time than a yawn. Its warehouses are filled with an unabridged catalogue of items that comes damn close to serving every human need, both basic and esoteric—a mere click away, speedily delivered, and as cheap as capitalism permits.

Rather than pocketing the profits from this creation, Amazon has plowed revenue into bettering itself—into the construction of well-placed fulfillment centers that further hasten the arrival of its packages, into technologies that attempt to read our acquisitive minds and aptly suggest our next purchase. Shopping on Amazon has so ingrained itself in modern American life that it has become something close to our unthinking habit, and the company has achieved a level of dominance that merits the application of a very old label: monopoly.

That term doesn’t get tossed around much these days, but it should. Amazon is theshining representative of a new golden age of monopoly that also includes Google and Walmart. Unlike U.S. Steel, the new behemoths don’t use their barely challenged power to hike up prices. They are, in fact, self-styled servants of the consumer and have ushered in an era of low prices for everything from flat-screen TVs to paper napkins to smart phones.

In other words, we’re all enjoying the benefits of these corporations far too much to think hard about distant dangers. Besides, the ideology of Silicon Valley suggests that we have nothing much to fear: If these firms no longer engineer breathtaking technologies, they will be creatively destroyed. That’s why Peter Thiel, the creator of PayPal, has argued that the term “monopoly” should be stripped of its negative connotation. A monopoly, he argues, is really nothing more than a synonym for a highly successful company. Insulation from the brutish spirit of competition even makes them superior organizations—more beneficent employers, better able to both daydream and think clearly. In Thiel’s phrasing: “Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.”

Thiel makes an important point: The Internet-age monopolies are a different species; they flummox our conventional ways of thinking about corporate concentration and have proved especially elusive to those who ponder questions of antitrust, the discipline of law that aims to curb threats to the competitive marketplace. Part of the issue is the laws themselves, which were conceived to manage an industrial economy—and have, over time, evolved to focus on a specific set of narrow questions that have little to do with the core problem at hand.

Whether Amazon, which does $75 billion in annual revenue, has technically violated antitrust laws is an important matter, of course. But descending into the weeds of predatory pricing statutes also obscures the very real threat. In its pursuit of bigness, Amazon has left a trail of destruction—competitors undercut, suppliers squeezed—some of it necessary, and some of it highly worrisome. And in its confrontation with the publisher Hachette, it has entered a phase of heightened aggression unseen even when it tried to crush Zappos by offering a $5 rebate on all its shoes or when it gave employees phony business cards to avoid paying sales taxes in various states.

In effect, we’ve been thrust back 100 years to a time when the law was not up to the task of protecting the threats to democracy posed by monopoly; a time when the new nature of the corporation demanded a significant revision of government.



The progressive era’s most venomous screeds against monopoly came from the pen of one of its stodgiest characters, Louis Brandeis. In the early 1900s, before he became a Supreme Court justice, he took on a series of clients whose cases exposed him to the Gilded Age’s worst excesses. It radicalized his thinking. “If the Lord had intended things to be big, he would have made man bigger— in brains and character,” he wrote his daughter. He believed that the new corporations had only managed to thrive by dint of their dirty tactics: secret contracts, price fixing, and the purchase of potential competitors. On a level playing field, he lectured a Senate Committee in 1911, “these monsters would fall to the ground.”

Brandeis often wrote on behalf of exploited American consumers, but they were hardly his primary objects of concern. In the great Jeffersonian tradition, his heart truly bled for the small producers and sellers squashed by the monopolists. To protect these businessmen, Brandeis launched a crusade for “fair trade,” which revolved around a doctrine called Resale Price Maintenance. The idea was that manufacturers should legally control the retail value of their wares, rather than hand the power of pricing over to large chains and department stores, whose size gave them the unstoppable advantage of offering deep discounts. If this campaign forced consumers to pay slightly higher prices, Brandeis didn’t mind one bit. In an essay he wrote for Harper’s Weeklyin 1913, he excoriated the consumer who cared only about short-term prices: “Thoughtless or weak, he yields to the temptation of trifling immediate gain, and, selling his birthright for a mess of pottage, becomes himself an instrument of monopoly.” And in the generation that followed Brandeis, Midwestern liberals, Southern populists, and assorted other politicians continued to inveigh against the debasement of small businessmen.

By the postwar period, however, the producer was edged out of liberal thinking and replaced by a figure better suited to the affluence of the times. In the 1960s, Ralph Nader portrayed the consumer as the true victim of corporate greed. (Michael Sandel elegantly narrates this transformation of liberal thought in his book, Democracy’s Discontent.) To the Naderites, antitrust laws remained as necessary as ever, but only for the sake of driving down the very prices that Brandeis had once hoped to maintain. Mark Green, a leading disciple of Nader’s, wrote that the “primary focus of antitrust enforcement” should be “efficient production and distribution—not the local farmer, local druggist, or local grocer.”

Conservatives, it turned out, were only too happy to hear such talk. After years of defending monopoly as perfectly justifiable, they began publishing books and articles conceding that consumer welfare was a legitimate purpose of antitrust, perhaps the only one. Robert Bork denounced all of Brandeis’s attempts to protect small producers as a “jumble of half-digested notions and mythologies.” A cottage industry of like-minded critiques emanated from the University of Chicago’s Law School and then traveled straight to Republicans in Washington. In the hands of Ronald Reagan’s Justice Department, not to mention the judges he appointed to the federal bench, efficiency and low prices provided the justification for dismantling much of the old antitrust infrastructure. No subsequent administration, either Democratic or Republican, has meaningfully tried to revive it.

And Amazon is the price we’re paying for that bipartisan turn in thinking. As he built the company, Jeff Bezos carefully studied the example of Walmart, America’s largest retailer. He borrowed his personal style from the parsimonious Sam Walton and also poached from his C-suite. Walmart’s executives aren’t extravagantly compensated; neither are Amazon’s. For a time, they didn’t even receive reimbursements for office parking. Meanwhile, both companies have studiously avoided unionization and treat their workers miserably. In one famous incident, Amazon hired paramedics to revive heat-sick employees at a Pennsylvania warehouse rather than buy an air-conditioning unit.

Still, the biggest lesson that Bezos drew from the Waltons was in how to handle suppliers. Both Amazon and Walmart promise its customers the same feat—undercutting their competition on price. But frugality and innovation can only go so far in keeping prices headed southward, especially in the face of the stock market’s impatience. Growing profit margins depend, therefore, on continually getting a better deal from suppliers. At Walmart, this tactic is enshrined in policy. The company has insisted that suppliers of basic consumer goods annually reduce their prices by about 5 percent, according to Charles Fishman’s book, The Walmart Effect.

It’s hard to overstate how badly these price demands injure the possibility for robust competition. But when Amazon engages in the same behavior, it acquires a darker tint. Where Walmart is essentially a large-scale, cut-rate version of the old department store and grocer, Amazon doesn’t confine its ambitions to any existing template. Without the constraints of brick and mortar, it considers nothing too remote from its core business, so it has grown to sell server space to the CIA, produce original televisions shows about bumbling congressmen, and engineer its own line of mobile phones.

And as it amasses economic power, it also acquires greater influence in the cultural and intellectual life of the nation. Consider Amazon’s relationship to the publishing industry. A recent survey conducted by the Codex Group, released in March, found that Amazon commands a 67 percent share of the e-books market (not at all surprising given that it invented a wildly popular device for consuming digital tomes). And when it comes to the sale of all new books—hard, soft, and electronic—Amazon accounts for 41 percent.

Even though the five major publishing houses have political connections and economic power of their own, they just can’t compete. When Amazon first set the price for e-books at $9.99, it did so unilaterally and didn’t inform publishers in advance of its live-streamed announcement. The company continually finds new schemes for exacting tribute from the houses. Amazon requires a contribution to a “marketing development fund”—which hits publishers for an additional 5 to 7 percent of their gross sales. All the wondrous tools on the Amazon site are open to publishers, but only if they write appropriately sized checks: Pre-order buttons, appearance in search results, and personalized recommendations are hardly enlightened services provided by your friendly bookseller. Sure, Barnes and Noble and other chains have long charged fees for shelf placement, but Amazon has invented a steroidal version of that old practice. There seems to be no limit to Amazon’s demands—and its current negotiations with Hachette prove the point. The New York Times has reported that Amazon apparently wants to increase its cut of each e-book it sells, from 30 percent to 50.1

To justify this approach with publishers, Amazon portrays them as deserving of rough treatment. One ex-Amazon employee told The New Yorker’s George Packer that the company views publishers as “antediluvian losers with rotary phones and inventory systems designed in 1968 and a warehouse full of crap.” In the mid-2000s, the company famously launched an initiative called the Gazelle Project to extract better terms from small publishers. Its moniker was derived from a Bezos suggestion that his team pursue its prey as a cheetah tracks a “sickly gazelle.” (Lawyers a bit more sensitive to antitrust laws renamed it the “Small Publisher Negotiation Program.”) Or as one executive charged with dealing with the book industry confessed to the reporter Brad Stone, “I did everything I could to screw with their performance.”

In their desperation, publishers have tried various gambits to alter this dynamic. They have attempted to fight size with size—a misbegotten notion that led them to collude with Apple in blatant violation of price-fixing laws. And in the same spirit, they have accelerated the old tendency to seek safety in mergers. Just last year, Random House joined Penguin to form a mega-house, which controls 25 percent of the book business, in the dim hope that this new brawn would insulate them from Amazon’s harshest demands. But even a giant corporation ultimately has to bend to the will of their big buyer. That’s been the iron law of Walmart, which imposes its terms on the largest corporations in the world. As the New America Foundation’s Barry Lynn has described, “Walmart ... has told Coca-Cola what artificial sweetener to use in a diet soda, it has told Disney what scenes to cut from a DVD, it has told Levi’s what grade of cotton to use in its jeans, and it has told lawn mower makers what grade of steel to buy.”

So, no matter how large they grow, publishers will continue to strip away costs to satisfy Amazon. And more attention will fall on a strange inefficiency at the heart of the business: the advances that publishing houses pay their writers. This upfront money is the economic pillar on which quality books rest, the great bulwark against dilettantism. Advances make it financially viable for a writer to commit years of work to a project.

But no bank or investor in its right mind would extend that kind of credit to an author, save perhaps Stephen King. Which means that it won’t take much for this anomalous ecosystem to collapse. Amazon might decide that it can only generate enough revenue by further transforming the e-book market—and it might try to drive sales by deflating Salman Rushdie and Jennifer Egan novels to the price of a Diet Coke. Or it can continue to prod the publishing houses to change their models, until they submit. Either way, the culture will suffer the inevitable consequences of monopoly—less variety of products and lower quality of the remaining ones. This is depressing enough to ponder when it comes to the fate of lawn mower blades.



In confronting what to do about Amazon, first we have to realize our own complicity. We’ve all been seduced by the deep discounts, the monthly automatic diaper delivery, the free Prime movies, the gift wrapping, the free two-day shipping, the ability to buy shoes or books or pinto beans or a toilet all from the same place. But it has gone beyond seduction, really. We expect these kinds of conveniences now, as if they were birthrights. They’ve become baked into our ideas about how consumers should be treated.

These expectations help fuel our collective denial about Amazon. We seem to believe that the Web is far too fluid to fall capture to monopoly. If a site starts to develop the lameness of an AltaVista or Myspace, consumers will unhesitatingly abandon it. But while that meritocratic theory might be true enough for a search engine or social media site, Amazon is different. It has a record of shredding young businesses, like Zappos and Diapers.com, just as they begin to pose a competitive challenge. It uses its riches to undercut opponents on price—Amazon was prepared to lose $100 million in three months in its quest to harm Diapers.com—then once it has exhausted the resources of its foes, it buys them and walks away even stronger.

This big-footing necessitates a government response. It is often said that the state is too lead-footed to keep pace with tech companies; that by the time it decides to take action against a firm, the digital economy will have galloped off into the distance. But there’s a long history that suggests the opposite.

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[Nicodemus]

 

[Z Buck McFate]

I stumbled on this counter (that Amazon isn’t a monopoly) last week, before having read the article in the OP: What in the World Is Amazon?

[Only pasting the end here:]

In the most interesting part of Foer's essay, he acknowledges that to whatever extent Amazon is a monopoly (it's not) or a major force in U.S. retail (it is), consumers are responsible for feeding the beast.

In confronting what to do about Amazon, first we have to realize our own complicity. We’ve all been seduced by the deep discounts, the monthly automatic diaper delivery, the free Prime movies, the gift wrapping, the free two-day shipping, the ability to buy shoes or books or pinto beans or a toilet all from the same place. But it has gone beyond seduction, really. We expectthese kinds of conveniences now, as if they were birthrights. They’ve become baked into our ideas about how consumers should be treated.​

This scratches at a deeper itch, that there is something devilishly seductive to the conveniences of digital capitalism that makes life better for us as consumers and worse for us as workers. Does buying diapers once from Amazon makes one morally complicit in the working conditions of its warehouse employees? What about subscribing to Amazon Prime? Having an Amazon credit card?

These are harder questions, but they have nothing to do with Amazon's mythical status as a monopolist. If the government thinks warehouse workers deserve higher wages and better conditions, we don't have to go through the Justice Department's anti-trust squad to improve their lot. We can just pass new laws. Don't ask consumers to boycott a good deal.​

I don’t think the notion of regulating through the government is really ever going to fly. I know enough people who barely scrape together enough to get by who still oppose any increase in minimum hourly wage to think that's a viable answer (which continues to baffle me personally, but whatever)- there's some fundamental fear of government having "too much" control to allow it in a democracy (at least, in this country).

I’ve long wished there were some kind of resource out there- like Consumer Reports, except instead of rating products there would be ratings for how well a company treats their workers. I’m probably being too idealistic, but I think if there were some singular reputable source out there who rated the working conditions of different companies- and if it did have wide influence with consumers (getting good reports would bring in business, getting bad reports would be bad for business)- that would make a difference. I think the only reason these companies thrive is because the exploitation of employees is invisible- most people really do not think about it when comparing prices. Employee exploitation needs to be more visible.

 

[Chthonic]

The key to toppling these monopolies is to decentralise society. It's happening but very slowly. These kinds of corporations exist because of the habit of consumerism. We are socially trained to get money to get stuff and get more money. But a great many members of society now are re-thinking this. The hamster wheel is no longer attractive to them and they seek a tree change, move to the country, slash their wages and go off-grid to learn to live on what they need rather than what they want. That movement is the antidote to this problem. When we are not online clicking away at our credit card balance then these things cannot exist. Government will never deal with this problem, a simple 'donation' or promise of jobs or a social investment all ensure that government is fully on the side of these companies. They are, one and the same thing.

Protests are a useless endeavour, action is what works. The action that works here is simply not sending your money to Amazon. I have to say I have not purchased anything from Amazon in the last 10yrs. My life is no poorer for doing that.

 

[Vasilisa]

Amazon is the readers friend

In case you are interested there is going to be a debate dealing with Amazon on the 15th, which will be live streamed and then published on youtube.

Amazon is the Reader's Friend

 

[Little_Sticks]

I like Amazon. They sell products from many retailers and for the best prices usually. And shipping is cheaper than most other places, the majority of the time.

It's a good business. It's almost like Walmart, but better because they sell more than Chinese stuff.

 

[Vasilisa]

The Debate

 

[Little_Sticks]

I've also sold my textbooks and bought used textbooks off Amazon. It saved me a lot of money. I really appreciated that in college, even though i think Amazon got something like 10%.



But I don't get this at all. How is Amazon a monopoly if they provide the lowest prices and force the competition to also provide low prices? A monopoly would control the market in order to extort more money from the consumers, not save them money. I would rather other businesses go out of business because they can't compete with Amazon, if it means the cost of goods goes down. Otherwise prices would be higher... As far as publishing is concerned, Amazon is fighting the publishers because they make the majority of profits on the books, whereas the authors usually make a small percentage. They want to bring the greediness factor of the publishers down so that the consumer gets a more reasonable price. Amazon is a company that doesn't care much for profits; almost everything they make goes back into growing the business. The CEO is one of the lowest paid, though over a million dollars a year isn't anything to scoff at however. I could see the argument that a business like Amazon or Walmart hurts their workers by paying them as little as possible in order to sell products for as low as possible (and I completely agree that that's a legitimate concern), but unless you're a truck driver, getting paid minimum wage is pretty normal for warehouse workers. So for argument's sake, it's nothing new to Amazon at all, nor is ac for a warehouse, unless it is needed for the product, like the article complains about.

But can someone make it clear why Amazon is supposedly such an evil company compared to one that is ...good? And what would a good company be? I'm really just curious because I've never heard this before and I don't see why it makes sense.

 

[iwakar]

How is Amazon a monopoly if they provide the lowest prices and force the competition to also provide low prices? A monopoly would control the market in order to extort more money from the consumers, not save them money.

You answered your own question. It's about control.

 

[Little_Sticks]

Right, but they don't do it to raise prices and hurt the consumer, but instead they lower them, in effect giving the consumer more buying power with their money and Amazon makes a meager profit. Where's the problem? Is this more a fear that if Amazon becomes a monopoly that they will make prices higher than what they should be? Granted, if they do that, the businesses they put out of business would theoretically be able to compete again, so I'm not sure where the fear/problem is.

 

[tkae.]

Right, but they don't do it to raise prices and hurt the consumer, but instead they lower them, in effect giving the consumer more buying power with their money and Amazon makes a meager profit. Where's the problem? Is this more a fear that if Amazon becomes a monopoly that they will make prices higher than what they should be? Granted, if they do that, the businesses they put out of business would theoretically be able to compete again, so I'm not sure where the fear/problem is.

Depends on what economic model you're looking at, but I can't think of one where a monopoly is a good thing.

I prefer the Austrian School, and the problem with a monopoly is that in the short term it's okay but in the long term it stagnates the industry by chasing out the competition. If there's no competition, then sure, things are fine now, but in the long run it wont' be so great and the quality of the service will decay and the prices will drift upward. They won't have a reason to care, so they won't care. Look at Comcast.

Another example you'll be very painfully aware of is oil. Why are gas prices low? Because OPEC (a thug group of oil-producing countries like Saudi Arabia and Venezuela) are flooding the market with cheap oil to try and put Russian oil and American fracking companies out of business. OPEC has the long-term income because of their oil reserves and because of how much money they have in the bank to take a massive blow of billions or trillions of dollars, and in return they completely destroy their competition who, like most normal companies, can't lose billions or trillions of dollars for any realistic period of time. Like a day. Or an hour. American fracking companies are still fledgeling and haven't been operating long enough to be in that position, and so far have had massive layoffs from the cheap gas. And then Russia is imploding, 'nuff said about that. If they put those out of business, they'll have the market cornered for another decade, and will make back an exponential amount of money they lost by slashing their prices right now. They did the exact same thing back in the 1980s, and it's how they came to be as powerful as they are now. What did they do when they had the monopoly? Controlled the prices. And it was okay at first. But it wasn't so okay for the past decade when oil was $4 a gallon, was it? It'll be even worse after this round of cheap gas if they get more market share from their plan.

So monopolies aren't good. They might not be bad for you right now at this exact moment, but they will be. Amazon, for example, is putting an extreme amount of pressure on the publishers they work with, and are costing them a lot of money. And it will hurt the publishing industry, and therefor the literature being published. They've outright cut the publishing companies off at the knees more than a few times when they tried to get control of their digital prices back.

In Austrian School economics, though, a monopoly isn't a naturally-existing entity. They only come about by government regulation because in a true free market the competition would prevent any one company from actually gaining that much power. Obvious examples are Standard Oil (Rockefeller), U.S. Steel (J.P. Morgan), and Western Union, where the government outright gave them the exclusive right to the business. And you know those names to this day. Less obvious examples of how government regulation of the market can create cancerous companies that feed off of the economic imbalance are Halliburton, Wal-Mart (primarily because of how it exploits a lack of workforce laws to drive cheap goods with third world labor), and Apple/Microsoft.

I listed both of those because they do the exact same thing via patent laws. The tech industry is bloodier than a gladiatorial arena right now.

Basically, a monopoly comes into being because America doesn't have a truly free market. We talk about it, but at the end of the day we're too pussy to actually do it. And so we have just enough regulation to cause ourselves marketplace problems, but not enough regulation to actually address the problems to protect the consumer or the health of the market. I'm not for market regulation, but if you're gonna do it then you have to do it right.

 

[Little_Sticks]

Depends on what economic model you're looking at, but I can't think of one where a monopoly is a good thing.

I prefer the Austrian School, and the problem with a monopoly is that in the short term it's okay but in the long term it stagnates the industry by chasing out the competition. If there's no competition, then sure, things are fine now, but in the long run it wont' be so great and the quality of the service will decay and the prices will drift upward. They won't have a reason to care, so they won't care. Look at Comcast.

I've noticed that with almost all the internet service providers. And I see your point, but Amazon's business is centered on shipping. Brick and mortar stores usually have higher costs because it provides convenience for the consumer. You can wait a while and get something for cheaper or get it in a brick and mortar store right now, so Amazon never really controls the market; if Amazon made it so that its prices were too high and they stopped providing quality service, people could immediately buy from brick and mortar stores, without waiting for online business to resurface in competition.

Another example you'll be very painfully aware of is oil. Why are gas prices low? Because OPEC (a thug group of oil-producing countries like Saudi Arabia and Venezuela) are flooding the market with cheap oil to try and put Russian oil and American fracking companies out of business. OPEC has the long-term income because of their oil reserves and because of how much money they have in the bank to take a massive blow of billions or trillions of dollars, and in return they completely destroy their competition who, like most normal companies, can't lose billions or trillions of dollars for any realistic period of time. Like a day. Or an hour. American fracking companies are still fledgeling and haven't been operating long enough to be in that position, and so far have had massive layoffs from the cheap gas. And then Russia is imploding, 'nuff said about that. If they put those out of business, they'll have the market cornered for another decade, and will make back an exponential amount of money they lost by slashing their prices right now. They did the exact same thing back in the 1980s, and it's how they came to be as powerful as they are now. What did they do when they had the monopoly? Controlled the prices. And it was okay at first. But it wasn't so okay for the past decade when oil was $4 a gallon, was it? It'll be even worse after this round of cheap gas if they get more market share from their plan.

Oh, I'm aware of this. I'm banking on it. But this situation is a bit different than Amazon because there are brick and mortar alternatives to Amazon. Oil doesn't have a whole lot of alternatives.

So monopolies aren't good. They might not be bad for you right now at this exact moment, but they will be. Amazon, for example, is putting an extreme amount of pressure on the publishers they work with, and are costing them a lot of money. And it will hurt the publishing industry, and therefor the literature being published. They've outright cut the publishing companies off at the knees more than a few times when they tried to get control of their digital prices back.

Well, while it is true that the pressure they put on the publishers can have a stagnating effect, it should help authors become more competitive by lowering prices and allowing for easy publication of new authors; there have been new authors that have made millions selling on Amazon digitally, whereas none of the standard publishers would publish their work; and with lower prices people will be more likely to buy books, instead of other things. I can understand the publishers being agitated that someone is trying to dictate prices for them, but they don't have to sell their stuff with Amazon either. It reminds me of the music war that the music industry used to have with downloadable music; they could fight it or adapt to what's current and find other ways to make money, such as with putting music on youtube and selling adspace and increasing the profitability of concerts. But then you've also got things like Pandora that reduce the costs for independent artists to get recognized and also make money at their profession by cutting out the publishers. Of course, publishers don't like competition and low prices because it means they become unnecessary - their services no longer become worth the cost. But the point is, as the saying often goes "there's two sides to every story" and Amazon definitely has theirs as well.

Basically, a monopoly comes into being because America doesn't have a truly free market. We talk about it, but at the end of the day we're too pussy to actually do it. And so we have just enough regulation to cause ourselves marketplace problems, but not enough regulation to actually address the problems to protect the consumer or the health of the market. I'm not for market regulation, but if you're gonna do it then you have to do it right.

Not meaning to sound insulting, but this doesn't make any sense. Free markets are exactly what allow monopolies to sell products at a loss to drive others out of business. It's exactly government regulation that stops it from happening. So not sure what you mean?