Shortly after Amazon announced its intention last week to buy Whole Foods for $13.7 billion, a question emerged: is this $466 billion market cap behemoth fast becoming a monopoly?
Amazon has largely avoided antitrust challenges in its history, even as it continues to get bigger through voracious M&A in multiple markets. (See the above video about its latest threats to clothing retailers.) But Chris Sagers, an antitrust law professor at Cleveland State University, has written that the company “is now the most interesting and important problem in American antitrust law.”
Depending on what big purchase Amazon makes next, it could at last find itself in the antitrust crosshairs.
To be clear, Amazon is not about to attract an antitrust challenge because of the Whole Foods acquisition, and the reason for that is Amazon didn’t previously have a large share (or any share, really) of the brick-and-mortar grocery market. And swallowing Whole Foods still doesn’t give it an unfair share, as Whole Foods is not a dominant player in the space. (Whole Foods had 1.2% of grocery market share in 2016, while Amazon had under 1%.)
This is the same reason Amazon hasn’t yet had any major legal challenge on the grounds of having an illegal monopoly: although it has its hands in an astonishing range of different businesses, it doesn’t own an unfair majority of any of them. All it has done is offer competitive pricing, and competitive pricing for consumers is the only metric that current antitrust law cares about. If a company is giving consumers good prices, it’s unlikely to bother antitrust regulators.
Current antitrust policy is good for Amazon
“You’ve got this big firm that has gotten big through pretty rapacious conduct,” Sagers tells Yahoo Finance. “But it’s easy for the courts and the federal antitrust enforcers to look at that and say, ‘What have they really done except give consumers a better deal?’”
That thinking may sound surprising, but antitrust policy wasn’t always this way. It has a tendency to shift according to the leanings of the current administration. While the Obama administration made an effort to block a number of major corporate mega-mergers, the Trump administration appears to be friendlier toward big M&A.
That makes sense: it’s conservative, free-market, pro-business thinking, and Trump has positioned himself as the businessman president. But Sagers also says that antitrust law has broadly shifted since the 1970s to become more pro-business, making it harder for plaintiffs to win antitrust cases. (On the other hand, some argue this is how antitrust law should stay, rather than, as George Mason University antitrust law professor Joshua Wright writes, “a return to the antitrust approach of the 1960s where everything ‘big’ was bad.”)
With its recent run of acquisitions, Sagers argues, “I think Amazon is posing the question of whether, even given the current state of antitrust law, something could be done.”
To make an antitrust case, the government cannot merely show a company has big market share—dominant market share itself is not illegal. What is illegal is to obtain a monopoly share through “exclusionary conduct.” That would mean acquiring market share “by doing anything other than selling a cheaper or better product,” Sagers explains. But when market shares get really large, it becomes a lot easier for the government to argue that there has been exclusionary conduct.
What could lead to antitrust action against Amazon
Typically a company has to take an action, like an acquisition, to trigger antitrust attention. While acquiring Whole Foods won’t warrant any investigation, there are certain targets that Amazon could go for that could—and they are targets that could very plausibly interest Amazon and its deal-hungry CEO Jeff Bezos. (Amazon declined to comment for this story.)
Jan Dawson, an analyst with Jackdaw Research, rattles off these examples: Target, Walmart, Barnes & Noble.
If Amazon were to make a play for Target or Walmart or any large, multi-channel retailer like them, it would raise red flags in the antitrust world because Amazon already has such a large share in multi-channel retail.
And if it bought Barnes & Noble, that would also almost surely bring regulators knocking at its door. “That’s a good example of one where, with their existing strong position as a book retailer, and then buying one of the last remaining brick-and-mortar bookstore chains in the US, that would be a problem,” Dawson says. Sagers points out that it would also carry bad optics.
On the other hand, Amazon could buy a chain like CVS with impunity, because it doesn’t already have a large position in pharmacy retail. (Dawson also points out that European regulators tend to be more strict, so if Amazon were to acquire a company in Europe that would give it unfair advantage there, that would cause trouble; and Amazon certainly has its eye on dominance outside the US as well.)
No doubt Bezos is aware of all of this. Amazon has made its acquisition choices carefully: Zappos in 2009 when it didn’t yet have any large position in shoes; Souq.com this year, the “Amazon of the Middle East” (a similar multi-channel e-commerce site in the US would have been an issue); and Whole Foods, a minority player (premium, rather than mass) in grocery, when Amazon’s own recent attempts at brick-and-mortar grocery have stalled.
And it’s important to note that e-commerce still represents less than 11.7% of all US retail, by sales. Walmart reaches far more shoppers than Amazon: NPD Group estimates 95% of all US consumers shopped at a Walmart last year, while less than half of US consumers shopped at Amazon.
But we also know Amazon has designs to keep getting bigger. It has only grown more acquisitive over the years, and it has pushed the boundaries again and again.
That leaves Sagers to declare, “My cautious prediction right now is that relatively soon, we will reach that point where Amazon is susceptible to antitrust action.”
Daniel Roberts is a writer at Yahoo Finance, covering technology and media.