Protecting small-business owners from corporate monopolies is an issue worth championing, but it’s not exactly black and white when it comes to the tech behemoth Amazon.com and its line of AmazonBasics products.
Antitrust legislation will not be a panacea for small-business owners in this case; in fact, it might hurt them.
AmazonBasics is widely known as a private-label, store-brand product line encompassing everything from bedding to bakeware on Amazon’s e-commerce platform. Amazon is one of several large online companies that have been expanding their private labels in recent years, to the dismay of independent sellers.
This practice of private-label expansion forces small-business owners to directly compete with corporate giants, while allowing the largest online companies in the world to self-prefer their own products. Massive platforms can give their private-label products better webpage positions and use their built-in data to gain unfair advantages over smaller sellers. However, this practice could end up being worse — much worse, in fact, if legislators don’t pay attention.
Congress has proposed two antitrust bills: the American Choice and Innovation Online Act and the Ending Platform Monopolies Act. Before the midterms ended in November 2022, the White House and small-business groups were pushing for a vote on the first bill. During a later Senate Judiciary Committee hearing, Attorney General Merrick Garland discussed the Department of Justice’s continued support for it.
The ongoing debate further intensified with the Federal Trade Commission officially suing Amazon in September 2023, “alleging that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.” A U.S. judge has set an October 2026 trial for the case.
What do Amazon and other tech platforms have to say about the proposed bills?
Amazon argues that the American Choice and Innovation Online Act could, for various reasons, jeopardize its vast selection of products and adversely affect its Prime delivery service. Regarding the Ending Platform Monopolies Act, companies like Amazon argue that the legislative language is so broad it could outlaw integral services that will hurt both the platform and the consumer. For example, Amazon might not be able to let certain global businesses sell on its marketplace, and Google might not be able to feature Google Maps in online search results.
Meanwhile, amid this growing pressure from policymakers and weak sales performance, Amazon has started to scale down its private-label business.
This is cause for concern. Why? Because the majority of discussions about private-label practices and antitrust legislation have overlooked the single most important issue: the pricing contract. There are currently two prevalent ones between Amazon and sellers. This is where the topic gets interesting.
In the first contract, sellers can sell directly to consumers and set their own retail prices, and Amazon receives a portion of the commission fees from the sellers’ revenues. In the second contract, sellers need to have a wholesale contract with Amazon and sell products to the platform in bulk, and Amazon sets the retail price to sell the products to consumers.
Antitrust regulations that attempt to ban small businesses from selling directly to buyers and setting their own retail prices may force Amazon to move in a frightening direction. If this happens and lines like AmazonBasics are eliminated, Amazon could make up for its lost revenue and increase its profit by introducing global brands as competitors instead. Imagine you are a small-business owner that is selling athletic shoes on Amazon and, rather than competing directly with AmazonBasics, you now need to compete with Nike or Adidas. That’s a major game-changer, and not in a good way.
When backed into a corner, Amazon (being a profit-driven company) will look to maximize its revenue, and it won’t be doing small businesses any favors in the process. Amazon will seek to gain more bargaining power over companies like Nike. In the process, small business owners will lose visibility on the platform and global brands will gain it.
In other words, antitrust legislation needs to be more comprehensive in order to protect small business owners from this worst-case scenario.
Getting rid of private-label product lines like AmazonBasics isn’t the solution. The law needs more scrutiny before an independent shoemaker is suddenly paired up in a competitive commerce war with Nike. That’s a true David and Goliath story, and it’s a battle we really don’t want to fight.
Hsing Kenneth Cheng, Ph.D., is the chair of the Department of Information Systems and Operations Management at the University of Florida, where Jingchuan Pu, Ph.D., is an assistant professor of information systems. The two received the 2024 Antitrust Writing Award from the George Washington University and Concurrences.
