Amazon Has Become Ground-Zero for Anti-Monopoly Action

Public sentiment that government should write new rules for the enterprise economy, comparable to those of 1892 and 1914, is growing. Firms based on internet and block chain technologies in the twenty-first centuries are proving comparable to the railroad, electricity and internal combustion industries that emerged in the nineteenth (all of them based on the invention of interchangeable parts). Successful entrepreneurs have demonstrated that rules beyond the Sherman and Clayton Acts are required.

Meanwhile, there is Amazon.

One thing we learned from the Microsoft case in 2001 was that potentially successful anti-monopoly actions are possible. What’s required is drop-dead proof that the law has been broken and a remedy easy to understand. US District Court Judge Thomas Penfield Jackson, having ruled for the Justice Department that Microsoft has had deliberately snuffed out Netscape, set out to break Microsoft into two companies, one selling operating systems, the other applications

It didn’t happen; the conservative Washington, D.C., Circuit Court threw out the case on a technicality and politics moved on.  But twenty years on, politics are back.  It is intuitively obvious that the world would be a better place if the remedy had been effected. The Leviathan would have been forced to compete on two fronts instead of one.  .

The Microsoft case is worth remembering when it comes to thinking about what to do about Amazon.

Matt Stoller, an anti-monopoly newsletter writer who amounts to an online equivalent of John Sanborn Phillips for the present day, thinks that Washington. D.C. Attorney General Karl Racine has identified the smoking gun and filed suit. It’s that “free delivery” promise.  It works like this, says Racine:  a “most-favored nation” provision written into the Amazon contract requires that vendors not sell their goods for less in other venues, thereby raisings aggregate prices to Amazon levels across the board and so harming consumers in the bargain – a violation of the Sherman Act.

For those who don’t want to read the thirty-page government complaint (which is itself quite lucid), Stoller describes the argument clearly. It boils down to this: as founder Jeff Bezos himself put it in 2015, “Fulfillment by Amazon is important because it is the glue that inextricably links Marketplace and Prime.” A third of all shoppers abandon their carts when they see shipping charges.  Amazon wants customers to think of whatever they have ordered and the promise of free shipping as part of their $119 annual membership fee as a unified “mega-product,” Stoller writes. What Bezos likes to call a “flywheel” exists to make the decision to buy all but inevitable.  Indeed, Stoller continues, “Anytime you hear the word ‘flywheel’ relating to Amazon, replace it with ‘monopoly’ and the sentence will make sense.”

It seems clear to me from the government’s complaint that an “everything store” has no business in the delivery business, though it may take a long time to prove it in court. Bezos is traveling to the edge of space on Tuesday, but Amazon is bound for break-up.  Running afoul of the Sherman Act is one thing.  The problems with Facebook, Google, Apple, and Microsoft (and with the banking, pharmaceutical, and agricultural industries) are more complicated.  They have to do with advertising and big data. These new angles may require new legislation.

With Amazon, the question is what to do next. Nationalize Prime and fold it into the US Postal Service? (Remember, the original charm of the postal system was the fact that purchase of a first class stamp would insure that the letter would be delivered anywhere in the nation.) Or perhaps force a divestiture and set Prime in competition with United Parcel Service, Federal Express, and DHL? In that case, what to do about the USPS?

For now, it’s a question for the Department of Justice, the National Association of Attorneys General, and the economists they will eventually hire to devise remedies, (It was Rebecca Henderson, of Harvard Business School; Paul Romer, then of Stanford University’s Graduate School of Business; and Carl Shapiro, of the University of California at Berkeley, who proposed the “ops and apps” remedy in the Microsoft case.)

President Joe Biden still hasn’t nominated an Assistant Attorney General for Antitrust. Plenty of turmoil has been ongoing behind the scenes. For a reliable guide to the differences among the Chicago School, the Modern approach, and the Populists’ view, see “Antitrust: What Went Wrong and How to Fix It,” by Cal-Berkeley’s Shapiro.  It seems fair to say that the whole world is watching.

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Andreu Mas-Colell, 77, is one of the most widely respected economists in the world, possessing rank as a teacher slightly different from that of a Nobel Prize-worthy researcher. He was a professor at the University of California, Berkeley, then Harvard University, and his microeconomics textbook is widely used in top graduate programs around the world.  President of the Econometric Society in 1993, he left Harvard in 1995 to participate in the founding of the University of Pompeu-Fabra in his native Barcelona.

Named Secretary General of the European Research Council, in 2009, he resigned a year later to become cabinet minister for the economy of Catalonia, four prosperous provinces in  northeast Spain whose longstanding desire for independence has been an especially  divisive issue since the restoration of Spanish democracy, in the 1970s. Mas-Colell resigned his post a year before Catalonia conducted a referendum in 2017 and declared itself autonomous in a manner deemed by the Spanish government to have been illegal.

As part of proceedings against 34 former Catalan officials, Mas-Colell was recently accused of misspending funds in pursuit of Catalonia’s independence. Spain’s Court of Auditors, an administrative body that oversees public accounts, imposed penalties of as much as €2.8 million (about $3.3 million) which the accused would have to pay immediately, before they can appeal them in court. Fellow economists around the world, have rallied to Mas-Colell’s defense, kept abreast of matters by his son, Alexandre. a Princeton University economist.

An EP friend in Barcelona writes:

The Catalan Government is trying to use (indirectly) public funds to post bail for the defendants; the Spanish government will take a careful look to make sure the arrangement is legally correct. Meanwhile, Mas-Colell has published a well-thought-out article stating that it is improper for an administrative tribunal to employ procedures normally the province of the judiciary. I assume all will end well (not for the reputation of the Court of Auditors) Mas-Colell? All through his life he has been willing to take risks and to make sacrifices for causes he thought were good.

Correspondent Xavier Fontdegloria writes in The Wall Street Journal, “Spain’s Socialist Prime Minister Pedro Sánchez is trying to defuse the long-running confrontation with Catalan nationalists by pursuing talks aimed at conciliation.”

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