Is Competition For Losers? America Seems To Think Yes
Jeff Bezos, Amazon founder and CEO, speaks at The Economic Club of Washington’s Milestone Celebration in Washington, Thursday, Sept. 13, 2018. Bezos said that he is giving $2 billion to start the Bezos Day One Fund which will open preschools in low-income neighborhoods and give money to nonprofits that helps homeless families. (AP Photo/Cliff Owen)
Retailers are offering different prices at different times these days to the same type of consumer, adjusting their prices so finely as to extract the most money from a particular demographic. The practice has come to be known as dynamic, or targeted pricing and lots is at stake. If a particular shopper looking to book a flight searches for flights on their phone, stops the search, and then goes online to the same site on their laptop, that customer could see an entirely different (and often higher) price when browsing on their PC or personal laptop.
Everyone has been to a car dealership and witnessed haggling firsthand. The car salesman tries to see how much he (or she) can get from each buyer through personalized negotiation. But with the rise of ride hailing apps like Uber and Lyft, those in need of a ride aren’t face to face with a sales agent, and see the estimated cost of the ride on their phone. Behind that price is a lot of fancy algorithmic design at play trying to factor in the income profile of the rider, his or her likelihood to switch to a different transportation mode, and whether that rider has a history of going to the same destination.
“Right now, if you open the Uber app and price a ride but don’t call it, Uber has no idea what happened. Perhaps you rode with a competitor, but perhaps you just decided to wait for prices to fall, or took a bus. If you’re using the Uber card, by contrast, Uber could learn whether you took Lyft instead – and would know how much you paid,” says Kominers.
No company has disrupted consumer retail like Amazon, and the behemoth has continued its dominance by trying out a new tool called Amazon Scout that’s designed to solve the shoppers dilemma for when you don’t know exactly what you’re looking to buy until you come across it. Scout uses artificial intelligence to help shoppers distill what they like and don’t like from a series of product offerings. The service is currently available for women’s shoes, home décor, kitchen and dining products, patio furniture, and bedding but Amazon says that more categories are forthcoming.
The European Union recently initiated a probe into Amazon’s role as both a competitor and host to third-party merchants who use Amazon to sell their goods on the site. While Amazon takes a cut of the third-party sales and charges merchants a fee for fulfilment and other advertising services, Amazon’s use of third-party sales has generated a trove of data on its customers and their buying patterns. The concern among regulators is that Amazon knows precisely what customers search for and what they don’t buy, and is then able to market individualized discounts on third-party products with the hopes that even a penny or a nickel off could nudge a potential buyer into purchasing.
In 2009, Amazon ventured into selling their own branded batteries and electronic items, selling under the brand AmazonBasics. Since then, Amazon has made the push for selling almost 7,000 products across more than 70 unique Amazon brand names. The box on Amazon’s site “Top Rated from Our Brands” has caused worry for regulators who say the promo appears at the top of many search query pages. Amazon has the means of pushing their product placements above other sellers, which regulators argue creates an unfair advantage in the marketplace.
A recent Financial Times profile suggested that Amazon employees in several countries tried to poach eBay sellers to take their business to Amazon. In a statement, an eBay representative noted that “we have uncovered an unlawful and troubling scheme on the part of Amazon to solicit eBay sellers to move to Amazon’s platform. We have demanded that Amazon end is unlawful activity and we will take the appropriate steps, as needed.” According to the research group eMarketer, Amazon takes one of every two dollars spent on online retail in America and the recent allegations by eBay, if true, pits Amazon as fiercely competitive to maintain its dominance of not only online shoppers but online sellers.
In a series of hearings this summer, the Federal Trade Commission examined the current landscape of competition and consumer protection law by examining whether the U.S. economy has become more concentrated and less competitive. Nobel laureate Joseph Stiglitz summed things up candidly:
“We have a problem, a market power problem. It’s both a monopoly and a monopsony problem. And I think in the past we haven’t focused enough on the issues of monopsony. It’s evident it seems to me that current antitrust and competition laws as they are enforced and have been interpreted are not up to the task of ensuring a competitive marketplace.”
Stiglitz argues that the concentration of economic power, like that of Amazon, translates itself into politics that undermines our democracy. The broad sense of powerlessness in society, according to Stiglitz, leads to a view by many that the system is rigged and unfair, which has political consequences. The law needs to change to account for the innovativeness of businesses to exploit consumer shopping behaviors and discriminate on price for those consumers who businesses have the most data on.
“What is clear is that competition law, as it’s been interpreted over the last several decades, quarter century, has not kept up with the changes in our economy, has not kept up with the innovations in the ability to extend and amplify market power, and has not kept up with changes in our understanding of basic economics. So today, competition and consumer protection law needs to be broadened to incorporate the realities of the 21st century and the insights of modern economics.”
So while innovations in pricing strategy for e-commerce and retailers are a good thing for business, as more data is analyzed, consumers suffer the consequences in bargaining power with the companies selling to them. It’s also important to preserve the process of competition. If you have just a few players innovating and taking all the gains from innovation, there has to be a more equitable process where other companies can enter technology markets so that consumers don’t get locked into buying from only a handful of companies.
Antitrust enforcement isn’t going to solve all of the things society wants to see fixed when companies wield too much power. Those who think antitrust can fix everything are either too wishful in their thinking or too myopic in their scope. Antitrust is geared towards a certain set of economic problems and if society is more concerned about how corporate power influences politics and how corrupted and unfair our political system, then a new set of laws and regulations need to be put in place to deal with these issues.
Traditionally, antitrust enforcement has grounded itself in use of the consumer welfare standard. In practice, the standard is used to see whether consumers are harmed from a potential merger of two companies. But in the case of tech platforms, giants like Amazon and Facebook charge low, or even free prices to their consumers but seize on consumers in the form of access to their personal data and browsing history. As economist Marshall Steinbaum, a fellow and Research Director at the Roosevelt Institute, articulates:
“Amazon is a prime example of how trusts can run rampant in the modern era of lax antitrust enforcement under the consumer welfare standard: The tech giant charges low prices to consumers, and so it is able to consolidate power throughout its supply chain, favor its vertical affiliates, spy on its rivals using its domination of cloud computing, and use its control of one market to leapfrog into others—as the recent Whole Foods merger shows.”
For now, the monopoly problem in the US can be attributable to the failure of the legal system not antitrust per se.