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The Myopia of Antitrust

Here’s a letter to the Washington Post:


Beneath the verbiage and fine phrases of California’s antitrust complaint against Amazon lies this fact: The State of California is punishing Amazon for its unusual success at serving customers (“California sues Amazon, accusing it of anticompetitive behavior,” Sept. 15).

Key among California’s specific complaints is that third-party merchants find offering their wares for sale on Amazon’s platform to be so very attractive that these merchants would do far less business if they chose not to use Amazon. Indeed, this attractiveness of doing business with Amazon is so great that third-party merchants are willing to effectively agree not to sell their wares on other platforms (such as those of Target and Walmart) at prices lower than they charge on Amazon’s platform. These merchants would not agree to this contractual provision with Amazon if the differential value to them of selling on Amazon’s platform weren’t enormous.

Furthermore, the fact that neither Target nor Walmart (or any other company) has yet managed to offer a platform as attractive as Amazon’s testifies to the reality that succcessfully creating and maintaining such a platform is especially difficult. The revenue that Amazon earns through the challenged contractual terms, therefore, is Amazon’s just reward for supplying a valuable service that even retailers as large and as experienced as Target and Walmart have yet figured out how to supply.

Now that Amazon’s singularly successful platform is in place, California’s antitrust action might well reduce the prices of consumer goods in the short run. But by preventing Amazon from reaping the reward for its entrepreneurial success, this antitrust action will discourage not only it, but all other companies, from exerting effort in the future to experiment with creative means of improving their ability to serve consumers.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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