Two Bills in Congress That Could Stop Amazon’s Self Preferencing Behavior
On HBO, the Last Week Tonight host, John Oliver, spoke out against the “anti-competitive conduct” of big tech. He urged bipartisan support for two bills currently in Congress that would help put an end to these tech monopolies. He explained that our experiences on the internet are being dominated by companies like Google, Apple, and Amazon. These companies have revolutionized the digital economy. Amazon operates the largest online marketplace, a massive logistics network, and a leading cloud-computing company.
During this episode, Avenue7media’s CEO and Founder, Jason Boyce, offered perspective and advice when it comes to success with Amazon. Amazon is a self-optimized machine with a single mission priority: world domination. If Amazon’s algorithms decide it is more efficient to destroy you, it will do exactly that. But Amazon is where the customers are—you need to sell there. And you can thrive on Amazon if you play the game right.
Let’s take a closer look at the effect of tech monopolies, particularly Amazon, in the marketplace, as well as why these two bills in Congress play an important role in stopping the self-preferencing behaviors taking place.
What have we learned from tech monopolies in the past?
Forty years ago, the government took action against AT&T. AT&T dominated the telephone market for most of the 20th century. Its popularity was because people had no other alternative. AT&T did not allow users of their service to connect to phones manufactured by other firms. They also would not sell their own phones to customers, so everyone had to rent phones from AT&T. When MCI tried to offer phone services at a lower rate, AT&T was not having it. The DOJ filed an antitrust lawsuit which AT&T fought vigorously for a decade. Ultimately, the company was so big, that it was forced to break up into eight smaller companies in 1984. Once this happened, the restrictions set by AT&T were dropped and there soon was a thriving market for selling phones to customers. Phone prices dropped, the quality of phones increased, and renting phones faded away.
We didn’t know it at the time, but AT&T’s monopoly was seriously holding back innovation. Once it wasn’t controlling the phone industry, many new products, such as the answering machine and modem, began to emerge. The breaking up of AT&T was a key step in the internet revolution. We learned from this experience that when harmful monopolies end, innovation flourishes.
How is Amazon’s self-preferencing behavior affecting sellers and consumers?
Self-preferencing is when companies unfairly favor their own products on their own platforms. This makes their products so big that consumers have no choice but to use them. Amazon is not just a marketplace and a shipping company, it also started coming up with its own products. It currently has 158,000 private label products across 45 in-house brands. They have been accused of preferencing them over their competitors. They have also been accused of creating clear knockoffs of products that have been successfully sold on their website.
Amazon reportedly controls 65 – 70% of all online U.S. marketplace sales. It also hosts about 2.3 million active third-party sellers from around the world. With 200+ million subscribers to Amazon prime, you must be on Amazon as a seller. That is where everyone is.
But Amazon has a huge advantage over its competitors because it runs the marketplace and has access to all the independent seller data. Amazon denies that they prefer themselves, their products, or sellers that pay for their services. However, there is overwhelming evidence to show that self-preferencing behavior is taking place.
For a third-party seller, the most important thing is called the buy box. This is the little box that shows up on any Amazon product page that you can instantly click to buy something. Approximately 80% of Amazon sales go to the first seller that comes up in the buy box upon searching for a product and the percentage is even higher with mobile purchases. The problem is that only one Seller gets to be in the box, and only Amazon knows how its algorithm picks the winner. But it seems to consistently favor Amazon. There was an analysis done that showed Amazon used its own products in that buy box for 40% of products. The next highest seller only got in the box for one-half of one percent of popular products. Even when the buy box did go to a third-party seller, it went to a business that uses its shipping service – Fulfilled by Amazon.
Self-preferencing stifles competition, hurts small businesses, and often results in serving consumers and inferior products…. So what can we do?
How will two bills, Open App Markets Act and American Choice and Innovation Online Act, address some of these problems?
Big tech firms have clearly made important breakthroughs in technology and the marketplace. However, their self-preferencing business practices have brought about scrutiny from antitrust regulators and some members of Congress. A 16-month investigation of these practices was concluded in October 2020 by the House Committee on the Judiciary’s Subcommittee on Antitrust, Commercial, and Administrative Law. As a result, a 450-page report recommended a range of measures to address this anticompetitive conduct. Many of these recommendations have now taken legislative form.
Two bills, the Open App Markets Act and the American Choice and Innovation Online Act, are currently before Congress. If passed, they would ban advantaging a platform’s own products and services or lines of business over a rival business.
The Open App Markets Act is intended to protect the ability to sideload apps and prevent operators of the app marketplaces, from self-preferencing their own products. The American Choice and Innovation Online Act aims to prevent big tech companies, like Amazon, from self-preferencing their own products at the expense of competitors. U.S. antitrust laws are grounded in the idea that the government must intervene to protect the competitive process where there is a risk of harm to the competition.
It is no surprise that tech companies are fighting these bills. They are making the same argument that AT&T made 40 years ago. They argue that if you tamper with things, things won’t work as well in the future as they did in the past. Amazon is arguing that small businesses would be harmed by these bills. They feel that it would force them to eliminate or degrade its Prime delivery service.
The problem with letting a few companies control a few sectors of the economy is that it limits what is possible for startups, choking them before they can even get started. These bills would crack the door back open for innovation and nudge the internet back to what it was supposed to be from the start, a revolutionary tool that expands global access to information. “Right now, unregulated tech monopolies have too much power over our economy,” Rep. David N. Cicilline (D-R.I.) chairman of the House antitrust panel, said in a statement. “They are in a unique position to pick winners and losers, destroy small businesses, raise prices on consumers, and put folks out of work. Our agenda will level the playing field and ensure the wealthiest, most powerful tech monopolies play by the same rules as the rest of us.”
If the bill doesn’t pass by the time Congress recesses in August, the bills are not likely to pass at all, because, in the fall, everyone will have moved on to focusing on midterm elections. So there is a very small window right now to actually do something about this.
Avenue7Media exists to support, defend, and grow Amazon Seller businesses. It is a software-enabled client service business that provides every aspect of Amazon in an effort to support its clients’ growth and eCommerce sales strategy. We harness the power of Amazon for direct-to-consumer product brands. Our proven methods, informed by 20 years of top-ranking eCommerce and online marketplace success, are tailored for the 21st-century Seller. In short, we help you use Amazon, rather than letting Amazon use you.
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