I remember my first Amazon purchase in the 1990s, a time of Clinton-Lewinsky, O.J. Simpson, Brett Favre and grunge music. I was in college, and with my Prodigy internet connection and dial-up modem, I bought a book … with trepidation. Making that first online purchase required a level of trust that wasn’t needed at Barnes & Noble or Borders, and reflected an obstacle Amazon had to overcome for its business model to work. Investors thought it could, as witnessed by their toleration of many quarters of reported losses while the company expanded beyond books to hardware—and eventually to pretty much anything that could be monetized and delivered, either digitally or in a box.
I admired Amazon’s smart young owner, Jeff Bezos, a Seattle entrepreneur with Florida connections who championed e-commerce when MS Word 2.0 still flagged it as a misspelling. The benefits he created and exploited cannot be overstated. Consumers were no longer limited by their local markets or ’90s-era supply chains. Online shopping opened a world market that expanded competition and selection. With the increased supply of goods and services now possible, savers saw prices fall and purchasing power increase—a market-induced inflation hedge that Federal Reserve Chair Alan Greenspan would ruin in the next decade.
Since (as Adam Smith noted) the division of labor is only limited by the extent of the market, new job categories were created with the advent of the internet. Full and fruitful careers were made possible in digital media and marketing, software engineering, app development, user experience and cloud services, among many others, casting Amazon and the e-commerce sector as monumental poverty-fighting machines. New avenues for profitable entrepreneurship ensued to the extent that startups are no longer phenomena associated with car engines. Surely, the value Bezos created in this regard, measured in gross domestic product, vastly exceeds his net worth.
Today, Amazon is, well, Amazon. Bezos no longer runs the company but remains its largest shareholder. Most buyers have gotten over whatever trust issues they had with online shopping, which is now quotidian. But I don’t use Amazon as much as I used to; my sense is many retailers now match its product selection, making comparison pricing time well spent. Its prices for some goods can be quite high.
The Federal Trade Commission and 17 state attorneys general agree. Following a four-year investigation, they filed what some are calling a landmark monopoly case against Amazon, claiming it “exploits its monopolies in ways that enrich Amazon but harm its customers: both the tens of millions of American households who regularly shop on Amazon’s online superstore and the hundreds of thousands of businesses who rely on Amazon to reach them.” They accuse Amazon of an “ongoing pattern of illegal conduct [that] blocks competition, allowing it to wield monopoly power to inflate prices, degrade quality and stifle innovation for consumers and businesses.”
It’s serious stuff. But Amazon can afford serious lawyers. The outcome is far from determined.
The case reminds me of points raised by the great antitrust scholar Dominick Armentano, who argued that in the market, monopoly firms cannot exist in the long run because they attract competitors who undercut monopoly pricing. Monopolies that do exist in the long run benefit from extra-market intervention, which is often (but not limited to) government restrictions on entry. The old Ma Bell, or AT&T, was the prime example of a long-run monopoly in Armentano’s time, which persisted for decades due to entry restrictions by state governments.
Does Amazon benefit from similar restrictions? Look for its lawyers to argue in the negative. But before then, I encourage reading Armentano’s very readable book, Antitrust and Monopoly. It can be purchased on Amazon … or one of its many competitors.
Christopher Westley is the dean of Florida Gulf Coast University’s Lutgert College of Business.
