Amazon is becoming a giant private government with the power to direct the economy.
Amazon doesn’t fit comfortably within the free-market fable of how capitalism is supposed to operate. We are, in theory, supposed to get freedom, competition, the reward of innovation, the elimination of all-powerful centralized bureaucracy. But consider this recent Wall Street Journal report on how Amazon destroys its competitors.
Amazon did the same thing for “Allbirds Inc., the maker of popular shoes using natural and recycled materials,” with Amazon last year launching “a shoe called Galen that looks nearly identical to Allbirds’ bestseller—without the environmentally friendly materials and selling for less than half the price.”
So if you are an inventor, and you come up with some wonderful new widget, and Amazon is impressed by the number of widgets you sell, well, you can expect to see the Amazon Basic Widget popping up for half the price of yours soon. (And to find yourself banned from selling on Amazon.) The Journal reports that Amazon is even willing to take a loss in order to drive others out of business; when it decided to take on diaper manufacturer Quidsi, Amazon was at one point “losing $7 for every box of diapers” it sold. An internal email said that “we need to match pricing on these guys no matter what the cost.” Quidsi “unravel[ed]” and was forced to sell itself to Amazon.
Your first reaction might be to think “well, Amazon can’t just copy products, what about patents?” But Amazon is perfectly willing to break any law it can get away with breaking; even if a small manufacturer technically has a valid legal claim against Amazon, who wants to take on one of the most powerful legal teams in the world? In the Quidsi case, the Journal quotes a Quidsi board member’s flat statement that Amazon’s actions were illegal but that “we would be bankrupt” by the time they had concluded a legal fight with Amazon. (And of course, Amazon spends a fortune lobbying to change any laws that might place it at a disadvantage.)
Amazon’s marketplace has become so large that it is very difficult for manufacturers not to offer products through it. But when they do, they have to agree to Amazon’s terms, and Amazon’s control over who gets to sell on their platform means they can extract nearly any concessions they like, including getting access to the kinds of information that help them launch competitor products. So manufacturers are in a bind: they can’t not sell on Amazon, but if they sell on Amazon, Amazon will try to steal their ideas and destroy them. If Amazon is willing to take a $7 loss per sale, who on earth could compete?