Over the past year, lawmakers in Washington and State Capitols have criticized big tech’s business practices, alleging self-preferencing, pre-installing apps, and data collection practices amount to violations of America’s antitrust laws. Yet, few have given much consideration to the numerous consumer benefits generated by the industry. Rather than simply focusing on market definitions and an automatic presumption that “big is bad,” consumer harm and consumer welfare benefits should be the principal determinant in how lawmakers and federal antitrust enforcers interact with big tech.
Missing from the conversation surrounding big tech and antitrust reform is the full and accurate consideration of the consumer benefits big tech companies like Amazon, Facebook, and others provide, and what would be lost by punishing their successes.
When considering the consumer benefits, Amazon provides the most apparent evidence as to why reigning in big tech would ultimately punish consumers, leaving them worse off. By one recent estimate, the company provides consumers tens of billions of dollars in savings for just bundling a couple of its services. But more concerning is the fact that if lawmakers factored in consumer benefits from the very start, they would likely come to very different conclusions when dealing with big tech.
Throughout 2021, Amazon and other big tech companies have faced increasing scrutiny from state and federal regulators.
On May 25, 2021, Karl A. Racine, Attorney General of the District of Columbia, filed a highly publicized lawsuit against Amazon. The suit alleged Amazon “fixed online retail prices through contract provisions and policies it previously and currently applies to third-party sellers on its platform.” The company was also at the center of a Congressional investigation into Competition in Digital Markets that ultimately recommended structural separations, strengthened antitrust laws, and enhanced antitrust enforcement.
However, the most concerning aspect of congressional efforts to rein in big tech is that they may eventually reach broad bipartisan consensus, significantly raising the chance of passage of antitrust legislation. For example, representative Ken Buck (R-CO) has routinely voiced support for several antitrust reform packages, and Senator Chuck Grassley (R-IA) has been working with Senator Amy Kloubachar on separate proposals that would hamper the ability of big tech to generate consumer welfare.
In both instances, consumer welfare is largely ignored in favor of a presumption that because Amazon is part of big tech and generates over $100 billion per year, its activities are automatically anti-consumer.
For many Americans, Amazon offers a plethora of services beyond just an online marketplace where they can buy and sell goods. The company offers a web hosting service, a video streaming service, e-readers, an online drive, and a pharmacy — just to name a few. These services beyond a simple online marketplace were only possible because of the company’s size.
The breadth of services offered by Amazon also allows it to generate consumer welfare across multiple sectors and industries, not just for those seeking to purchase low-cost and high-quality goods. In fact, looking at just a small portion of the Amazon Prime bundle, free shipping and Prime video generates nearly $30 billion in savings to consumers. In addition, Amazon’s activities across multiple sectors reveal that limiting what the company can do will harm the thousands of companies who depend on the company to support running their small business and accessing the 119 million Americans who hold Amazon prime accounts.
Therefore, the effects of reigning in Amazon, as well as other tech platforms, could truly be catastrophic for consumers and businesses alike, who stand to lose these and other benefits.
Amazon’s purchase of Whole Foods provides another example of where its size has generated substantial consumer benefits. Before Amazon purchased Whole Foods in 2017, the predominantly regional company faced declining sales of between 1.5% and 2.5% each year. Since Amazon bought Whole Foods, prices at its stores have been slashed, bringing its products in line with other competitors. In 2021 alone, the company announced it was opening 43 new stores in 19 states which would employ 10,000 people.
Amazon’s expansion of Whole Foods has allowed more and more people to access local and organic foods. Had Amazon not grown to its size, it certainly would not have been able to purchase Whole Foods or expand the store beyond its original regional footprint.
Should lawmakers get their wish with more stringent antitrust regulations, these substantial consumer benefits would be lost. The loss will be caused because policymakers based their opinions on the faulty assumption that big companies are inherently anti-consumer.
To make more informed and pro-consumer decisions, lawmakers should actively consider big tech’s big consumer benefits and the proportional consumer harm, not just company size and market definitions. Only then will antitrust laws actively work for those it seeks to protect, the consumers.
This was published in The Economic Standard.