Each Time History Repeats Itself, Cost Goes Up: Amazon’s Antitrust Déjà Vu
In his Short History of Progress, Canadian author Ronald Wright writes that “each time history repeats itself, cost goes up.” Indeed, history helps us avoid costly mistakes—and antitrust history should help us avoid not only mistakes, but also mistaken stances. But that isn’t what has been happening recently. Instead, when it comes to misguided antitrust claims, history has been repeating itself.
Case in point: Antitrust populists assert that Amazon is a dangerous monopoly that disenfranchises noble “mom-and-pop” retailers. The answer, they argue, is to break up Amazon. As one leading advocate puts it.
[T]he issue before us is not how Amazon grew to scale but how Amazon uses its power today and will use it tomorrow. The problem is that Amazon, like other monopsonists, does not participate in the market so much as use its power to micromanage the market, carefully coordinating the actions of thousands of firms from a position above the market… In essence, Amazon has grown so powerful that it can turn even its largest suppliers, and entire oligopolized industries, into extensions of itself. The effects of this practice are most obvious in Amazon’s horizontal competition against other retailers.
We must restore antitrust law to its central role in protecting the economic rights, properties, and liberties of the American citizen, and first of all use that power to break Amazon into pieces.
Okay, I admit I took some liberties with that statement. Those unapologetic words were written not about Amazon, but about Walmart. In 2006, Barry Lynn, the small business populist and executive director of the Open Markets Institute, railed against the retail “monopolist” of the day in an article titled “Breaking the Chain: The antitrust case against Wal-Mart.” Everywhere Lynn wrote “Wal-Mart,” I replaced it with “Amazon.”
Lynn’s 2006 depiction of the behemoth Walmart did not mention Amazon, even though it was already valued at $16.33 billion. He either couldn’t conceive that Walmart could face a significant new competitor, or he wouldn’t bring himself conceive of Amazon posing a competitive threat, because it would undercut his “anti-big” argument against Walmart.
Today, there are similar calls for breaking up Amazon, and they resort to the same old rhetoric Lynn employed against Walmart. To justify their anti-big campaign, the populists must ignore the massive benefits these large retailers provide. McKinsey Global Institute found that between 1995 and 2000 Walmart was responsible for a whopping one-sixth of U.S. productivity growth. In a New York Times article about the report, Virginia Postrel wrote: “Europeans tend to assume that American growth is driven by Silicon Valley…. That view is wrong.”
But that doesn’t stop populists in America and around the world from idealizing and seeking to reestablish a “mom-and-pop” retail economy. For example, according to the McKinsey Global Institute, the Indian retail sector was just 6 percent as productive as the U.S. retail sector. In other words, for every dollar of retail sales in the U.S. supported by one worker, Indian retailers had to hire 17. The reason, of course, is that the Indian government embraces the antitrust populists’ views: populists limit the ability of large retailers such as Walmart and Amazon to do business there in order to protect vastly inefficient mom-and-pop retailers. Populists in Europe also work to limit the growth of large retailers like Amazon.
Now, American advocates and lawmakers have joined Europeans’ and Indians’ misconceived belief that the increasing the retail industry’s productivity is trivial in the increase of the overall productivity growth, thereby suggesting that breaking up an innovative retail industry cannot harm.
Big retailers gain economies of scale that let them lower costs and sell a wider variety of goods, and they invest in innovation. In 2020, Amazon invested $42.7 billion in content and R&D, “more money into it than any other on earth.”
Moreover, Amazon only has 6 percent of U.S. retail sales, which is still only two-thirds of Walmart’s share. If regulators had broken up Walmart as Barry Lynn wanted, Amazon today would face weaker competition, and consumers would pay higher prices. And should they break up Amazon today, not only would consumers pay more, but regulators would potentially undermine the next large upstart retailer in America, whatever it may be. Consumers should make that decision with their wallets, not antitrust regulators with an enforcement hammer.
Lina Khan, who is soon to be a federal trade commissioner, wrote a few years ago about what she called “Amazon’s Antitrust Paradox”—the alleged antitrust under-enforcement toward Amazon and the need to break it up. But there is no “paradox”: It is déjà-vu all over again. From A&P in the 1920s to Sears Roebuck & Co. in the 1980s to Walmart in the 2000s—and now to Amazon—large, innovative retail companies are regularly subject to calls for break-ups. History repeats itself, and the cost of ignoring lessons from antitrust’s past is bound to go up for American families. The economy will lose if populism eventually triumphs at the expense of American shoppers.
