Amazon’s Problem Is Too Much Competition, Not Too Little

Amazon has come under assault in recent weeks for failing to keep “thousands of banned, unsafe, or mislabeled” products sold by third parties off of its site. The New York Times, which has been acting as a mouthpiece for the Authors Guild in its crusade against Amazon, has focused on the sale of knock-off books. But The Wall Street Journal has shown that the problem extends across multiple product categories, and concludes that “Amazon has ceded control of its site.”

The great irony here is that this is proof that Amazon is being too open to competition, not, as Elizabeth Warren, the Open Markets Institute, and the Times have been arguing, too closed to it.

Unlike, say, Apple, which designs virtually every component of its phones, Amazon chose early on to platformize its business. When it created a useful cloud service to support its ecommerce website, Amazon opened the platform, called Amazon Web Services, to the market, turning it into a successful business in its own right. Amazon is doing the same thing with package delivery, allowing anyone with a car and an app to deliver packages for the company. And of course Amazon platformized its own ecommerce website, allowing third party sellers to list and sell products through Amazon.com.

Of course, Amazon could have taken a more traditional route. It could have kept its cloud services to itself. It could have continued to contract out its package delivery business to a single vendor, like UPS. And it could have remained the only retailer on its own ecommerce website. If it had, it is hard to see how Amazon would have come in for criticism from the big tech breakup crowd. Just as nary a peep has been heard about the fact that Apple insists, for example, on designing its own iPhone CPUs.

But Amazon instead did what competition advocates are supposed to want: the company threw open virtually every component of its business to competition. As a result, however, it has been attacked by Elizabeth Warren and others for failing to go even further, and to stop using its own platforms entirely. Under their approach, it is not enough, for example, to allow others to use Amazon Web Services. Amazon must stop using those services itself, otherwise in operating them there is a danger that Amazon will favor its own downstream businesses. Amazon might, for example, tank Walmart’s cloud access in order to get competitive advantage in retail. Similarly, Amazon should stop retailing products for its own account on Amazon.com, argues this group, because Amazon can alter the website to give its own products competitive advantage (by, for example, displaying them more prominently in search results).

So it is bitterly ironic to find Amazon now coming under assault for failing to exercise more control over the third party sellers who use its ecommerce platform.

The lesson here is two-fold. First, competition is no panacea. As policymakers learned in the mid-19th century, when economic liberalism first came on the scene, excessive competition means fakery, fraud, low quality, and boom and bust cycles that sow economic instability.

Second, antitrust and competition policy are not progressive projects. Progressives seek regulated environments. The big firm dictating standards and stamping out the chaos that is competition across all levels of its supply chain is itself a regulated environment. If a firm does not regulate the way progressives want, the solution for progressives is not to rip the firm apart as a petulant child would rip apart a disappointing toy, but to change the way that the firm behaves. Calling upon Amazon to do more to control what books third party sellers can sell through the company’s sites is a demand for less competition. If that sounds progressive, it is.

One more thing: The Times’s attack on Amazon for selling knock-off books highlights the political opportunism of writers–understood as an interest group–in recent antitrust debates. For at the same time that writers have wrapped themselves in the small-is-beautiful flag, attacking Amazon for destroying main street retail, they have seemed not to think twice about then turning around and attacking Amazon for failing to cast off from its website the small independent publishers of knock-offs that are competing directly, and successfully, with writers. At the end of the day, writers’ fight against Amazon is about protecting writers, not about promoting competition.