Amazon Should Not Face Antitrust. Imagine the app store never existed…
By: Ryan Yang
Tags: Amazon, Antitrust, Apple, Costco

Imagine the app store never existed. This could be reality had the government enforced antitrust laws on companies, such as Apple.

Antitrust laws exist to protect the consumers by preventing monopolies and introducing competition to drive product innovations, but there must be an incentive for these innovations to occur. Companies currently under public scrutiny are in the technology sector focusing on Software As A Service or hardware software integration. Apple created the app store software infrastructure while Amazon created a software and logistics infrastructure known as Amazon.com. Antitrust claims these companies have a pricing advantage of selling products through means of avoiding taxes or utilizing third party data to undercut competitors’ pricing, so Apple and Amazon shouldn’t sell under their infrastructure (app store and Amazon.com). While I do understand the concerns, there is a solution; corporations need to increase pricing transparency, gross margin transparency, and create guidelines for which sectors they plan to compete in.

Smartphones and e-commerce have brought many benefits to consumers, such as mobile computational power and convenient shopping. Corporations, such as Amazon and Apple have created innovative products to benefit the consumer, but only by creating an infrastructure and vertically integrating (creating everything in house to lower cost margins). To completely ban these companies from selling under their own infrastructure, because they can undercut competitors in pricing, would disincentivize companies to invest in the future and create infrastructures. These infrastructures didn’t miraculously appear. It took numerous years to architect and lots of investment with the goal of solving problems and creating better products for the consumer. A ban on these companies could set a precedent and dampen progress for more innovative and affordable products for consumers.

A current point of contention is whether Apple should be allowed to sell their apps since they bypass 30% app store tax allowing them to undercut competitors in app pricing. Whilst companies, such as Spotify do make a valid point in that Apple is benefitting by being able to undercut competition through the app store tax[], we also need to consider that Spotify wouldn’t even be able to reach as many consumers today had Apple never created the app store. Apple’s app store ultimately led to innovative products, such as mass distribution of music streaming and even brought Spotify’s prices down to $10 per month after releasing Apple Music[1]. The consumer is benefiting from an affordable variety of applications to choose from. If Apple Music was never released at 10$/month, would Spotify reduce its monthly prices down to 10$ from the original 13$? Thus, I believe a better solution would be for Apple to establish a guideline on which areas it will create products, such as applications in niches with only one or two major developers. Also, Apple should be transparent with gross margins with the general public. This general guideline will keep companies on their toes to continue innovating and driving down prices in case Apple competes, benefiting customers in both pricing and product specifications.

Similarly, third party sellers on Amazon marketplace do make a valid point that Amazon leveraging seller data to create an Amazon basics version gives Amazon a competitive advantage in undercutting competition on pricing[]. However, going back to first principles, had Amazon never created an infrastructure due to lack of financial incentives put into place by the government, customers would never be able to access two day shipping on a multitude of hundreds of millions of products. These varieties of products provide customers with better choices and multiple sellers create competition which in turns benefits the customers further as products become even more affordable. For example, Amazon basics selling a Trunk organizer caused third party seller Fortem to lower prices and create more products[2]. Thus, to quell the anger of third party sellers, I believe Amazon should establish a clear guideline on which sectors to create products and include gross margin transparency. This way, third party sellers will also get data on Amazon, solving the current one way data problem. This solution will increase competition in products that are sold by limited sellers for customers and reduce pricing problems claimed to have stemmed from an disadvantage on data.

In an analogous comparison, consider Costco with its’ Kirkland Signature brand. Similar to Amazon and Apple, Costco created an infrastructure (their physical warehouse), albeit a physical one and holds many third party consumer goods, such as electronics, foods, etc like Amazon marketplace. However, Costco prides itself as only taking a max 14% and 15% markup respectively on third party products and in house brands for consumer transparency. Similar to Apple, Costco only sells products that meet a certain quality and demand in the interest of its customers, so it only holds a select few products of the highest quality in each category. When Costco does decide to create an inhouse product, it will only create products in categories which can be at least 1% better in quality and cheaper than leading competitors[]. Since Costco selects only a couple of brands for each product, there are already limited sellers in each product category, so the Kirkland brand is increasing competition in both pricing and quality for the consumer. Thus, Costco’s transparency in pricing and clear guidelines for selecting which products to create have created a popular household brand and seldom complaints from consumers regarding anti competitive actions.

While I do believe Amazon and Apple should continue to sell under their own infrastructure, companies need to follow clearer guidelines to decide which products to create and increase price transparency. This would reduce third party and public distrust against large corporations for anti competitive actions yet promote innovation and healthy competition for the consumer. Transparency is key and if enforced, I believe customers would enjoy the in house branded product similar to how many enjoy the Kirkland brand.

[1] https://www.nytimes.com/2020/06/16/business/apple-app-store-european-union-antitrust.html

[2]https://www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-launch-competing-products-11587650015

[3]https://www.costco.com/sustainability-kirkland-signature.html