No one man should have all that power? Photo: Saul Loeb/AFP/Getty Images

With its ever-growing dominance of online retail, Amazon has long drawn accusations that it is a monopoly — or at least a monopoly in waiting. When the company acquired Whole Foods last year, that scrutiny only intensified. But maybe “monopoly” isn’t quite the right word for what Amazon is up to. Shaoul Sussman, a Fordham University law student, has a different perspective. In a paper for the Journal of Antitrust Enforcement and in a blog post on the ProMarket website, which have generated buzz in academic circles, he writes that Amazon may be throwing its weight around in a way that consumers might not immediately notice, but which will end up harming them nonetheless. Intelligencer spoke to him about his theory.

Amazon has been famously unprofitable for the vast majority of its history, yet it’s one of the most valuable companies in the world, and has managed to keep consumer prices low. You’ve written that to pull this off, the company may have been violating antitrust laws — but not in an obvious way. Can you explain your thesis?

I argue that for many years, Amazon was operating with a negative cash flow, which means that the firm was receiving less money than it was spending. But this business model, which shareholders and investors on Wall Street really love now, doesn’t fit within the way antitrust regulation or law conceives of firms.

Conservative antitrust theory has said that predatory pricing — underpricing goods so that other firms can’t compete — is irrational and unsustainable, because shareholders will punish firms that are unprofitable. But with the rise of big unprofitable companies like Amazon and Uber, this kind of market-disciplining effect no longer exists. Traditional orthodox antitrust theory does not map onto current corporate reality.

Also, when a firm operates with a negative cash flow, there is simply no way for us as outsiders to tell whether they’re spending money on fixed assets and R&D and legitimate investments in technology and innovation, or whether they’re using that money to subsidize products to consumers at below cost to corner the market. In other words, we just can’t tell what a firm is doing when it’s spending more than it’s making.

Given this reality, we need to reconsider the ways in which firms can recoup their losses. The traditional way of thinking suggests that it happens after the predatory activity is over, when a company corners the market and raises prices for consumers, creating a monopoly. But we see that companies can now sustain losses and grow and be successful for many years, which means that there might be also qualitative, and not only quantitative, changes in the costs of their services or products.

In your paper, you also argue that Amazon might be concealing information about its expenses that would help shed light on this strategy.

“Concealing” is kind of a nefarious word. But right now, there’s no regulation that forces companies to disclose their cost structures to regulators. So, absent meaningful regulation, they can engage in certain kinds of activities without us really knowing that it’s taking place. We can only assume that it might be happening, but we have no conclusive evidence.

And what are the possibly shady activities you theorize could be taking place?

There’s this idea in antitrust law called “monopsony.” While a monopoly is aimed at the consumer market — the people who buy the product downstream from the firm — monopsony refers to what happens upstream, where the firm is sitting in the middle between the consumers and the suppliers or manufacturers. A classic example would be health insurance, which sits between me and you and the hospitals. When a company leverages its power upwards unlawfully, it’s engaging in monopsonistic activities.

When Amazon lowered prices and offered unparalleled delivery services and fulfillment, it was absorbing costs on both sides of the equation. It was absorbing costs that consumers usually paid when they shopped at other websites, where you had to pay for your shipping and it would take five or seven days, not two or three. And it was also absorbing costs that vendors and suppliers usually pay when they interact with other companies similar to Amazon, like Walmart, or other e-commerce websites, like eBay.

So how does Amazon recoup its losses? In my paper, I argue there’s another option besides charging people more, and that is by charging the vendors and suppliers more for the same service it had been providing, squeezing the sellers and making a profit that way.

There has been a trend over the last few years, and it’s accelerating now, of shifting people that were vendors of Amazon — which means that they would sell their products directly to the company and it would then market and sell to us, the consumer — to the Amazon marketplace, which is a place where sellers and consumers meet on the platform. When Amazon makes that shift, it shifts the cost of fulfillment onto the sellers. Talking to Amazon merchants, they’re really starting to hurt. And they’re facing a whole other series of problems.

All the vendors and sellers that interact with Amazon have to sign a binding mandatory arbitration clause, which means that if they have any legal dispute with Amazon or even if they think that Amazon is violating trademark or copyright or tax laws, they have to arbitrate that issue with Amazon directly. This means that even if they’re suffering, their only meaningful way of vindicating their rights is in private, so we wouldn’t know the outcome, or even if arbitration was happening. Even more egregious is that Amazon also tells them to waive their ability to file a class arbitration, where a number of vendors and merchants would come together against Amazon.

Because of this, most merchants and sellers that are relatively small, which is the majority of companies that work with Amazon, simply can’t bring claims against the company, because the amount of money necessary to do so is totally prohibitive. You’d really have to think about whether you want to go into bankruptcy to win whatever claim you have against Amazon.

So then what is the best way to uncover this essential information about Amazon’s business model?

The first and easiest step is to force Amazon, and other companies that are bleeding cash and experiencing significant growth, to file mandatory disclosures with the Federal Trade Commission regarding their costs, and allowing them and other government departments to investigate where the money is going.

There’s also a state-law avenue — legislators in places like California or New York could pass laws that allow merchants and lenders to bring claims against companies like Amazon because they deem those rights unwaivable. So, they make it that even if you sign the contract, that contract provision is not enforceable because that’s a substantive right that you cannot waive.

And the third way, which is something that a lot of state prosecutors that I had contact with are contemplating, is to launch attorney-general investigations into these claims, and see what’s really going on. One reason I feel more optimistic about this path is that the merchants and sellers involved are sophisticated parties that have a lot experience with Amazon and they can really track the changes in its strategy. They also know what their own costs are for many of the services that they provide.

When we think of a monopoly, we tend to think of a company that eventually raises prices on consumers, as you said, and which is often hated as a result. Companies like Amazon and Uber are different — in large part because they’ve kept prices low, they’re widely popular. So from a purely selfish perspective, why should customers care about monopsony? What harm is being done to them?

This is a really important point, because harm to the consumer can occur in various ways. When we tell vendors and suppliers to bear the costs of shipping, we’re basically forcing them to operate with lower profit margins. Those lower profit margins in turn affect the quality of the products we purchase. If a vendor or seller doesn’t make a meaningful profit because it has to comply with Amazon’s rules, they’re going to cut corners in other places, and the quality of the product the consumers receive is lowered.

It’s very important to note that monopsonistic claims are recognized by the most conservative judges, including even Brett Kavanaugh in a D.C. Circuit Court decision from 2017, who recognized the harm to consumers. We have a lot of experience from the health-care market and other markets where companies that had this monopsonistic dominance really reduced the quality of products that consumers received.

We also now have indicators that these practices are affecting prices. If you have to sell on Amazon for the lowest price possible, but you also have to take into account all the costs that are associated with free shipping, it puts pressure on these vendors not to lower prices on other platforms they might be selling, because they know that they need to subsidize their activities on Amazon. So even in the narrowest scope, on prices, there might be an effect.

This interview has been edited for length and clarity.