Antitrust 11/12/2020

Despite EU charges, Amazon acts procompetitively and benefits consumers

Carl Szabo
Carl Szabo Vice President and General Counsel

After previous antitrust action against Amazon in 2019, the European Union has presented more charges against one of America’s leading tech businesses. This time Amazon is accused of violating antitrust laws in the EU for, counterintuitively, increasing competition. 

According to Europe’s antitrust authorities, Amazon has violated antitrust law by using data it collects from its marketplace to inform its decisions about which product markets to enter and at what prices. Simply put though, Amazon is using a procompetitive practice to benefit consumers and remain competitive.

Amazon’s Business Model

Like most major retailers, Amazon both operates a marketplace and sells its own brands alongside its competitors’ products. Just like how Walmart sells Equate ibuprofen next to Advil or Costco sells Kirkland-brand water next to Poland Spring, Amazon sells its “private label” brand AmazonBasics for an affordable price next to its name-brand competitors. 

This is a clear win for consumers who get quality products for less money. But that’s not the only benefit. When a generic brand enters the market, name brands are forced to innovate and economize their products.

The EU knows this is good for consumers. But similarly to its American counterpart,  the EU falls prey to a flawed argument— disliking Amazon for the competitive pressure it puts on Europe’s preferred brands (that is, European brands). This is misguided because competition laws in Europe are meant to protect consumers. So since Amazon benefits consumers, there is no case to be made.

Unfortunately by defining Amazon as a “marketplace service provider,” the EU arbitrarily narrowed the industry in order to claim Amazon has a dominant market position. In its latest charges, the EU argues that Amazon abused its dominance by collecting data from its marketplace in order to compete more efficiently and effectively in the retail market— an argument clearly counterintuitive to existing European competition law.

Market Definition

According to the EU, Amazon is dominant when the market is “marketplace service providers”, places on and offline that connect buyers and sellers. Yet the EU undermines its very market definition by then claiming that Amazon has about 80-90% market share in Germany and France. That cannot be the case if the EU included every “marketplace service provider” from malls, department stores, eBay, Shopify, and so many more.

For its justification, the EU appears to narrow the market away from its own market definition to only include online marketplaces. This is even smaller than what Amazon’s American critics cite as its market definition— e-commerce. What’s worse? The EU’s own press release undermines its argued definition of the market saying that “Amazon operates marketplaces that allow third-party sellers to offer products to consumers” and “Amazon is also a retailer on its own platform”. 

In other words, Amazon is a digital department store: it serves as a place for consumers to browse and buy goods offered by many different sellers, including itself. When applying this obvious and logical view, Amazon’s market share drops significantly. 

While critics like to conveniently define Amazon’s market more narrowly, there is a logical inconsistency shown when these same critics also maintain that Amazon competes against brick-and-mortar businesses to threaten their existence.

Whatever the market definition may be in these charges, the EU has previously held that Amazon is a retailer that competes against digital and physical retailers. The EU describes Amazon as part of the “click and mortar” retail market where a reported 59% of retailers sell both on and offline. In fact, the EU held that over 90% of brick-and-mortar stores sell on their own online shops while 30% multi-home their products, both on their own online platform and on marketplaces sites like Amazon, eBay, Asos, and Otto. 

Data Collection

The EU also faults Amazon for having access to a large variety of data regarding sellers’ orders, revenue, offer visits, shipping, past performance, and consumer claims. According to the EU’s claims, all this data gives Amazon an unfair advantage because it has more than enough product and industry insights to make well-informed decisions about its own product offerings.

At the end of the day, this is not an anticompetitive practice that provides cause for antitrust action. The data relates to customer preferences and informs Amazon’s business decisions to better help and serve their consumers. And ultimately it’s consumers, not competitors, whose wellbeing matters most.

Whether it uses data or not, Amazon’s business practices increase competition by encouraging other sellers to cut costs and innovate. The use of data not only helps that effort, but also is standard industry practice. 

For a century businesses have used industry data to guide their decision making. In the 1920s, A&P used seller data on consumers’ preference for butter to decide which type to sell where. Today, businesses from Stop & Shop to Macy’s use data to decide which products to offer, and how to offer them.

In these charges, the EU singles out Amazon for a standard industry practice that drives innovation and competition to help consumers. If competition law continues to be manipulated by the flawed whims of Brussels bureaucrats, it’s the European citizens that will be the victims of increased prices.