I suppose you could try to make some argument that it cost Amazon more than $3.50 a ebook over and above the cost of the product itself, but the author makes no effort to do so. And Amazon clearly has not been selling its products below cost generally, though in a business of its size, of course its likely that there are some exceptions. Consider, if Amazon really was selling books and other products below its cost, losing money on each transaction, where would the money come from to invest in all the new businesses like AWS, production of films and TV shows, etc, that the article's author thinks are such a problem?

So here's a proposal for a "better" idea for antitrust law based on an article demonstrating lack of understanding of the first thing about business.

From Judge Cote's Opinion & Order, U.S. v. Apple, Inc., et al.

https://www.justice.gov/atr/case-document/opinion-order

One of the strategies that they [the publishers] employed was the elimination of the existing discount on wholesale prices of e-books. This meant that the wholesale price for e-books would equal the wholesale price for physical books, and as a result, the wholesale price that Amazon paid for an e-book would be set at several dollars above Amazon’s $9.99 price point. This tactic, however, failed to convince Amazon to change its pricing policies and it continued to sell many NYT Bestsellers as loss leaders at $9.99.

I never understand it when I hear such and such company has billions of dollars of cash just sitting around. If they spent that money wouldn't that help themselves and the economy?

Truly I am no economist.

Edit: I kept reading and I have to stop. I have too many counter arguments to each paragraph and I know I'm missing some larger picture they want to paint because of it. Without a significant investment of time which they've obviously devoted. I feel like they just really want to have an anti-trust lawsuit and are trying to fit the argument to available companies.

"Profit" is a technical term with a specific meaning; in this context it's the money left over after paying wages, rents, interest, and investing in the business. So there's not much of the argument to understand; they get a lot of money, then they spend it, so there's nothing left to return to the investors which means by definition there's no profit.

> I never understand it when I hear such and such company has billions of dollars of cash just sitting around. If they spent that money wouldn't that help themselves

History is littered with examples of successful companies who spent large sums of money and got nothing in return. If Apple had a clue how to spend $100 billion usefully they would, but they don't. Their existing business are mature; they're selling all the phones they're making. They could build a bunch of factories and triple production, but to what end? They could start a chain of pizzerias, but why would that be a good idea?

Investments aren't fully deducted from profits in the current period. So if you're measuring profit over any finite period, investments during that period may not have been fully reflected in reduced profits. For example, if a business buys a printer this year for $500, the business's profits will not be $500 lower than if they had not bought the printer. They would likely by $166 lower (assuming 3-year straight line depreciation).

they get a lot of money, then they spend it, so there's nothing left to return to the investors which means by definition there's no profit.

You're confusing cash flow with profit. When you return money to investors, you return cash, either in the form of dividends, or in the form of share buy-backs. You don't need profits in order to return cash (e.g. you could borrow money secured on your factory, and then pay that money straight to shareholders) and having profits doesn't mean you have cash (e.g. you might have just spent a load of money on new machinery, which would reduce your cash flow without as large a reduction in current year's profits).

Only if they consider it as an asset, in which the $500 moves from the 'liquid assets' column to the 'fixed assets' column and is then depreciated away over time at $166 per year.

The other method of accounting is to immediately deduct that $500 from assets as a cost in the year of acquisition. There's then no need of depreciation or spreading over several accounting years. Any residual value gained by resale at the end of the printer's life can then re-enter the accounts by means of 'other income'.

Companies do have discretion about their own accounting policies, e.g. about whether to expense printers in the year of purchase, or over how many years to depreciate them.

Regarding your tax point, your country probably has rules about what can/cannot be deducted from profits. Complying with those rules may require a different calculation of profit. So your company's 'profit' may differ between your accounts and the accounts you use to calculate your corporation tax.

I was responding to the parent's implication that you can somehow, at a whim decide, "oh, that thing I just bought is worthless so I can deduct 100% of its cost immediately and report lower taxable profits". No, the tax laws stipulate in which cases you can do that, and you generally don't have discretion, except perhaps by taking on some other downside.

As for all these comments, sure there are companies that squandered vast sums in misguided attempts to invest in their business. And there are companies that admitted they had no idea how to invest in their business and sat on the cash. Neither of those examples are of any use in determining whether Amazon is investing wisely or foolishly.

Some analysts think that Amazon doesn't actually make money, others think they invest but invest poorly, others think they are brilliant geniuses who invest perfectly. Most of whom are at least a little bit wrong. Which goes to show that even the "experts" don't really know.

You share a feature with the author in that neither of you are economists! ;-)

I skimmed the writing to create a skeleton of the argument. The claims and solutions are wild.

No, AMZN doesn't have a "free pass to grow without any pressure to show profits." This is evidenced by investor reactions to their Q4 earnings call. Her solution is a solution in search of a problem:

  More specifically, restoring traditional antitrust principles to create a 
  presumption of predation and to ban vertical integration by dominant platforms
  could help maintain competition in these markets. If, instead, we accept 
  dominant online platforms as natural monopolies or oligopolies, then applying 
  elements of a public utility regime or essential facilities obligations would 
  maintain the benefits of scale while limiting the ability of dominant 
  platforms to abuse the power that comes with it.

http://www.catb.org/jargon/html/email-style.html

Is there a word to describe the situation when a thing gets called in a new way, because the new dominant generation is too young to remember how that thing came to be?

It's more specific than that. The argument is that investors in Amazon don't profit, because practically all of the money Amazon makes gets used either to pay employees and meet operating costs or to invest in growing the business. So what's left over for shareholders is almost nothing--yet people are falling all over themselves to become shareholders. That is the odd situation that the paper is trying to understand.

I've been having an impression that almost nobody buys shares for dividents - that almost everyone plays on first derivative, i.e. buying stocks low and selling them high.

I don't think that's a correct impression. Lots of people live off the income from the investments in their retirement accounts. If those accounts are holding stocks, the income is dividends.

> That's because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don't even buy anything from Amazon.

Just about everything I purchase these days is cheaper at a local store. Ritter Sport chocolate bars are cheaper, bike tubes and tires, pots and pans... I can't think of a single thing that I have price-checked recently that has been even slightly cheaper on Amazon.

They're not putting anyone out of business through predatory pricing.

They are incredibly competent though. I ordered an iPad from Target, and it was like ordering from LL Bean in 1987. I think FedEx Ground dispatched it by horse, it took 11 days to travel from St Louis to NYS.

Source: I work for an online retailer.

In my particular case it was FedEx/Smartpost. In my area, the USPS leg has been very reliable, 100% next day delivery from drop off at their Springfield, MA center to my door in Albany NY.

The FedEx Ground leg took forever, my little box made like 4 stops in Ohio and PA before hitting the post office in MA.

UPS typically does that in 2-3 days, USPS typically 3.

They even delivered on sundays this year, which is pretty much unheard of in Austria.

The author has revised his thesis (Q4 2015) [0], though he remains bearish on AMZN longterm.

[0] http://www.vox.com/2015/12/9/9873174/amazon-never-profitable

Amazon has not, historically, been a profitable company because Amazon's leaders don't want it to be a profitable company. In the future it will continue to not be profitable for the exact same reason. In the past, Amazon has managed to turn a profit when it's forced to by skepticism from Wall Street, which suggests that non-profitability is a choice.

Indeed, it's a choice that CEO Jeff Bezos has explained to the public in response to a joke I once made about the company's unprofitability:

and

Fundamentally, Amazon will only start booking large consistent profits when the company's leaders run out of new ideas to invest in. Right now they are not out of ideas, as you can easily tell from the wide range of businesses they are halfway into.

His thesis that AMZN's an investor funded charity has been blown up via the gains accrued by investors. Despite being wrong, I admire his analysis as insightful and true to value investing principles.

In the '15 article, he changed his thesis to account for AWS' unexpected rise and earnings contributions and said his thesis fails if AMZN doesn't run out of profitable investment ops. I submit that's the key change. Despite being overall bearish, that's walking it back quite a bit.

FWIW, since 12/9/15 (Vox), AMZN's up 26%.

- He wrote Slate's economics column, "MoneyBox," for a number of years.

- He wrote a book about the economics of the housing market.

- He co-founded Vox.com, which -- presumably -- reinvests its profits to grow the business.

I'll add that his writing was good enough to trigger a response from Bezos in a letter to shareholders.

Just because Amazon has ideas about how to reinvest doesn't mean they're only breaking even on their sales or selling at a loss. Starting new businesses every year costs money. Amazon might not have balance sheet profits but the company continues to grow. How could they do that if they were making a loss on everything? They aren't issuing anywhere NEAR enough shares to keep the loss-leader scheme going on investor money: https://ycharts.com/companies/AMZN/shares_outstanding

"Amazon.com Inc. said late today that its fourth-quarter global shipping costs soared to $5.6 billion, as the Seattle-based e-tailing giant grappled with increases in fulfillment demand brought on by another peak-season quarter of double-digit sales growth.

At the same time, fourth-quarter global shipping revenue came in at slightly more than $3 billion, continuing Seattle-based Amazon's multi-year pattern of shipping costs exceeding revenue. For the year, Amazon spent about $16 billion on shipping services and took in about $9 billion in revenue."

At least Amazon is collecting some revenue for shipping. I pay zero shipping costs to Costco, or Walmart, or Target, most Newegg items, gas stations, or grocery stores. Because it has become customary to package shipping costs into unit prices.

I know people who buy everything, like toilet paper, from Amazon. I think they are crazy, because Amazon prices are generally at least double or triple for similar items from Costco. They like paying for the convenience. To each their own.

Additionally, the fact that you don't realize that you're paying for shipping with other vendors, because it's not listed on the bill, does not mean that they aren't recognizing revenue from shipping.

In your scenario, smart companies say "how can we improve shipping to get that dollar back".

No, you have misunderstood the figures. Amazon profits by increasing volume.

Companies do it this way to determine what parts of the business are doing well, and what parts need improvement. They might choose to improve profitability in shipping by making shipping cheaper in some way, or by changing the wrap they use from individual sales (thus reducing expected profit margins).

So yes, they lose money shipping. And yes, they make money selling things which are shipped.

Companies don't "do it this way". Yes, they track costs, but they don't call themselves unprofitable when costs are negative. That's expected.

> They're still net positive on selling shipped goods

Yes. That's what people are telling you.

There's no public utility type monopoly with Amazon, compared to Comcast and AT&T, who have wires and poles. It wasn't done by selling at a heavy loss, like Uber. Amazon runs close to break-even, while building and operating expensive physical assets.

The author is arguing that the old pre-Chicago School antitrust theory should be revived to protect Amazon's suppliers. Yet WalMart is much more heavy-handed in that area. They continually squeeze suppliers to cut their prices. Amazon squeezed booksellers hard to get them to provide e-books, but outside of that, Amazon is usually content to let their suppliers set prices and let them compete with each other. Amazon doesn't have a shelf space constraint in the way that WalMart does.

There's a need for stronger antitrust enforcement in communications services and pharmaceuticals. They have real monopoly power. But Amazon? Probably not.

Even with the book case (h/t phonon's link above), AMZN was still making money in the aggregate in its e-book business, despite the loss-leader bestsellers being sold at $9.99 and below their wholesale price. That's starkly different than firms (e.g. industrial) over-producing, under-pricing, and losing money (in aggregate) to gain market-share.

https://mises.org/library/anti-trust-anti-truth

Not to mention that price isn't the only reason why monopolies are bad. I had a period of about 3 months where Amazon just couldn't deliver to my house. They switched to using their own carriers, and they would just never be able to find my place. I actually had a hard time finding another retailer that would ship to my house for less than double the total price of some of the things I was buying.

Plus the (very real) threat that they can just remove an item from their store for any reason (the one that comes to mind is that Amazon doesn't allow anyone to sell chromecasts' on their store. Rokus, Fire Sticks, and various other streaming "devices" are fine, but chromecast is banned completely) means they also have a monumental amount of power to hurt anyone selling through them at a moment's notice.

I'm not in a position to say whether or not Amazon is a monopoly, and I wouldn't even know the first thing about solving the problem, but IMO the fact that they haven't raised prices isn't exactly proof that they aren't a monopoly.

It's pretty sketchy.

[0]: https://www.bloomberg.com/news/articles/2013-10-10/jeff-bezo...

And Amazon can also ban you forever from their service, for example if you return too many things in a short period.

Imagine if that meant you couldn't buy anything at all because there aren't any competitors.

The store I work for once lost selling privileges for spurious copyright claims regarding books we had bought directly from large established publishers. Even with the publishers themselves (and sometimes the authors, too) writing on our behalf to state that there were no violations, it still took about two weeks to regain privileges. During a busy season, two weeks is a long time to be without profits for a small retailer.

First let's start with something that your article got right.

Virtually every monopoly is worth more in pieces than it is together. That is because maintaining the monopoly requires having profitable parts of the business subsidize other parts which are running at at unprofitable prices to shut down potential competition. The result is the sum of the pieces of monopolies that were divided by law were worth more than the original monopoly was. And THAT means that a divided monopoly almost immediately COSTS consumers more.

So, as your article concludes, saving consumers money in the short run is not a reason to shut down monopolies.

This immediately raises the question of why monopolies come around. If a monopoly is worth less than separate companies, why make one? The answer is that a monopoly is worth less than the entire area of business that it would monopolize, but it is worth more than any individual piece of that business. Therefore creating a monopoly is personally profitable to the one who does.

OK, with that out of the way, why should we object to monopolies? The answer is simple. Monopolies are about establishing control. In the area that is controlled, the monopoly can make any unilateral decision that it wants. This is really, really bad for innovation. Innovation requires many different players trying many different things.

With innovation, in time it is quite possible for consumers to get both better features and more competitive pricing than the monopoly would have managed. Getting rid of the monopoly is essentially always bad for consumers in the short run. But the long run could be a different story?

As a concrete example, one contributor to the dot com boom was that the web offered a way to create businesses that Microsoft's monopoly could not squish.

As another example, before the breakup of Bell Telephone, customers couldn't even choose what color they wanted for their phone! If they had not been broken up then it is unlikely that we'd have seen the rapid spread and improvement in things like smartphones.

The long and short of it is that we should expect (relatively) cheap prices from a monopoly. And saving money is not reason to break one up. Our areas of concern should be continued innovation and availability of customer features.

Prices rapidly declined after the Bell breakup. And the Standard Oil monopoly had a clear negative impact on all manner of prices thanks to the manipulation of rail freight.

Bell used high prices on long distance to subsidize low prices for service. Their reasoning is that if Mr Rich Businessman wanted to pay top dollar to call grandma, they wanted grandma to be hooked up.

After Bell split, in the short run long distance prices remained fairly high, and local carriers increased prices 10-fold. The inevitable war in long distance prices that you're thinking of didn't really get going until the 1990s.

As for Standard Oil, http://www.economist.com/node/347251 claims that it was worth far more in pieces than together. the best figures that I can find are these. At the end of the year when it was split, the pieces were worth about $600 million. Over the next decade they wound up paying out $900 million in dividends and still wound up at a combined value of $2.9 billion. (See https://www.fool.com/investing/general/2013/05/15/the-day-bi... for a source.)

No one denies that monopolies are risky. In fact this is the argument against anti-trust regulations, which is basically a monopoly granted to very few people (which in practice, means a guranteed monopoly to a colluding subgroup of political class). There are probably more cases of harm done by this monopoly than by corporations monopolies.

Also one major difference, Corporations have to earn their monopolies where the political class dont. Only one of these two will not think twice before abusing it.

We already have a protection agaisnt monopolies aka free market.

The best example is anything that requires a wire run to every home. The issue is high fixed costs whether or not someone becomes a customer, with low operational costs after. Therefore if a second company runs wires through the same neighborhood, between them you have large sunk costs which a competitive price that does not let you recoup the costs of infrastructure.

Taking numbers from http://journals.uic.edu/ojs/index.php/fm/article/view/1072/9..., the cost of running a wire by a home in the early 2000s was roughly $750, and the fixed cost of connecting it is about $750 again. The cost to operate that line is under $15/month. Those costs are surprisingly close to constant across a wide variety of kinds of cities. (Dense cities require less distance, have more regulation, and more other things running through the space that you have to worry about not breaking.)

To give a historical example, Bell Telephone ran wires everywhere. They operated under various anti-trust regulations for a long time. They were barred from cable TV and so another set of wires got run. Then Bell was broken up by force, with interoperation rules to prevent monopoly again. Today, with the internet, we have seen a convergence of these two sets of wires. So most of us live in places where we have one or two choices for getting internet over a wire. One possibly from a former cable company like Cox. One possibly from a former telephone company like Verizon. Very few of us have a third option. Without government involvement it is unlikely that 2 options will remain indefinitely viable for most of us.

Many products are now only available to Prime users, or are more expensive if you search it via Amazon than if you get it linked by someone else.

In any case: if you really want Amazon to shut down, the cost is the current market capitalization, plus a healthy surcharge to convince enough shareholders to sell. In practical terms, there may be large shareholders looking unfavourable on your plans such as Bezos.

There are successful publically traded companies that do Not care anymore. Seagate comes to mind. I remember a Pronouncement from the CEO a few years ago, in which He said that our customers use our product to store Porn. In other words, please don't invest in our Company anymore.

Their customer service has certainly gone down the drain, and their whole website is littered with cheap garbage from Alibaba.

To me, it looks like they pulled the typical bait-and-switch we see every day with mobile apps: Offer something great for free. Then, once you've cornered the market, start squeezing every penny out of your users and cutting corners everywhere.

You can shop sold-by-Amazon.com only if you only want highly reputatable stuff

"For Faster Shipping, Items Are Commingled at Warehouses, Opening the Door to Knockoffs" (https://www.wsj.com/articles/on-amazon-pooled-merchandise-op...).

Basically if a third party seller says it's a "Genuine Apple iPhone Charger" (whether it is or not) and the packaging looks real enough, it gets thrown in with all the other sellers (including Amazon) who have genuine chargers.

Thus "sold by Amazon.com" means just what it says - "sold" by. Not "sourced" by...

I'm also waiting to see if I get banned for "abusing" their return policy which legitimate customers have reported happening.

Trendy brands of clothes or accessories don't even bother. Supposedly real brand name ICs and small electrical components, completely hopeless.

Throw in the fact that they don't notify you when your shipping times changes and it almost always seems to push out a day or two as soon as you purchase it and I've practically quit shopping on Amazon unless I can't find it anywhere else or I don't care about the quality that I'm getting.