If Amazon.com's plan to acquire high-end grocer Whole Foods is approved by antitrust enforcers, the $13.7 billion deal will give Amazon control of more than 400 stores, an extensive supply chain and a new source of consumer data.
Antitrust officials would be naive to view this deal as simply about groceries. Buying Whole Foods will enable Amazon to leverage and amplify the extraordinary power it enjoys in online markets and delivery, making an even greater share of commerce part of its fief.
The company has established its level of dominance because of the failings of our current antitrust laws. To understand why, you first need to understand the scope of Amazon's power. It has captured 43 percent of all Internet retail sales in the United States, with half of all online shopping searches starting on Amazon. In 2016, it had over $63 billion in revenue from online sales in the United States — or more than the next 10 top online retailers combined.
Amazon today is also one of the world's largest logistics networks and marketing platforms, as well as the dominant provider of cloud computing, which counts among its clients the Central Intelligence Agency. It manufactures products like the Echo, produces award-winning movies and television series, and delivers food from restaurants in 20 cities.
In building this vast empire, Amazon chased growth over paying dividends, pricing key goods and services below cost to chase out competitors. It invested heavily to buy out innovators like Diapers.com after waging price wars. (Amazon followed its acquisition by raising prices.)
For consumers, so far, Amazon has delivered many benefits. Its Prime program enables users to receive, through a click, almost any item within two days. But for producers — those who make and create things — Amazon's dominance poses immense risks.
Think of Amazon as a 21st-century version of the 19th-century railroads that connected consumers and producers. Because of their gatekeeper role, railroads had power to discriminate, both among users and in favor of their own wares. These middlemen could tax the farmers and oil producers who depended on their rails — or deny them a ride and sink their livelihoods.
In several key ways, Amazon uses its power as the railroads did. By integrating across business lines, Amazon now competes with the companies that rely on its platform. This decision to not only host and transport goods but to also directly make and sell them gives rise to a conflict of interest, positioning Amazon to give preferential treatment to itself.
The vast troves of information it collects enable it to self-deal with great finesse. News accounts tell how Amazon exploits data collected on the businesses using its platform to go head-to-head with them.
And like the railroads of yore, Amazon dictates terms and prices to those dependent on its rails. Its purchase of Whole Foods will expand its dominance and heighten conflicts of interest. Prime memberships will enable Amazon to extend its online dominance into physical retail — using stores for pick-up, for example — and to use physical stores to entrench its power online. By bundling services and integrating grocery stores into its logistics network, the company will be able to shut out or disfavor rival grocers and food delivery services.
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Explore all your optionsAmazon was accelerating investment to position itself as a direct competitor in the fresh foods delivery market; this deal would allow Amazon to potentially thwart future innovations. Startups will be less likely to enter the field against such an integrated competitor.
Antitrust laws, which were passed by Congress to prevent these kinds of concentrations of private power, have been largely reduced to a technical tool to keep prices low. The change in thinking traces back to the Chicago School revolution of the 1970s, which ushered in decades of mergers and consolidation.
Embodying this "consumer welfare" regime, Amazon has largely avoided government scrutiny by devoting its business strategy and rhetoric to reducing prices. The company has marched toward monopoly by exploiting the defects of contemporary antitrust law.
Preventing Amazon from concentrating even more control will require that antitrust enforcers block the company's bid for Whole Foods. But lawmakers and officials should go even further, embracing the original goals of antitrust law and adopting a competition policy fit for the digital age. Unless we recover our anti-monopoly tradition, Amazon will centralize exceptional control.
Amazon's market capitalization grew by more than $11 billion on the day the Whole Foods deal was announced. Wall Street recognizes the reality of Amazon's market dominance. Antitrust enforcers should as well.
Lina M. Khan is a legal fellow with the Open Markets Program at New America and the author of "Amazon's Antitrust Paradox," recently published by the Yale Law Journal. © 2017 New York Times