Luke Hase ‘24 began his summer job at Amazon, he told The Politic, not expecting to see firsthand “how Amazon is destroying businesses: selling a company’s products at a set low cost, creating replicas to sell at even lower prices, and then running them out of business.”

Only a few days after he started, Google announced its newest initiative to compete with Amazon’s dominance in the online marketplace—waiving all sales commissions and allowing third-party payment services, in the hopes of attracting Amazon merchants.

Not a month later, both companies appeared before Congress for the antitrust hearing about anti-competitive behaviors and monopolistic influence of Big Tech.

Is Google’s competition the answer to Amazon’s exploitation? At a time when Congress is weighing government intervention over Amazon, it may seem like any competition for e-commerce market space should be a good thing. Google’s expansion into this space does open more options for consumers and businesses, potentially putting pressure on Amazon. However, Google is also a giant company under examination for its monopolistic market power.

Limited competition between two-multi-industry giants is a symptom of antiquated antitrust laws. Google’s battle with Amazon started in 2013 with Google Shopping Express and has since involved a plethora of tactics to take back ad revenue that Amazon’s online-shopping platform encroaches on. Amazon had a head start because its original intention was always to be a platform for e-commerce. In the decade since Amazon’s conception, it now dominates that market. Competing businesses have grown dependent on Amazon’s infrastructure—the website, the shipping system, the cloud computing backbone—to facilitate business. 

It is not a new metaphor: Amazon is the 21st-century railroad. Google is also critical for millions of small-business owners, particularly those in the service sector, for garnering any visibility to consumers. 20th-century railroads were loved for their convenience and feared for how dependent businesses became on them. For much the same reasons, Big Tech companies are loved and feared. Railroads back then were controlled by powerful industrialists, like John Rockefeller of Standard Oil, who disadvantaged competitors and established an oil monopoly that made up over 90 percent of the market. Antitrust laws were born from that time to counteract this imbalance; the Sherman Antitrust Act—which broadly, vaguely, prohibits “unlawful restraints and monopolies—that busted Rockefeller’s oil monopoly could technically apply to Amazon’s extensive market power. Yet, the 21st century has seen a sharp decline in antitrust cases that swept companies in Rockefeller’s time.

The reason for this comes down to ambiguities—with the interpretation of antitrust laws, the definitions of critical words, and the market boundaries of these tech companies. 

The first antitrust law was written in 1890 when “economics did not exist”, according to Barak Orbech, professor of law and director of the Business Law Program at the University of Arizona. The Sherman Act of 1890 was written precisely to help small businesses harmed by Standard Oil; all of antitrust began as a means of addressing one specific issue, not as a general guideline that considered economic theory. Applied to general situations, it broadly called for encouraging competition; actions that hurt competition were criminalized.  

Then, in 1970, Robert Bork changed the entire paradigm and drastically flipped the application of antitrust laws. He invented the phrase “consumer welfare” and shifted the focus onto economic efficiency rather than strictly fostering competition. Efficiency became the goal, and competition was just a means to that goal—inefficient businesses didn’t need to be protected for the sake of having competition. Short-term interests for consumers, namely pricing, became the new lens for assessing competition. To Tim Wu, professor at Columbia Law School, this effectively “narrowed [antitrust law] so far as to almost reverse its meaning,” But this standard of consumer welfare quickly became the de facto economic thought. The Supreme Court solidified Bork’s consumer welfare theory in 1979 with the ruling for Reiter v. Sonotone Corp. Since then, antitrust laws have been applied against corporations if their behavior hurt consumers, rather than if they hurt other companies. 

This change in interpretation set the stage for the tech giants we have today. Efficiency is precisely what companies like Amazon and Google argue they provide with their overarching reach and size. Lina Khan, who currently advises the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, said in her 2017 Yale Law Review paper that this framework “is unequipped to capture the architecture of market power in the modern economy,” especially of online platforms.

Online platforms bring new considerations that did not exist when antitrust laws were first written, muddling the definition of “consumer harm” that traditionally centered on selling price. However, even before these modern platforms, many historical monopolies had unclear consumer harm too. Typically, monopolies don’t harm consumers in terms of short-term pricing, despite how monopoly theory highlights the risk of monopolies gouging prices. In real life, companies are allowed to become monopolies because consumers favor them. When the railroads were monopolized, Standard Oil lowered the price of kerosene to less than 10 percent of what it had been; prices rose after the Sherman Act busted Standard Oil.

“It’s challenging to define the harm,” Kaitlyn D’Amour, an economics teacher and educational consultant at Liberty Fund, told The Politic. It’s also challenging to define a monopoly. “The definition of what is a monopoly is very fuzzy. I don’t know how you’d define a monopoly apart from the market share, but Amazon doesn’t have anywhere near the market share we would consider a monopoly to have.”

This raises the next contending point: these companies are not in just one market. Google’s competition with Amazon is not simply over offering a better product—they are fighting to control an infrastructure; they are also competing with their merchants to sell their products. These companies define the markets they compete in so broadly that it is not strictly true to say, that Google and Amazon are primary competitors. In some areas, they aren’t competition at all. For advertising services, Amazon is not involved. For inventory and shipping, Google is not involved.

This makes it difficult to quantify the market influences of these tech companies. Generally, D’ Amour says, economists are not concerned when a company expands to a new market; it’s more concerning if one company gains immense market share within one market. However, this horizontal expansion into different markets creates a new method of gathering market influence that can essentially equal the power of a traditional monopoly. 

On top of all that, more complications come from the ambiguity in the very definition of “competitive” and “anti-competitive”. Do Google’s ad auctions encourage competition between business, or does it simply encourage larger businesses to outbid small-businesses (an anti-competitive action)? Is Amazon just being competitive by producing cheaper products, or are they anticompetitive towards third-party producers that sell on their site because they can use predatory pricing?  The definitions of these words are fundamental to applying antitrust laws, and such critical words should have set legal guidelines. But unfortunately, that is not true. The changing interpretation of America’s antitrust laws also brought changing understandings of what constitutes fair competition. The distinction between harming competitors and harming competition is a blurry line that antitrust laws do not have a clear standard for.

All this is to say that the linguistics of antitrust are vague, and the basis of our entire current model conforms to one interpretation made in 1970. Barak Orbech tells The Washington Post that in a time when courts didn’t understand antitrust, Bork provided, “very simple ideas they could use…. Bork represents oversimplicity of thinking.”

The world is not so simple, but we still use his ideas to analyze competition in markets today. The effect of this is that complications of real-life markets catch up and leave us with no answers for questions like the ones we face now for Big Tech companies.

Simplistic antitrust laws do deserve credit for allowing America’s technological development to occur. Dotcom businesses, the Internet, and Amazon all required efficiency that came with concentrated monopolistic markets.

Still, what gave rise to such innovation may also lead to its downfall. The problem with Google and Amazon is that their relationship is not a genuine competition that fosters that innovation.  Instead of competing for market space with a new idea, Google is simply trying to take back lost ad revenue by copying what Amazon did to steal revenue away in the first place. The point of competition is to create better services, give consumers more choices, and reward newer, better ideas. 

The real competition we need will come from a new startup that brings a new idea. We don’t know right now what that will look like. And that’s what will be so great about it. It will be revolutionary and disruptive.

There is a thought that Amazon is so big that it can threaten the future of such innovation by crushing new companies, disincentivizing innovation, and leaving the market stagnant. But Amazon prides itself on its culture of innovation. Ian Freed, a former Amazon executive, told The New Yorker that Amazon CEO Jeff Bezos works to prevent “a big-company mentality from taking hold, so that Amazon can continue behaving like a group of startups.”

This may seem like innovation is safe despite Amazon’s size. But Amazon is a big company. Not just big—Amazon has essentially become a marketplace of its own. If a company is a market, it needs to be a platform that fosters innovation in its constituents, rather than viewing itself as a startup competing with other startups. Antitrust laws are about governments regulating markets to protect fair competition and ensure innovation. Perhaps, in the same way, Big Tech companies that are platforms for small businesses need to protect competition and innovation. Amazon is no longer on the same playing field as the startups that sell on its website, and so it can’t just eat up innovation and call it “competition”. In the same New Yorker article, a different Amazon executive spoke on their competitive work culture: “What has made us great for so long is suddenly being seen as something we ought to be ashamed of!”

Amazon wants to hold onto what made it originally successful. The real competition for Amazon will be disruptive. Disruption, according to Joshua Gans, economist and author of The Disruption Dilemma, “describes what happens when firms fail because they keep making the kinds of choices that made them successful.”

Antitrust laws are vague and ineffectual as they stand right now. But at the core of their purpose, they seek to create a better market for the present and future. Their application has changed because times and markets have changed. This change doesn’t just affect antitrust laws though. Companies within these markets holding unprecedented positions have a changed responsibility too.

Leave a comment

Your email address will not be published. Required fields are marked *