No justification exists for breaking up Amazon and Big Tech

Whatever Elizabeth Warren’s goals are, she won’t achieve them with antitrust laws.

It is the season for trial balloons. They seem to be a required part of campaign rhetoric. As presidential hopefuls jockey for position and recognition, they float ideas to see if they resonate with voters and donors. Sen. Elizabeth Warren, D-Mass., for example, is proposing to use antitrust laws to break up our large tech companies.

“Tech” is not defined very well in her proposal, which is focused on size as measured by revenue. Different fates await firms with annual revenue of $25 billion or more and those with yearly revenue in excess of $90 billion.

The largest firms would have to “structurally separate” their products from the marketplace — meaning the Internet. This seems specifically aimed at Amazon and its success in retail markets, including, most recently, food shopping. The lesser tech giants would be subjected to more regulation but would not be forcibly broken up.

How deeply this will resonate with voters is not clear at this point. And, in truth, while most people respond negatively to descriptive terms like “giant,” “abusive,” “monopoly” and “freeloading billionaires,” how much animosity the public actually has toward these companies isn’t known.

The underlying legal reason for the breakup of these companies is not size as such but market influence. The economic model of competition requires that each market participant not be large enough to control supply and price. There are other aspects of unfair competition and restraint of trade under the law, but this is the core of the argument if a company breakup is sought.

One of the problems with using the existing antitrust laws to break up Amazon —- a target named in the proposal — is that its operations do not appear to be aimed at restraint of trade or controlling price. There could be information about this that might be discovered but barring that sort of revelation it seems like an unlikely path to take to justify a breakup.

Amazon’s growth and success was built by taking on the entrenched competition with a combination of “doing it differently” and “doing it better.” These markets were already saturated with competition and subsequently low profit margins. The company’s recent moves into the retail food market indicate that the basic shape of the company’s growth model has not changed.

In its beginning, Amazon took on the retail book market which at the time was dominated by a small number of retail chains and large number of independent bookstores. Other than remainder tables, there weren’t many discounts available.

Amazon had no consumer habits to build on. Potential customers generally had to know what book they wanted before they even visited the website. Browsing was a clumsy process at first and did not compare with holding a book and looking through it. A purchase provided “instant gratification,” which was thought to be very important to consumer satisfaction. Amazon’s readers had to wait for their book to be delivered.

What Amazon provided was a lower price, larger inventory, and the ability of the customer to order a book and have it delivered to their home — avoiding a trip to the mall or retail store.

Eventually, with improved warehouse technology and shipping logistics innovations, the company shortened the time gap between purchase and delivery, which is now remarkably short.

The advantage that Amazon held was not monopoly power but simple economics. If you cut out the costs of staffing and of the bricks-and-mortar store overhead, you could deliver a lower price to the consumer. It’s called competition. It turned out that due to several factors, a significant number of book-reading consumers grew to like both the convenience of online shopping and, of course, the lower prices.

There is a problem, too, with the other objective of Warren’s proposal: bringing the wealthy tech barons to heel. She has said, “I am sick of freeloading billionaires.”

Antitrust is not the way to achieve that objective. In fact, even in the unlikely outcome of forcing a breakup, this will not necessarily reduce the freeloading billionaires’ wealth. The smaller parts of these companies will be sold, after all, and their wealth is in the stock.

If the public believes that tech billionaires are not paying enough taxes then Congress should take responsibility and change the Internal Revenue Code. Of course, it is exactly that responsibility dimension that makes it difficult.

Trial balloons often deflate, and it is possible that more consideration will be given to what we really hope to achieve by attacking the tech industry. Whether it is personal privacy, consumer protection, or simply the desire to regain the control of our pre-tech lives, antitrust laws are not the route to take us there. More thought; less rhetoric.

Talk to us

More in Herald Business Journal

The Boeing factory at Paine Field in Everett. (Boeing Co.)
Could Everett become Boeing’s next jetliner headquarters?

The company is considering selling the Commercial Airplanes division offices at Longacres in Renton.

FILE - An American Airlines Boeing 737-823 lands at Miami International Airport, Monday, July 27, 2020, in Miami.American Airlines said Tuesday, Aug. 25 that it will furlough or lay off 19,000 employees in October as it struggles with a sharp downturn in travel because of the pandemic. Flight attendants will bear the heaviest cuts, with 8,100 losing their jobs.  (AP Photo/Wilfredo Lee, File)
American plans flights with Boeing 737 Max by year-end

Customers can see on American’s website the type of plane for any flight if they know where to click.

Patrick Ky, executive director of the European Aviation Safety Agency, in Amsterdam on Nov. 27, 2018. MUST CREDIT: Bloomberg photo by Yuriko Nakao.
Boeing Max judged safe to fly by Europe’s aviation regulator

A synthetic sensor to aid pilots when the mechanical angle-of-attack sensors fail is still two years out.

Cop turned pinup model in Gold Bar charged with $67K fraud

Brenda Cavoretto was injured when a dead body fell on her in 2012. She’s accused of overselling its lasting impact.

Washington unemployment rate drops to 7.8%

Most job growth occurred in leisure and hospitality, construction and other services.

Premera Blue Cross will eliminate hundreds of jobs as it seeks to cut costs sparked by the current economic downturn. (Submitted photo)
Mountlake Terrace-based health insurer Premera cuts 285 jobs

The layoff at Premera Blue Cross, prompted by the economic downturn, represents about 8.3% of its workforce.

FILE - In this Feb. 8, 2018, file photo, the logo for Twitter is displayed above a trading post on the floor of the New York Stock Exchange.  Twitter is imposing new rules, Friday, Oct. 9, 2020,  ahead of the U.S. presidential election, prohibiting people,  including candidates, from claiming an election win before it is called by either state election officials or two authoritative, national news outlets. (AP Photo/Richard Drew, File)
Twitter to pay $100,000 over Washington campaign violations

The company failed to maintain records related to ads that ran from 2012 through 2019.

FILE  - In this Sept. 30, 2020, file photo, a Boeing 737 MAX jet, piloted by Federal Aviation Administration (FAA) chief Steve Dickson, prepares to land at Boeing Field following a test flight in Seattle. Boeing says the pandemic will reduce demand for new planes for the next decade, long after experts expect a vaccine for COVID-19. The company updated its forecast of the airplane market on Tuesday, Oct. 6, 2020. It remains upbeat about long-term prospects driven by increasing air travel in Asia. Boeing, which along with Europe’s Airbus dominates the aircraft-building industry, has seen orders and deliveries of new planes crumble this year. (AP Photo/Elaine Thompson, File)
Boeing’s struggles continue: No jetliner sales in September

The company has suffered 448 cancellations for the Max and dropped another 602 orders from its backlog.

Valdis Dombrovskis, Vice-President of the EU Commission, speaks at a press conference in Berlin, Germany, following the informal talks of the EU Trade Ministers on Monday, Sept. 21, 2020.  (Bernd von Jutrczenka/Pool via AP)
Rule: EU can impose $4 billion in tariffs over Boeing support

Tax breaks for Boeing from Washington state were deemed to have unfairly harmed certain Airbus jets.

Kellie Shanahan loads Jacob McGovern's vehicle with his class tool bag at Meadowdale High School in Lynnwood on October 1, 2020.  (Kevin Clark / The Herald)
How do you teach auto shop remotely? Edmonds class finds out

For some local high school students, auto shop is the thing that keeps them from dropping out.

Newly certified teacher Shana Brown assists a student with a Zoom meeting, while overseeing a class of seven students, in the former warehouse space at Malicious Women Candles on Tuesday, Sept. 15, 2020 in Snohomish, Washington. (Andy Bronson / The Herald)
For some Snohomish County kids, a warehouse is a schoolhouse

Employers made space for students to attend virtual classes on-site. But at least one learning pod had to shut down.

FILE - In this  July 8, 2009, file photo, a worker dries a car at Seattle's famous Elephant car wash, near the Space Needle in Seattle. Seattle's iconic pink elephant sign soon will have a new home. The Seattle Times reports the Elephant Car Wash on Battery Street near Denny Way will close permanently, the company announced in a news release Thursday, Oct. 8, 2020. (AP Photo/Ted S. Warren, File)
Seattle’s Elephant Car Wash to shutter, pink sign to be saved

Rumors have swirled surrounding a demolition permit for the site was filed Oct. 7.