I am talking about network effects. Amazon does monopolize customers by providing a central place to start searching for goods. Have you heard of The Street of the Carpet Sellers? That's about what economists call central place theory. Good luck selling carpets if you don't have a shop on that street. Amazon owns that street. They have the critical mass of user reviews. In many ways, Amazon is the new Yellow Pages. If you want to reach customers, you have to deal with Amazon. Ben Thompson goes on about this over at Stratechery.
Sure, nothing is stopping you from XXX, but that's not the way it works in real life. No one made you buy telephone service from AT&T in its monopoly days. No one makes you shop at Walmart though Walmart pushed out every other grocery store for 50 miles. No one makes you buy tortillas from Gruma, but unless you live in a Mexican neighborhood, that means a long drive or mail order. There is such thing as market power. If there are only a handful of art galleries and they only sell art from a handful of artists, they aren't stopping you from buying art from someone else, but they can make you work hard to do so and they can use their market power to stifle new galleries.
One solution is to break up Amazon into a sales company, a network services company and a marketplace and to regulate that marketplace to make sure it stays competitive. Another solution is to require Amazon to offer set terms and due process for vendors. Yet another is to require Amazon to unbundle its sales and fulfillment support services and advertising. How about requiring Amazon to open its database so that others can develop competing search engines without adversarial tactics? These kinds of remedies have worked in past antitrust cases. There is no reason similar remedies couldn't work for Amazon.
Microsoft was a good example. Their intention was to place their idiosyncratic browser between users and the internet. I knew friends working at Microsoft, and they were given explicit instructions not to look at industry standards when they implemented browser components. The idea was that their implementation would become the industry standard. Since they controlled the dominant operating system, they could leverage that to control access to the internet.
Yes, people could install alternate browsers, at least they could at the time, but who was going to even know that this was a possibility? What was going to stop Microsoft from sabotaging them by providing its own browser with a better network API? By the early 2000s, more and more websites were being written to Microsoft's non-standard specifications for HTML and Javascript. Their strategy was working, and we would have a very different internet today without that antitrust suit.
The government lawsuit put Microsoft under the spotlight. Depending on where you lived, your new system would ask you to choose a default browser with Microsoft's Explorer as just one of several options. There was a renewed push to enforce web standards. Microsoft invested in Apple so it plausibly claim that it had a competitor. This created space for companies like Google, Facebook, Netflix and others.
Antitrust has worked very well over the years. The Standard Oil case lowered fuel prices and gave the US better strategic options thanks to competition in that area. One of many IBM cases led to competing platforms and compatible peripherals and software. The Xerox case led to more widespread innovation in copying technology. The Kodak case opened its C1 (?) film processing technology. There's a long list. The last thing dominant companies want is innovation, and they often have the power to crush it. Antitrust is one of the few counter-mechanisms.
I am talking about network effects. Amazon does monopolize customers by providing a central place to start searching for goods. Have you heard of The Street of the Carpet Sellers? That's about what economists call central place theory. Good luck selling carpets if you don't have a shop on that street. Amazon owns that street. They have the critical mass of user reviews. In many ways, Amazon is the new Yellow Pages. If you want to reach customers, you have to deal with Amazon. Ben Thompson goes on about this over at Stratechery.
Sure, nothing is stopping you from XXX, but that's not the way it works in real life. No one made you buy telephone service from AT&T in its monopoly days. No one makes you shop at Walmart though Walmart pushed out every other grocery store for 50 miles. No one makes you buy tortillas from Gruma, but unless you live in a Mexican neighborhood, that means a long drive or mail order. There is such thing as market power. If there are only a handful of art galleries and they only sell art from a handful of artists, they aren't stopping you from buying art from someone else, but they can make you work hard to do so and they can use their market power to stifle new galleries.
One solution is to break up Amazon into a sales company, a network services company and a marketplace and to regulate that marketplace to make sure it stays competitive. Another solution is to require Amazon to offer set terms and due process for vendors. Yet another is to require Amazon to unbundle its sales and fulfillment support services and advertising. How about requiring Amazon to open its database so that others can develop competing search engines without adversarial tactics? These kinds of remedies have worked in past antitrust cases. There is no reason similar remedies couldn't work for Amazon.
Microsoft was a good example. Their intention was to place their idiosyncratic browser between users and the internet. I knew friends working at Microsoft, and they were given explicit instructions not to look at industry standards when they implemented browser components. The idea was that their implementation would become the industry standard. Since they controlled the dominant operating system, they could leverage that to control access to the internet.
Yes, people could install alternate browsers, at least they could at the time, but who was going to even know that this was a possibility? What was going to stop Microsoft from sabotaging them by providing its own browser with a better network API? By the early 2000s, more and more websites were being written to Microsoft's non-standard specifications for HTML and Javascript. Their strategy was working, and we would have a very different internet today without that antitrust suit.
The government lawsuit put Microsoft under the spotlight. Depending on where you lived, your new system would ask you to choose a default browser with Microsoft's Explorer as just one of several options. There was a renewed push to enforce web standards. Microsoft invested in Apple so it plausibly claim that it had a competitor. This created space for companies like Google, Facebook, Netflix and others.
Antitrust has worked very well over the years. The Standard Oil case lowered fuel prices and gave the US better strategic options thanks to competition in that area. One of many IBM cases led to competing platforms and compatible peripherals and software. The Xerox case led to more widespread innovation in copying technology. The Kodak case opened its C1 (?) film processing technology. There's a long list. The last thing dominant companies want is innovation, and they often have the power to crush it. Antitrust is one of the few counter-mechanisms.