The Feedback Loop Between Markets and Amazon’s Self-Perpetuating Monopolyby@linakhantakesamazon

The Feedback Loop Between Markets and Amazon’s Self-Perpetuating Monopoly

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Amazon's influence in both online marketplace services and superstores is fortified by intricate feedback loops, network effects, and strategic barriers to entry. As online superstores and marketplaces rely on each other's scale, the interplay between shoppers and sellers intensifies competition, making it exceedingly challenging for new entrants. Amazon's all-or-nothing Prime strategy further raises entry barriers, blocking rivals from attracting shoppers solely on their merits and artificially elevating costs for competitors. These tactics stifle competition and maintain Amazon's dominant position, leaving rivals struggling to break the cycle.

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FTC v. Amazon Court Filing, retrieved on Sep 26, 2023, is part of HackerNoon’s Legal PDF Series. You can jump to any part in this filing here. This is part 28 of 80.

209. The ability to gain scale is a critical factor in determining who can successfully compete in both relevant markets. The feedback loop between these two relevant markets further amplifies the importance of scale and network effects in these markets, making it more difficult for rivals and potential rivals to enter and compete effectively against incumbents in the relevant markets.

210. Online superstores that also offer online marketplace services operate in both relevant markets and benefit from scale and network effects that flow between—and reinforce market power across—those markets. Though an online superstore does not necessarily need to operate a marketplace, network effects between the two markets create an additional barrier to entry for companies attempting to enter and compete in either market. For online superstores with marketplaces, increasing scale in one market can make it easier to grow in the other, and a denial of scale in one market can make it harder to grow in the other. By amplifying the importance of scale in both markets, these network effects can intensify the harmful impact of conduct that unlawfully deprives rivals of scale, widening the gulf between films that can and cannot effectively compete.

211. To attract shoppers, an online superstore needs to offer a wide breadth and depth of product selection. Online superstores that operate marketplaces can increase their breadth and depth of product selection by offering products sold by third-party sellers.

212. Similarly, sellers prefer marketplaces where many potential customers already shop. By reaching a larger customer base, sellers can increase sales.

213. Prospective entrants to both relevant markets face a chicken-and-egg problem: they need to attract enough sellers to offer sufficient product selection to attract shoppers, but they simultaneously also need to generate enough shopper traffic to attract those sellers. (Redacted) This continuous loop creates a barrier to entry in both markets and accelerates the growth of films that can overcome it.

(This info is Redacted) - Figure 17. Example of the "Chicken-and-Egg" Barrier to Entry.

Source: (Redacted)

214. Amazon leverages these network effects. At any given time, Amazon offers more than (redacted) different items for purchase on its online superstore. Sellers who buy marketplace services from Amazon provide much of the product selection that helps Amazon attract and keep its shoppers. As more shoppers turn to Amazon for its product selection, more sellers use its platform to gain access to its ever-expanding consumer base, which attracts more shoppers, and so on.

215. Amazon recognizes this feedback loop. An internal Amazon strategy document states that (redacted) And Mr. Bezos (redacted) Amazon publicly states that its "wide selection is made possible through independent sellers.”

216. The interplay between Amazon’s shoppers and sellers increase barriers to new entry and expansion in both relevant markets and limits existing rivals’ ability to compete. In this way, scale builds on itself, and is cumulative and self-reinforcing.

217. This feedback loop spins Amazon's "flywheel." Amazon publicly touts its flywheel as a “virtuous cycle.“ But internally, Amazon (redacted)

218. For example, Amazon strategically restricts how shoppers can purchase the various services included in its Prime subscription, artificially increasing barriers to entry in the online superstore and online marketplace services markets. Amazon has internally considered (redacted) Amazon fuses together a wide assortment of unrelated services ranging from streaming video, music, and gaming to prescription drugs and more to the unlimited shipping service included in Prime-and through it, to Amazon’s monopoly online superstore.

219. Amazon does not let shoppers subscribe only to the unlimited shipping component of Prime.

220. And while Amazon technically offers Prime Video on a standalone basis, Amazon successfully uses dark patterns and other manipulative design techniques to thwart most shopper from actually being able to sign up for it.

221. Amazon's restrictive strategy of offering Prime services only on an all-or-nothing basis means that shoppers who want any of those services must effectively buy all of them and maintain a full Prime subscription. Amazon estimates that (redacted) limiting other superstores’ ability to build a large customer base.

222. Amazon's restrictive all-or-nothing Prime strategy artificially heightens entry barriers because rivals and potential rivals cannot compete for shoppers-including the (redacted) Prime subscribers described above-solely on the merits of their online superstores or marketplace services. Instead, they must enter multiple unrelated industries to attract Prime subscribers away from Amazon on incur substantially increased costs to convince Prime subscribers to sign up for a second shipping subscription or otherwise pay for shipping a second time. This substantial expense significantly constrains the number of firms who have any meaningful chance to compete against Amazon and raises the costs of any that even try. This tactic blocks lower-priced rivals from competing head-to-head with Amazon to attract many shoppers. Even firms that have introduced comparable subscription services at a fraction of the price have struggled to make serious inroads. Amazon’s restrictive strategy artificially heightens barrier to entry, such that an equally or even a more efficient or innovative rival would be unable to fully compete by offering a better online superstore or better online marketplace services.

223. Amazon internally acknowledges that (redacted)

224. But Amazon also recognizes that (redacted) So, Amazon deliberately restricts how shoppers can access various components of Prime, despite knowing that offering additional choices for consumers would lead to more competition and better prices.

225. This current restrictive structure of Prime reflects a deliberate strategy by Amazon to artificially increase barriers to entry and competition. As one former Amazon executive to explained in recalling Amazon’s motivation for adding non-shipping services to Prime, “[a]ny competitor might launch a Prime shipping clone, or they could potentially build a new Netflix type service, but it was unlikely that any one of them would be able to do both”

226. In 2021, Amazon (redacted) As Mr. Bezos put it publicly, Amazon "monetize[s] [Prime Video] content in an unusual way .. .. When we win a Golden Globe, it helps us sell more shoes." (redacted) To date, Amazon (redacted) choosing to limit consumer choice and maintain artificially heightened barriers to entry.

227. Amazon has also pursued a set of anticompetitive tactics-discussed further in Section VI, below- to unlawfully deny its rivals access to both shoppers and sellers, artificially stunting their growth by starving them of the feedback loops across the relevant markets that would benefit shoppers and sellers alike.

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