Antitrust Implications of Amazon’s Purported New Delivery Service

Amazon-Shopping-in-KenyaBy Gardner Reed

Amazon’s recent acquisition of Whole Foods has renewed the debate surrounding the proper role of antitrust regulation. The traditional approach to antitrust law aims to protect consumers by keeping prices down and quality up. The Whole Foods acquisition, along with the growing dominance of large tech firms such as Google, has helped popularize a new approach to antitrust: “hipster antitrust.” Hipster antitrust widens the objectives of traditional antitrust regulation, not only protecting consumers through fostering competition, but also using antitrust enforcement to attack problems such as economic inequality and environmental degradation. While the Federal Trade Commission promptly approved the Whole Foods acquisition, recent reports that Amazon is developing a delivery service to rival FedEX and UPS may raise a new round of competitive questions and continue the debate surrounding the proper role of antitrust regulation.

To begin, it is important to understand why Amazon’s acquisition of Whole Foods was not an antitrust violation. First, Amazon itself only sells a small amount of groceries and Whole Foods only accounts for two percent of the American grocery market. Second, the grocery market contains far larger and more entrenched competitors, such as Walmart with a twenty percent market share and Kroger with a seven percent share. Third, antitrust regulators, applying the traditional approach to antitrust, believe that fostering competition is the best way to promote low prices and high quality. Because this merger accounted for only a small share of the grocery market, consumers were left with plenty of competitive alternatives whether or not it led to lower prices or higher quality services.

However, recent reports indicate that Amazon is planning to launch a new delivery service similar to FedEX and UPS. According to Bloomberg, project “Seller Flex” began a trial run on the West Coast in 2017 with an expansion planned for 2018. The purpose of the system is to decrease the crowding in Amazon’s warehouses and increase the number of products available through two-day delivery. Under this new system, Amazon will directly oversee the pickup and delivery of packages from the warehouses of third-party merchants who market their items on Amazon.com. Traditionally, when delivering to end consumers, merchants had the choice to ship their products directly through Amazon or to use third-party carriers such as FedEX and UPS. Amazon may still elect to use FedEX and UPS to make deliveries, but merchants will no longer be able to make the decision on their own. Amazon expects that its increased control of the shipping process will allow it to save money through volume discounts, avoiding congestion, and increasing its flexibility.

By drawing comparisons with Amazon’s acquisition of Whole Foods it is possible to identify potential competitive concerns implicated by the new delivery system. The key difference is the amount of competitive power Amazon wields in each market. In the grocery market, Amazon is not an antitrust risk because it is a small player with only a two percent market share, which gives it essentially no ability to affect its competitors’ businesses or the market as a whole. In the e-commerce market, however, Amazon provides an essential platform and acts as a gateway for businesses to reach consumers across the United States. In the past, merchants could participate on Amazon’s platform, but retained the option to select their preference of delivery service. By requiring the use of its own delivery service, however, Amazon will be depriving its merchants of choice. Given Amazon’s power in the e-commerce market, merchants have limited alternatives to Amazon’s platform and thus may have no other realistic option outside of using Amazon’s in-house delivery service. This lack of competition in delivery methods could potentially raise end prices for consumers.

Ultimately, it is too early to predict the competitive effects of Amazon’s delivery service, but different schools of antitrust may reach different conclusions. Consistent with its track record, it is likely that Amazon will do everything in its power to lower prices and offer a better service by integrating delivery into its e-commerce platform. Under these circumstances, a traditional antitrust review would not likely find a problem. A review under “hipster antitrust”, however, may find a problem regardless of the cost or quality outcome. As part of a larger policy matter, such as protecting small businesses, Amazon’s acquisition of more power and the reduction of choice for its merchants may simply be unacceptable. Regardless of the outcome, Amazon’s continued expansion of its operations has all but guaranteed that it will remain a focus of antitrust discussions for the foreseeable future.

EU Antitrust Policy: Favoring Innovation over the Googles’ of the World

Picture1By Amela Zukic

As many of us have heard, the European Commission recently slapped Google with a 2.7-billon dollar antitrust fine for allegedly favoring its own comparison-shopping service, an illegal practice in the EU. Google now has 90 days to cease this practice or it could face a fine of up to 5% of the average daily worldwide turnover of its parent company, Alphabet. While many in the U.S. may reject this decision, the EU’s ruling reflects its underlying goal of fostering innovation and should not be quickly dismissed. Continue reading

Are We FINALLY Going to See Some Cool Cable Set-Top Boxes?

16-TiVo-PremiereBy Cheryl Lee

Consumers who were frustrated by the high cost of renting set-top boxes filed class-action lawsuits against several cable TV operators. The antitrust class action filed against Cox Communications was the first to go to trial. The complaint, in that case, alleged that Cox violated the Sherman Act by illegally tying its premium cable service to its set-top box rentals. It also alleged that Cox created barriers preventing other companies from offering third-party set-top boxes. The jury returned a $6.3M verdict against Cox Communications. Continue reading

Seattle Paves the Way for Ride-Sharing Drivers to Unionize

ride-shareBy Naazaneen Hodjat

The Seattle City Council voted unanimously last month to approve a bill that allows drivers of ride-sharing companies such as Uber and Lyft to unionize. Seattle is the first U.S. city to pass such legislation. The legality of the ordinance, however, is uncertain; Uber and Lyft are expected to challenge its legality in court under both federal labor and antitrust laws. Continue reading

Sports Broadcasters Facing Antitrust Lawsuits

nyy_1200x630By Talia Loucks

Sports fans that live far from their favorite teams have a difficult time watching games. I discovered this in the 90s when I was a Seahawks fan living in Colorado. The agreements between regional sports networks, the teams, and television service providers make it extremely difficult for out-of-market fans to access games. Baseball and hockey fans, however, are currently trying to fix this. Out-of-market fans won a small victory this past May when Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York granted a motion for a class action certification.

The cases, Garber v. MLB and Laumann v. NHL, are antitrust challenges to sports broadcasting. Plaintiffs in both cases are challenging the multilateral agreements between the leagues (MLB and NHL), regional sports networks (“RSNs”), and multichannel video programming distributors (“MVPDs”)—DirecTV and Comcast—“that limit options, and increase prices, for baseball and hockey fans that want to watch teams from outside the home television territory (“HTT”) where the fans live.” Fans, who live in cities far from the teams they love, must purchase out-of-market packages that broadcast all games outside of the market. Furthermore, because of the exclusivity of networks such as the Yankees Entertainment Sports Network (“YES”) and other similar team-specific networks, often fans that have purchased out-of-market packages still cannot watch their favorite teams. Continue reading