Does Amazon do more harm than good?

Amid CEO Jeff Bezos’s visit to India, Amazon’s India website displayed a full-page letter highlighting how Amazon was committed to its small and medium scale business partners. Bezos also announced that Amazon will invest an “incremental US $ 1 billion to digitise micro and small businesses in cities, towns and villages across India, helping them reach more customers than ever before”. 

However, as Bezos tried to bring on his ‘charm offensive’ to India, stating how he was inspired by the “boundless energy and grit” of the Indian people, not everyone seemed amused. On the one hand, we had the Union Commerce Minister stating that “Amazon is not doing India a favour by is probably because it wants to cover its losses incurred to deep discounting”, on the other hand, we had small and medium retailers protesting against the visit holding posters of ‘Go Back Amazon’. The retailers claimed that Amazon was doing more damage to their business than good.

What is the truth?

A typical brick and mortar retailer’s capability to sell is constrained by its access to consumers which in turn is confined by the geography. The retailer’s market is restricted to people living in the vicinity of the shop. On the other hand, Amazon offers retailers access to millions of consumers across India. This expansion of the market is not only beneficial to the retailers but also to the final consumers who now have a plethora of products to choose from.   

However, Amazon, apart from being a marketplace connecting sellers and buyers, is also a player on its own platforms. It sells various products from soaps, shirts and underwear to tech accessories, and kitchen supplies of its own private label brands such as Solimo, Amazon Essentials, Symbol, Amazon Basics, among others. This violates the neutrality of the platform.

Think of the last time you went to the second page of Amazon listings to buy a product. Can’t remember, right? Most of us tend to buy products, especially the standard, and low-value ones from the first five or six listings shown. Amazon has an incentive to and has been accused of favouring its own products above the ones sold by sellers. The reduction in traffic and sales observed by the sellers forces them to buy listing advertisements on Amazon. The protests were a manifestation of the low-bargaining power that individual sellers have against the world’s biggest e-commerce company.

Now consider the information that Amazon has in terms of what products are sold where, at what price points, which are the major players in different segments and so on. Studies show that Amazon uses its marketplace as a tinkering lab and leverages the information asymmetry to launch the most successful products on the platform, under its own label. Once, Amazon’s private label launches the product, it undercuts the retailers on price and favourably places the products on the website effectively killing competition.  

The current standard of ‘consumer welfare’ pegged on short-term price effects is inadequate for managing the above results. The de-facto ‘consumer welfare’ standard popularised by Robert Bork through his book, ‘The Antitrust Paradox’ argues that the goal of antitrust laws should be maximising consumer welfare and protecting the competition, not the competitors. Since, there is no clear evidence of Amazon raising prices in the short-term after launching a product, proving consumer harm is difficult. Therefore only considering the consumer welfare standard would be insufficient. As Lina M Khan points out that the structure of companies such as Amazon “create anti-competitive conflicts of interests” and provides opportunities to “cross-leverage market advantages across distinct lines of business.” Also, with Big-Tech companies such as Amazon, backed by ever-flowing streams of venture-capital money, many ill-effects might be seen in the longer term. We should also be cognisant of the fact that sellers are also customers for Amazon. Therefore, consumer welfare should also apply to sellers.

As the Competition Commission of India conducts its investigations, it should examine all the new challenges posed by likes of Amazon and be cautious in its approach and propose a path where the penalties laid down for Amazon are not a slap on the wrist. Instead, the way forward is where healthy competition can be sustained as well as the bargaining power of the sellers on the platforms is increased. 

This article was originally published in the Deccan Herald.