Can a business become too successful? Can it serve its customers too well? It can, if you are a government economist or bureaucrat — or a less efficient rival with political connections.
There are increasing calls for large technology firms such as Amazon, Google and Facebook to be brought to heel by the government, and even to be forcibly broken up to prevent any one unit from becoming too powerful. But, when markets are allowed to remain free, it is consumers that have the ultimate power, and traditional models of monopoly and competition tend to rely on economic fallacies, rather than focusing on what truly benefits consumers, which should be the ultimate standard.
The latest antitrust cries came when Amazon announced its $13.7 billion bid in June to purchase organic grocer Whole Foods. This, despite the fact that Whole Foods has just a 1.3 percent market share, compared to 7 percent for Kroger (parent of Ralphs) and about 14 percent for No. 1 Walmart, not to mention significant new competition from German-based Aldi and Lidl, which are both just breaking into the U.S. market.
A lot of the fear comes from Amazon’s ability to disrupt other industries, from online book-selling to cloud computing, but the idea that it is destroying vast swaths of brick-and-mortar retail business is overstated, to say the least. Amazon has doubtless had a significant effect on retail sales, and now accounts for 43 percent of all online retail sales in the U.S., though even this statistic is misleading, as half of those sales comes from third-party sellers using Amazon’s platform, and online sales still only make up a little more than 8 percent of all retail sales. In fact, Moody’s Investors Service recently concluded, Amazon is actually the weakest of the main U.S. firms, based on operating results.
“Borders, JCPenney, Macy’s — these brands failed, or are failing, not really because of Amazon, but because they never really responded well to the changes in consumer habits and expectations that the internet represents,” Bloomberg and Businessweek technology reporter Brad Stone explained to USAToday in June.
Nevertheless, Rep. David Cicilline of Rhode Island, the top Democrat on the House antitrust subcommittee, called for a congressional hearing on the deal. Marc Perrone, president of the United Food and Commercial Workers International Union, claimed the deal would threaten jobs, and wrote in a complaint to the Federal Trade Commission, “Regardless of…