Amazon, Publishers and Antitrust – Part 1: Where Do We Go From Here?-An ATG Original

by | Oct 7, 2020 | 0 comments

By: Nancy K. Herther (writer, consultant and former Sociology/Anthropology Librarian, University of Minnesota Libraries

“When Americans fear the future, they turn to antitrust action,” David Streitfeld wrote in a 2019 article for the NY Times.  “It happened in the 1890’s, when the United States was rapidly moving from a farming economy to an industrialized one. It happened again in the late 1940’s, when nuclear war seemed imminent. And it is happening now, as big technology companies work on artificial intelligence that threatens to create a world where human beings are eternal losers.” 

On August 17, 2020 the Association of American Publishers, Authors Guild and American Booksellers Association jointly submitted a letter to the House of Representatives’ Antitrust Subcommittee about the power that Amazon holds over publishers and authors. The letter addressed their concern about “the alarming dominance of a few tech platforms in the digital marketplace and the extraordinary leverage they wield over their competitors, suppliers, customers, the government, and the public.”

“Regrettably,” the letter continues, “as the subcommittee hearings have laid bare, the competitive framework of the publishing industry has been fundamentally altered in recent years—and remains at serious risk of further diminishment—because of the concentrated power and influence of one company in particular: Amazon.”

“Because these companies are so central to our modern life, their business practices and decisions have an outsized effect on our economy and our democracy. Any single action by one of these companies can affect hundreds of millions of us in profound and lasting ways,” House Judiciary Committee’s Democratic chairman, Rhode Island Rep. David Cicilline said. 

Despite the differences between the companies, he said, the investigation had shown “common patterns and competition problems” among them, including bottlenecking distribution channels, using their digital platforms to surveil other firms, and abusing “control over digital infrastructure.” Cicilline said “the subcommittee will publish a report and recommendations based on its investigation’s findings.”

Benedict Evans covered Amazon’s dominance in the book business in a newsletter column in December, 2019. “Amazon is growing,” Evans wrote. “Its US ecommerce business probably grew 20% in the last year, and so its market share of total and of addressable retail is going up. Hence, you could argue that since ecommerce is clearly going to take over a much larger share of retail, and since Amazon has a large (35-40%) share of ecommerce, Amazon’s strength in ecommerce means it will swallow everything else, even if it’s only at 5-6% today.”

Jeff Bezos, CEO, Amazon

In House hearings on the 28th of July, 2020, representatives from four of the largest ecommerce companies were grilled by the bipartisan committee: Apple CEO Tim Cook, Facebook CEO Mark Zuckerberg, Amazon’s CEO Jeff Bezos, and Sundar Pichai, CEO of Google and its parent company, Alphabet.   As Vox reported, this would be the first time Bezos would have to face legislators “to respond publicly to a damaging report alleging that Amazon uses data it collects from its own merchants to compete against them, which is something the company has told Congress it doesn’t do. And the first time in a very long time that the world’s richest man will be subjected to an extended and critical line of questioning in a public setting.”

All three of these literary associations are hoping that the hearings and the discussions that will follow will lead to concrete actions that will put pressure on antitrust regulators at both the Federal Trade Commission and Department of Justice to more aggressively monitor these companies.  As the joint association letter pointed out, “the point is that Amazon’s concomitant market dominance allows it to engage in systematic below-cost pricing of books to squash competition in the book selling industry as a whole.” 

The associations’ joint letter went to to assert that:

Amazon acts anti-competitively in multiple ways, dictating the economic terms of its relationships with suppliers so that publishers, their authors, and the booksellers who sell on Amazon pay more each year for Amazon’s distribution and advertising services but receive less each year in return. Amazon employs non-transparent data algorithms and recommendation engines to steer consumers toward Amazon’s own products,or even toward infringing products without  disclosing to consumers that it is doing so. It has required suppliers to agree to most-favored-nation provisions (MFNs) that stifle the emergence and growth of competitive alternatives in the book distribution marketplace. And it manipulates suppliers and rivals by tying the purchase of distribution services to the purchase of its advertising services.”

A report from the Brookings Institution cautioned that “those expecting swift new developments probably should curb their expectations. Wheels will turn—but slowly.” The report itself ended with questions they believe are yet to be known:  “Will the report urge specific actions for government enforcers at the Antitrust Division of the Department of Justice and at the Federal Trade Commission? Will it recommend legislation to change federal antitrust law to facilitate challenging dominant firms that allegedly limit competition in order to lock-in their market power? Will there be bipartisan support for any of the proposed recommendations?”

WHAT’S NEXT?

MarketWatch’s reporting on the hearings noted that the four industry titans had “endured more than five hours of grueling questions about competition Wednesday from House Judiciary Antitrust Subcommittee members in a series of sharp exchanges.” 

As the Financial Post reported, “The largest U.S. technology companies are thriving in a pandemic that has increased dependence on their products and services, while hammering much of the rest of the economy. Quarterly results from Apple Inc., Amazon.com Inc., Facebook Inc. and Alphabet Inc. on Thursday [following the hearings] show the industry is capitalizing on the crisis as locked-down consumers use tech gadgets and the internet for entertainment, social connection, shopping, learning and work.”

“Ultimately, we think a legislative fix is the only one that creates a potential for limitations on these companies’ ability to conduct business, whether that takes the form of higher taxes or new rules regarding market concentration, noted Wedbush Securities Analyst Dan Ives in a note to their clients. “Absent a legislative fix, we don’t see meaningful change in regulation, although future acquisitions will most certainly be scrutinized and more difficult to close.” 

And this might be true.  Certainly nothing seems to be slowing down the growth and spreading networks of products and services that these corporations have amassed.  Amazon.com Inc. has recently announced plans to open 1,000 small delivery hubs in cities and suburbs across the U.S., “bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help the world’s largest e-commerce company take on a resurgent Walmart Inc.Amazon couldn’t fulfill its two-day delivery pledge earlier this year when shoppers in COVID-19 lockdown flooded the company with more orders than it could handle. While delivery times have improved thanks to the hiring of 175,000 new workers, Amazon is now consumed with honoring a pre-pandemic pledge to get many products to Prime subscribers on the same day. So with the holidays approaching, CEO Jeff Bezos is doubling down by investing billions in proximity, putting warehouses and swarms of blue vans in neighborhoods long populated with car dealerships, fast-food joints, shopping malls and big-box stores.”

However, meaningful change is exactly what publishers, writers and book sellers are seeking – and many legislators as well.  “These companies as they exist today have monopoly power. Some need to be broken up. All need to be properly regulated and held accountable,” noted House Judiciary Committee’s Democratic chairman, Rhode Island Rep. David Cicilline, at the end of the hearings. “When these laws were written, the monopolists were men named Rockefeller and Carnegie,” he said. “Today the men are named Zuckerberg, Cook, Pichai and Bezos. Once again, their control of the marketplace allows them to do whatever it takes to crush independent business and expand their own power. This must end.”

Elizabeth Warren argued during her recent presidential campaign that large tech companies should be designated as “Platform Utilities” and not be able to control and participate on their own platforms. According to Bloomberg, the FTC has been talking to third-party sellers on Amazon’s platform, seeking more information on their perspectives on how Amazon potentially undercuts their client/booksellers in its online marketplace.

While there has been a great deal of antitrust scrutiny on Amazon’s business practices in the last couple of years, the focus has not been on books. Indeed, it appears that since the Apple ebooks case, which, among other things, served to shore up Amazon’s dominance in the market for electronic books, the antitrust discussion about Amazon has largely been about other markets or practices…..When one thinks of technological advances that have forced antitrust lawyers to think about market definition differently, Amazon’s rise to power is perhaps the most obvious example,” Jennifer Duncan Hackett wrote in an Antitrust Institute report on the industry. “Indeed, it may seem as if nothing new or different could be written about Amazon and the definitions of the markets it occupies, but these are new and different times. In just two months, the global pandemic has altered, perhaps forever, the way in which United States consumers shop and purchase goods, necessitating a fresh look at market definition as well.”

“In September 2019, the Chairman and Ranking Members of the Full Committee and the Subcommittee issued sweeping, bipartisan requests for information to the four firms that will testify at today’s hearing,” Cicilline summarized on his committee’s work. “Since then, we have received millions of pages of evidence from these firms, as well as documents and submissions from more than 100 market participants. We also conducted hundreds of hours of interviews. As part of this investigation, we have held five hearings to examine the effects of online market power on innovation and entrepreneurship; data privacy; a free and diverse press; and independent businesses in the online marketplace. We have held 17 briefings and roundtables with over 35 experts and stakeholders in support of our work.”

UNDERSTANDING THE OPTIONS: ANTITRUST AND TRADE RESTRICTIONS

Antitrust is a complicated area of commercial law in the U.S. (and other countries). Understanding what chances exist for resolution to these complicated – and ever changing – business arrangements is an area for the experts.  Thankfully, ATG was able to speak with one of the most respected researchers in this area. In Part 2 of this report, we get a better understanding of the history of antitrust legislation and case law and the importance of international agencies and governments in seeking a satisfactory resolution of these serious issues facing the publishing industry and readers everywhere.

The four companies, combined, are worth more than $5 trillion,” noted Brian Deagon in a recent TechnoMetrica article. “They employ hundreds of thousands, and can boast billions of customers. Collectively, their products and services touch pretty much every aspect of society and economies. And that’s what draws interest from regulators.” 

“Though their companies represent new-age innovations — including search engines, smartphones and social media — the criticisms they faced recalled those lodged against late 19th century industrial barons,” noted the LA Times in their coverage of the House hearings. 

In his opening remarks, House committee chair  David Cicilline noted that “because these companies are so central to our modern life, their business practices and decisions have an outsized effect on our economy and our democracy. Any single action by one of these companies can affect hundreds of millions of us in profound and lasting ways. Even though these companies are unique in their own ways, Cicilline reminded viewers that the House investigation had clearly shown  “common patterns and competition problems..[due to their] “control over digital infrastructure.” A formal report of the hearings, research and committee recommendations is forthcoming.  Cicilline said the subcommittee will publish a report and recommendations based on its investigation’s findings. 

The hope of the committee – as well as the book publishing industry – is that new regulations will eventually be made that will deal with these problems and level the playing field for publishers and other players in the marketplace of ideas and products. Additionally, the FTC, Justice Department and the majority of state Attorneys General have been also studying the activities of one or more of these industry titans. And, the rest of the world is watching, studying and beginning to devise their own solutions to the problems created by this overwhelming concentration of power and money. 

“The different experiences relate to the way monopolies form,” notes a new Forbes article. “Two major categories exist. Companies in the first group tend to move slow, while companies in the second group tend to stay nimble. The key is the role of the government in creating barriers to entry…Companies like Comcast do not gain monopoly status by outhustling the competition. Instead, they create agreements with local governments that bar other providers from entering the area. The rationale for such economic protectionism goes back to AT&T, which dominated U.S. telecommunications for most of the 20th century. Economic law dictates that consumer prices come down and quality goes up with competition. But AT&T executives successfully lobbied for the reverse. In the face of new entrants making inroads in various regions, they convinced regulators that the best way to serve the public was to block duplication of effort. Why build new trenches or lay new lines when perfectly good ones already existed?”

So, are we doomed to a future under the control of a new set of robber barons who control the internet as well as virtually all aspects of commerce, gaming and communication over the Internet?  In Part 2 of this article, we speak with an expert in the field of antitrust and competition, Maurice Stucke, about how all of this fits into American history as well as the current legal frameworks across the globe.  

Nancy K. Herther is a writer, consultant and former Sociology/Anthropology Librarian at the University of Minnesota[email protected]

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