Amazon announced a deal last week to purchase the grocery chain Whole Foods for nearly $14 billion. The company's largest proposed transaction to date, it would give Amazon a physical presence throughout the nation — especially in the country's most affluent cities. First, however, the acquisition must receive the green light from antitrust regulators.
Slate has called Amazon the most important problem in antitrust law, while the think tank New America argues in an op-ed in the New York Times that regulators should reject the transaction outright. Government scrutiny of this deal is already bringing Amazon critics out of the woodwork demanding a pound of flesh from the Internet retailer. But the antitrust case against Amazon is deeply misguided. Federal intervention will only hurt consumers and undermine innovation.
Amazon's profitability, or its lack thereof, is the most glaring problem with accusing it of exercising monopoly power. In its first 20 years of existence, the company actually lost money roughly half the time. Even in 2016, despite Amazon's impressive scale and popularity, it earned a measly 1.7 percent profit margin overall. This may scare incumbent firms used to earning healthy profits — but as far as consumers are concerned, lower prices merit celebration, not regulation.
How will Amazon leverage Whole Foods to deliver a better experience? One can only speculate at this point, but affordable home delivery of fresh foods is a likely prospect. Whole Foods locations might also begin stocking popular Amazon items such as the Echo. Of course, Amazon could expand its physical footprint without a major acquisition, much like how the company recently launched its own cargo airline, Prime Air, to avoid costs associated with FedEx and UPS shipping. But buying Whole Foods gives Amazon a one-stop shop, enabling the company to avoid acquiring retail space one parcel of land at a time.
Critics of Amazon fear that as the company continues to grow, it will eventually put retail competitors out of business, allowing Amazon to pursue profits by raising prices. But traditional retailers, from Walmart to Home Depot to Best Buy, aren't going anywhere for the foreseeable future. Although the retail industry has experienced declining employment in recent years, and many stores have closed their doors, Americans still spend far more money in physical stores than on the Internet.
Through impending innovations like on-demand drone delivery, Amazon surely aspires to make online shopping more popular still. But we're far better off letting Amazon try to reshape the retail sector through innovation instead of thwarting the firm's evolution through governmental restraints justified by hypothetical fears.
Even in markets where Amazon is an especially major player, it is hardly the only game in town. It sells roughly four in 10 books sold in the country. Although Amazon does represent two-thirds of the e-book market, Amazon practically created that market from scratch. Even with Whole Foods in its portfolio, Amazon will account for a relatively small portion of U.S. grocery sales, dwarfed by national chains such as Safeway and Kroger.
Amazon reached its current position by taking risky bets, engaging in constant experimentation, and persuading its shareholders to let it keep prices low and reinvest profits into new innovations. Hopefully the startups of tomorrow will follow in Amazon's footsteps. Rewarding Amazon for its success by denying it the freedom to grow based on imaginative predatory pricing scenarios will not help consumers one bit.
Antitrust officials should allow this transaction to proceed.
Ryan Radia is research fellow and regulatory counsel at the Competitive Enterprise Institute.
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