Italy's Consumer-Blind Trustbusting

MILAN – This month, Italy’s antitrust regulator, the Autorità Garante della Concorrenza e del Mercato (AGCM), fined Amazon €1.13 billion ($1.28 billion) for abusing its market dominance and forcing third-party sellers to use its in-house logistics service

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The penalty is notably large, even for a company as huge as Amazon, which had global revenues of $386 billion in 2020 but net income of $21.3 billion.

The AGCM decision is bound to be popular, given a broad consensus that something should be done about the exploitation by Big Tech companies of people’s data and their concomitant power to wipe out other business models. Since the browser wars of the 1990s, the market implications of new technologies have been considered an antitrust matter. Under US President Bill Clinton, antitrust authorities targeted Microsoft because it was trying to leverage its position as the dominant provider of desktop operating systems to secure dominance for its Explorer internet browser. In fact, we now know that, although Netscape’s browser did not survive, Microsoft’s dominance was about to end – just when regulators and the public feared it the most.

Back then, zealous trustbusters were opposed by Chicago School economists and legal scholars who argued that antitrust regulators should be guided by the concept of consumer welfare, rather than by some abstruse calculation of the optimal number of competitors in an industry. But consumer-welfare considerations make no appearance in the recent Italian ruling.

Amazon is both a retailer and a platform, because it provides a marketplace where consumers can compare options and buy whichever product they prefer, and where small businesses can reach more consumers than they ever would have before. The AGCM fined Amazon as a marketplace, on the grounds that it requires sellers who want to benefit from its Prime service also to enroll in its own logistics service, Fulfillment by Amazon (FBA). Because Prime subscribers receive free shipping and rapid delivery of packages for select goods, many merchants will pay Amazon to ensure that their products fall into this category (which includes being showcased in promotions like Black Friday, Cyber Monday, and Prime Day).

It is not surprising that Amazon would tether these two services together. To keep its promise to Prime subscribers, it must ensure timely deliveries, and the best way to do that is to have direct control of the logistics. This approach is hardly unique to the digital economy or Big Tech. Amazon is dealing with a basic issue of commercial distribution. A company can promise you express delivery only insofar as it thinks it can keep that promise. Otherwise, its business model would be at the mercy of variables beyond its control, such as the reliability of vendors or the efficiency of the postal service.

Surprisingly, the AGCM fined Amazon precisely because the company understands this problem. A marketplace’s success depends on its reputation, and Amazon has staked its platform’s reputation on reliability. A record of reliability takes a long time to build, and it inevitably sets the bar higher for new market entrants. By declaring the relationship between Amazon’s Prime service and its logistics infrastructure to be an abuse, the Italian trustbusters are implying that the two can be unbundled. On the theory that Amazon is killing competition from independent (though presumably less reliable) couriers, it has ordered the company to allow merchants into Prime without requiring them to enroll in FBA.

Much of the 250-page ruling is an overview of how Amazon works. The authors take issue with the retailer offering “a one-stop shop solution for storage, shipping, and customer service” within “a closed and complete ecosystem.” Yet buyers and sellers alike seem to appreciate the convenience of Amazon’s system. After all, the share of total offerings from third-party sellers has grown steadily over the years, from 40% in 2013 to 56% in 2021.

Amazon marketplaces have created new opportunities for niche sellers by enabling them to reach customers worldwide. In interviews with the Italian antitrust regulators, third-party retailers confirmed that their Prime listing helps their products. The AGCM ruling also finds that Prime subscribers in Italy tend to spend at least twice as much on the platform as non-subscribers do. It notes that while other marketplaces have invested substantially to bring their services up to a level comparable to Amazon’s, they still cannot achieve its scale. Marketplaces enjoy a substantive advantage over proprietary websites, and as the most visited marketplace, Amazon enjoys the biggest advantage of all. Hence, the AGCM concludes that it should be sanctioned.

The ruling will be welcomed as one possible option for dealing with Big Tech, and it may open the door for similar antitrust actions elsewhere. But the consumer’s viewpoint is considered only insofar as it “reflects in the retailers’ preferences,” meaning in sellers’ choice to avail themselves of the consumer markets to which Amazon provides access.

Where does that leave the principle of consumer welfare? Will the fine give people more choices and lower prices? These questions remain unanswered, because they were not even asked. The AGCM has paid an embarrassingly expensive compliment to Amazon’s logistics arm. In this new age of antitrust, the consumer appears to be a non-factor.

Alberto Mingardi, Professor of the History of Political Thought at IULM University, is Director-General of the Istituto Bruno Leoni in Milan.

© Project Syndicate 1995-2021 

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