Examining Amazon's Business Model

Apr 1, 2018
Originally published on April 3, 2018 1:16 pm
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President Trump has been tweeting about Amazon this weekend. He wrote, quote, "It is reported that the U.S. post office will lose $1.50 on average for each package it delivers for Amazon. That amounts to billions of dollars." Trump did not cite specific reports. Amazon's stock value tumbled last week amid reports that the president is, quote, "obsessed with regulating the giant." Lina Khan is director of legal policy at the Open Markets Institute, and she joins me now to talk about how antitrust law handles Amazon. Lina, thank you for being with us.

LINA KHAN: Good to be here.

COLEMAN: Let me first say, Amazon is among NPR's corporate sponsors. Is there any truth to the claims that the post office loses $1.50 on each package?

KHAN: So the post office is losing money through doing business with Amazon. There was a recent report by Citigroup that estimated that - right now, basically, the post office charges Amazon around $2.00 per package, and Citigroup estimated that a more accurate cost estimate would be something like 41 percent greater. I think the fact that, you know, Amazon is able to do business at very favorable terms to Amazon and to terms that the post office is losing money on, there is truth to that.

COLEMAN: Lina, Amazon has a big footprint in some pretty unlikely areas of the market, and here's a few of them - Amazon Web Services controls a little more than a third of all cloud-computing capacity, according to The Nation magazine. It's got Oscar-winning movies such as "Manchester By The Sea". It just picked up Whole Foods Markets. Is what Amazon doing with all this work legal?

KHAN: So under the current interpretation of antitrust laws, Amazon seems to be getting a free pass. So I should say that antitrust laws in, their current state, don't prohibit conglomeration. They don't prohibit a single company from being involved in all these different lines of business. But what they are supposed to prevent is a company that enjoys a dominant footprint in one area of the market, using that footprint to leverage its way into other markets, and so I think that's the area where Amazon potentially should be facing scrutiny.

COLEMAN: So, Lina, if antitrust laws were enforced, how would Amazon have to change? What would have to be broken up or altered?

KHAN: Yeah, that's a great question. So I think there are a couple of ways you could do it, but I think one of the main issues with Amazon right now is that there is a huge conflict of interest baked into its business model, and this is because Amazon is a infrastructure service for all of these other companies. But it's also competing directly with many of the companies that are using its platform. So you see this, you know, in sector after sector where you have all these independent producers that are reliant on Amazon's platform to reach consumers, but oftentimes they find that Amazon has actually introduced a replica good oftentimes through, you know, spotting what's doing well on its platform. And I think that is a really - a parasitic dynamic that we're now seeing where you have these independent producers that are undertaking the initial risk of bringing a good to market, but it's ultimately Amazon that's able to reap off of that risk.

COLEMAN: Lina Kahn is director of legal policy at the Open Markets Institute. Lina, thank you very much.

KHAN: Thanks for having me. Transcript provided by NPR, Copyright NPR.