Is the Federal Trade Commission (FTC) really out to break up Amazon? If so, it may be one of the greatest ideology-over-reason triumphs in American history.
At stake are Amazon Prime, retail shopping driven by artificial intelligence (AI), and other past and future Amazon innovations that Americans love and depend on. Also at stake is whether future American entrepreneurs will pursue giant dreams or hold back, thinking their government may rebuke their success.
News reports
say
the FTC has three primary concerns: (1) that Amazon seeks to ensure products on its website have the lowest prices on the web, (2) that it rewards sellers who buy ads and use Amazon’s logistics services, and (3) that Amazon Prime packages books, music, and video streaming. These concerns, if valid, are hardly worth breaking up a company. Lowest-price requirements hinder markets only in
particular circumstances
. Rewarding good partners and customers is normal in business. Tying products together isn’t a problem per se, according to the FTC
website
. In this case, customers have multiple sources of books, music, and video streaming.
The FTC might have other reasons. Amazon
provides
53% of book sales in the U.S., 80% of e-book sales worldwide,
nearly
40% of retail e-commerce in the U.S.,
and
32% of cloud computing worldwide. And it is frequently accused of unfairly competing with its third-party sellers, although the actual evidence
falls
short
of what the headlines promise. However, these static numbers, viewed in isolation, are deceiving and neglect consumers’ perspectives.
Amazon’s bookselling prominence grew because it offered customers a better value for some purchases than did the brick-and-mortar stores. Amazon
provided
convenience, a larger inventory, and personalized AI-generated recommendations. This competition led Amazon’s rivals to up their game: Independent booksellers began emphasizing community, personal service, and bringing together people who have common interests.
Niche publishers have also benefitted from Amazon’s prominence. Self-publishing
grew
23-fold from 2007 through 2018, and Amazon’s book marketplace accounted for 95% of this explosive growth.
Despite
newspapers
claiming
Amazon harms small businesses, the actual businesses suggest the reverse is true. Of the small businesses selling online, about a fourth
use
Amazon, second only to selling through their own websites. And although Amazon is the most popular marketplace for small businesses, many businesses do not feel captured by Amazon: Most also
use
eBay, Etsy, and Walmart.
Although Amazon’s innovativeness has provided it with a large percentage of retail e-commerce and thus the illusion of market dominance, the reality is that online and offline commerce compete. Consider the numbers: E-commerce is
only
15% of retail in the U.S., so Amazon is only 6% of the retail landscape. Walmart is the heavy hitter in retail,
providing
twice the retail sales of Amazon.
Among Amazon’s innovations is Amazon Prime, which has proven wildly popular with consumers. Despite the FTC’s questionable
claims
that customers are being tricked into buying Prime and then being held captive, the service
grew
by a third during the pandemic—from 150 million to 200 million subscribers—as the public came to favor online, contact-free shopping.
Cloud computing reveals a similar
picture
of innovation, quick popularity, and aggressive competition. Amazon has provided 32% of cloud services over the past five years, while Microsoft’s share has jumped nearly 70%—from 13.7% to 23%. Cloud computing as a whole
grew
more than 200% over the past five years, refuting claims of market power stifling the marketplace.
The breakup, if it happens, might be a feather in the cap of FTC Chair Lina Khan, who made her name
declaring
Amazon to be “dominant” in numerous markets and a “house of cards.” At stake is an e-commerce platform that
enabled
small businesses to sell 7,800 products per minute in 2022 and that U.S. consumers
rate
second in customer satisfaction, behind only Apple.
The debate over Amazon’s breakup should be examined through a lens of innovation and consumer choice. Amazon has thrived by introducing transformative technologies and fostering retail competition. Perhaps the FTC should defer to customers, as they determine the true economic value of Amazon’s services and innovations.
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This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.
