The EU’s Antitrust Case Against Amazon Is Begging the Question

On Tuesday, the European Commission announced that it had finished its preliminary investigation of Amazon. It found that the company violated EU antitrust laws by using non-public business data from independent sellers to develop its own competing products (known in the retail industry as “private label goods”).

This is a curious line of argument for the Commission to pursue given the fact that developing and selling private label goods is standard practice for both online and offline retailers. Retailers have been offering their own store brands for literally a century. According to Credit Suisse, here is the share of revenue from private label goods at leading retailers:

And of course, retailers don’t blindly pick which product categories to compete in with private label goods. They use both public and nonpublic data to inform those business decisions. Aldi has partnered with Nielsen in a “multi-year relationship that includes integrated analytics data around shopper panel, custom retail analytics and advertising effectiveness.” And Kroger has partnered with Microsoft to “monetize the huge, rich stores of data amassed from its position as the nation’s largest supermarket company, with 2,800 stores, vast digital properties, millions of daily transactions, and broad technology and analytics capabilities.”

The European Commission alleges that Amazon has abused its dominant position in the market by using data from independent sellers to develop its own competing products. The Commission’s guidance on “abusive exclusionary conduct by dominant undertakings” is clear on what cutoff it uses to determine an absence of market power (emphasis added):

The Commission considers that low market shares are generally a good proxy for the absence of substantial market power. The Commission’s experience suggests that dominance is not likely if the undertaking’s market share is below 40% in the relevant market.

But it’s difficult to see how Amazon has a “dominant” position in the European market. According to data from Euromonitor International, Amazon’s ecommerce market share in Western Europe was only 22% in 2017. The statement of objections from the Commission narrows the focus to the French and German markets, which are Amazon’s largest markets in Europe. But even still, Amazon has only 27% of the German ecommerce market (and ecommerce is only 14% of total retail sales in Germany). And the company’s ecommerce market share in France is only 17.5% (and ecommerce is only 10% of total retail sales in France).

So how does the Commission get around this problem? By defining the market not as “ecommerce” or “retail” but as “marketplace service providers.” This excludes numerous avenues that small businesses have to reach consumers. They can set up their own online stores using Shopify and generate traffic using targeted ads on Instagram and Facebook. They can sell through Google Shopping (which is now free for merchants to use). Or they can partner with delivery services such as Instacart or Shipt to sell goods online from their physical locations. And of course, sellers can always open their own brick and mortar store.

By ignoring all of these competitive choices, the Commission is trying to define the market as “Amazon.” That may be helpful for winning the case in a European court, but it does a disservice to European consumers. As Sam Bowman pointed out, this is why Europe has no tech giants of its own. As soon as companies reach a large scale, regulators start to treat them like public utilities — a neutral pipe for others to use as they see fit. But that just ensures the next generation of platforms won't be built in Europe.