Congress Begins To Ask If Amazon Is Getting Too Big, Antitrust Hearing Called

Tyler Durden's picture

Is Amazon getting too big?

While that question has yet to be formally asked by the US government, on Friday we got a hint that it may be next on the agenda after the top Democrat on the House antitrust subcommittee, David Civilline, voiced concerns about Amazon's $13.7 billion plan to buy Whole Foods Market and in a letter to the House Judiciary Committee, Reuters reports that the antitrust specialist has requested a hearing to look into the deal's potential impact on consumers. And, as MarketWatch adds, "fresh off its biggest Prime Day yet, the Whole Foods Market Inc. bid, and a slew of announcements including Amazon Wardrobe, Amazon.com Inc. was the subject of two investor calls Thursday that raised concerns that it is getting too big."

In what could be the start of a wider investigation into Amazon's impact on the market, Cicilline said in a a statement that "Amazon’s proposed purchase of Whole Foods could impact neighborhood grocery stores and hardworking consumers across America," adding that "Congress has a responsibility to fully scrutinize this merger before it goes ahead." The deal must be approved by U.S. antitrust enforcers, in this case most likely the Federal Trade Commission.  While Congress plays no formal role in that process, hearings are often used to highlight the possible impact of deals on consumers. Still, without Republican support, even a hearing is unlikely to happen.

To be sure, Amazon's dominance across increasingly more sectors - from online retail, to books, to cloud computing, and more recently, groceries and fashion - has not gone unnoticed. In January, EU antitrust regulators "cheered the end of audiobook exclusivity between Amazon and Apple", while last August, Amazon’s offices in Tokyo were searched by the Fair Trade Commission on suspicion that it was breaking antitrust laws. So far there have been no official charges against Amazon.

Meanwhile, on Wednesday Amazon said its latest Prime Day was its biggest day ever, with sales up 60% from the same 30-hour period the previous year and the company said it gained more new Prime members on July 11 than any other day in its history.

Incidentally, news of the potential antitrust hearing emerged earlier in the week, when Doug Kass of Seabreeze Partners said government intervention could be imminent.

In a Wednesday note to readers, Kass, who said he was shorting AMZN stock, said that “I am shorting Amazon today because I have learned that there are currently early discussions and due diligence being considered in the legislative chambers in Washington DC with regard to possible antitrust opposition to Amazon’s business practices, pricing strategy and expansion announcements already made (as well as being aimed at expansion strategies being considered in the future."

Kass repeated his argument in a Thursday comment, previewing the latest news of potential anti-trust intervention:

“My understanding is that certain Democrats in the Senate have instituted the very recent and preliminary investigation of Amazon’s possible adverse impact on competition"... “But, in the Trump administration we also have a foe against Jeff Bezos, who not only runs Amazon but happens to own an editorially unfriendly (to President Trump) newspaper, The Washington Post.”

Kass added that he thinks the government “discussions may have just begun and may never result in any serious effort to limit Amazon’s growth plans” however it was enough for him to write a series of columns about whether we’ve reached “peak Amazon,” and alleging in an earlier column that the Whole Foods deal puts “Amazon’s vast power… under the microscope.”

“Is Amazon a productive change agent and force for the good of the consumer by virtue of a reduction in product prices? Or is Amazon’s disruption of the general retail business a destroyer of jobs, moving previously productively employed workers into the unemployment line?” Kass asked.

To be sure, this is not the first time Kass has expressed skepticism about Amazon; in October 2014 he said that investors should “avoid Amazon at all costs” and that the company “continues to fail to exhibit a cash flow return on any investment it makes.” The stock has more than tripled in value since then.

And yet, this time may be different, with Bloomberg releasing a Q&A "primer" this week on whether tech companies such as Google and Amazon are the new monopolies:

Tech platforms like Amazon and Facebook are the middlemen for today’s essential products and services, giving them leverage over both producers and consumers. Amazon, for example, used its power over the book market in 2014 to block pre-orders for some Hachette Book titles during a dispute with the publisher over pricing. The tech giants are also growing by snapping up potential rivals that might threaten market share. Bloomberg data show the big five -- Alphabet, Amazon, Apple, Facebook and Microsoft -- have made 436 acquisitions worth $131 billion over the last decade. The companies also have control over vast amounts of data about their customers, raising worries about threats to privacy.

Also on Friday, the WSJ focused on Amazon in an article - based on a Citigroup analysis which found that each Amazon box gets a $1.46 subsudy saying "it's like a gift card from Uncle Sam" - seeking to explain why the Post Office gives Amazon special delivery.

To be sure, it remains unclear if Amazon is now in the government's cross sights, and - more importantly - if Republicans will endorse the Democrat-requested hearing, although if Trump needs a diversion from his ongoing political drama and if military intervention abroad is impossible, a showdown between Trump and Bezos may be in the cards.

* * *

Finally, for those interested, here is the latest, third part in Doug Kass' discussion of why Amazon may be in trouble.

Peak Amazon

"A Citigroup analysis finds each box gets a $1.46 subsidy. It's like a gift card from Uncle Sam... In my neighborhood, I frequently walk past "shop local" signs in the windows of struggling stores. Yet I don't feel guilty ordering most of my family's household goods on Amazon. In a world of fair competition, there will be winners and losers.

 

But when a mail truck pulls up filled to the top with Amazon boxes for my neighbors and me, I do feel some guilt. Like many close observers of the shipping business, I know a secret about the federal government's relationship with Amazon: The U.S. Postal Service delivers the company's boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.

 

This arrangement is an underappreciated accident of history. The post office has long had a legal monopoly to deliver first-class mail, or non-urgent letters. The exclusivity comes with a universal-service obligation-to provide for all Americans at uniform price and quality. This communication service helps knit this vast country together, and it's the why the Postal Service exists."

--Josh Sandbulte, The Wall Street Journal

In the annals of overused corporate clichés, few match the immortal words of Walter Gretzky as passed on to the world through his son Wayne: "Skate to where the puck is going, not where it has been."

That quote guides my analysis of Amazon AMZN. I am looking not at the success of the company -- and most recently a 60% rise in "Prime Day" sales year over year -- but rather looking at potential, bona fide existential threats the company faces from legislators and regulatory agencies in Washington, D.C.

Toward that end, this Wall Street Journal article, "Why the Post Office Gives Amazon Special Delivery," cites another differential advantage that Amazon has acquired and that is well-known.:

"In 2007 the Postal Service and its regulator determined that, at a minimum, 5.5% of the agency's fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip - a gift card from Uncle Sam.

 

Amazon is big enough to take full advantage of "postal injection," and that has tipped the scales in the internet giant's favor. Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for "last mile" delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors. My analysis of available data suggests that around two-thirds of Amazon's domestic deliveries are made by the Postal Service. It's as if Amazon gets a subsidized space on every mail truck.

 

I do not know which stores in my neighborhood will be gone five years from now, but I am certain my household will continue to receive numerous boxes from Amazon. I also believe that society would be better off if competing retailers, online or brick-and-mortar, continue to thrive. Congress should demand the enforcement of the Postal Accountability and Enhancement Act, and the Postal Service needs to stop picking winners and losers in the retail world. The federal government has had its thumb on the competitive scale for far too long."

I would not be surprised that if someone takes this postal subsidy away, Amazon loses money on its core retail business.

Deeper regulatory dives into Amazon may find more subsidies and advantages -- to the detriment of brick-and-mortar companies -- similar to what is seen in postal costs (above) and in the tax code.

As I concluded in yesterday's analysis, a bipartisan political threat to Amazon may be on the horizon that could challenge the company's horizontal and vertical growth aspirations:

 

"Though Amazon's sales growth and business successes have been extraordinary -- as reflected in a record share price -- the company now faces a potential existential threat from both politicians and regulatory bodies.

 

Few, if any, are aware of this new threat, which is real and, given the current political reality, may even gain bipartisan support.

 

Given Amazon's disruptive influence over numerous industries and the associated loss of jobs in what is still a fragile domestic economic recovery, opposition to further company expansion plans finally may be something with which everyone in Washington agrees!"

--Kass Diary, "Threat to Amazon May Be Coming Into Clearer Focus"

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hedgeless_horseman's picture

 

My friend runs a small catering business, and he is getting his ass kicked by a competitor that now offers some kind of Amazon points kickback.  Books, clothing, groceries, catering...the cancer is spreading.

I have stopped buying anything from Amazon or WalMart, and buy local as much as I can, so to give my capital a chance to come back to me. 

hedgeless_horseman's picture

 

I wish the US government started asking if the US government is too big.

espirit's picture

By the time Dims and Pugs figure it out, AMZN will be TBTF.

techpriest's picture

People said that about Wal-Mart 10 years ago. Question is, what's going to replace Amazon?

froze25's picture

With I had a never ending credit line at close to zero percent interest to continue to expand indefinitely while never turning a profit. FIAT currency at its finest. Just nationalize the platform for retailers to participate in.

jcaz's picture

Guess the Hill wants a bigger check from that Amazon lobbyist......

NoDebt's picture

I think he name is actually David Cicilline, not Civilline.  No idea why his angle is here, though, other than maybe only that the government is allowed to be so large.  And, of course, you know.... money.

 

 

 

yogibear's picture

Congressmen and Senators want a piece of the action. They want billions in campaign contributions from Bezos to quiet down.

SantaClaws's picture

If the reference is to David Cicilline, Dem. representative from RI, he is a piece of work -- to say the least.  He and the members of his family have quite a history and reputation in RI, one of the most progressive/corrupt/insolvent states in the country.  Why he wants a fight with Amazon is beyond me, but there must be another story.

There was a cable TV program "Brotherhood" about political and mob corruption in the capital city of Providence and the state of RI.  Cicilline, a former mayor of Providence who ran the city into the ground financially when he was mayor, actually played a character in the program.  Look up the Cicilline family history.

Peacefulwarrior's picture

HA! +1 I would bet there was a reason for the large block of shares Bezos sold off at all time highs as government starts to hold out their hands to him.

Stuck on Zero's picture

Amazon will be replaced by 3D printers at home. We'll be able to replicate anything we want on the spot.

Zorba's idea's picture

When we stop allowing the CIA/CB's/MIC and CONgress to stop providing ill gotten Capital to fund their NWO projects...which of course will never happen. Only when and if the majority of Americans stop patronizing this perverse fascist racket. Fuck Bezo's..teach your children. Do it Now! Do it Right! Do it Right Now!

Utopia Planitia's picture

That book has already been published.  AMZN is simply playing the "race to extinction" game.  Their primary growth fuel is that they have the capital to drive nearly all their competitors into the dust.  Can't go on forever.  Also, all their "secrets" are right out on the table for everybody to see.  They are simply the 1st generation of "distributed, Internet-based commerce".  There are so many better way to do business than what AMZN does it isn't even funny.  (I won't bother to discuss what goes on in the slaughterhouse, it would make your teeth curl.)  Also, now Mr. Jorgensen has started to branch out into areas he will have a very difficult time succeeding at - such as container shipping and air freight / passenger service.  The end of AMZN will be a (pleasant) sight to behold.  It won't be this year, but the bell will soon toll.

CheapBastard's picture

"Size matters," My neighbor Leroy Warshington told me.

Midas's picture

I think it was a British joke that asked, "Is it wrong that there is only one anti-trust commission?"

Nolde Huruska's picture

This isn't about anti-trust, it's about shaking down Bezos/Amazon for campaign contributions to make this go away. In that regard he is touchable, he will pony up and this will all go away.

debtor of last resort's picture

Corporates, facility management of high finance.

Michael Musashi's picture

I applaud you, good sir.

I too have cutback and told my wife to do the same. We also have quit Whole Foods. In Arizona they have a place called Sprouts so we at least have an alternative. There's Trader Joes too so there's no excuse to give money to a friggen monopoly.

While were at it... $uck Google too right in the a$$! I used to run a website and it's utter BS that these $uckers have a monopoly on the internet. Americans need to start raising their voice a little before their communities are completely devastated by this new era of reckless corporatism.

Chupacabra-322's picture

Vote with your Dollars & find alternative "Systems."

Pm's, Bitcoin, Credit Unios, Gardens, Barter, Home School, learn a trade to name just a few.

Peacefulwarrior's picture

Is your brothers name "Moriyama Musashi" By chance?

just the tip's picture

the trader joes i went to in scottdale was a joke.  pretentious snobs.  maybe it was paradise valley.

sprouts is all over the southwest and even in the east as far as atlanta.  their distribution is stretched pretty thin as they are trying their best to stay within their mission statement.  the quarrel between the brothers that started it reads like a paper back novel.  only problem with sprouts is they will never move into the smaller rural areas.  they are like whole foods and aldi.  they will forever be metro only.  that is wal-marts ace in the hole.  even if they break even with bezos in the metro areas, there is no way for bezos to move into rural 'murica with food stuffs. clothes and other cheap shit from china bezos will be able to compete as long as ups/fedex/usps subsidize them and amazon pays no sales taxes.  but take those two away and amazon will have a rough go in rural america.

i think what wal-mart has done in the past was an ass rape of the rural businesses.  but they did it by demanding lower prices and for the most part they did.  they also paid local taxes.  they also brought in products that smaller stores could not touch due to the distribution chains.  they got rich as hell doing it.  now someone is reaching down to compete with them. 

Michael Musashi's picture

Thanks. I don't care about the staff at Trader Joes, they've got decent products. My wife and I tried a Trader Joes Malbec wine and it was surprisingly delcious. But I'll support Sprouts over them all because it's still somewhat local, and Sprouts likes to support local products. This is key that people need to understand.

Support local or suffer the consequences... this is the harsh reality of it all!

troubadourcapital's picture

Amazon not going to get broken up. Too many Washington fat cats depend on them

troubadourcapital's picture

Amazon not going to get broken up. Too many Washington fat cats depend on them

JuliaS's picture

Sory, hedgeless, but all capital originates and comes back to the central bank. Any action involving money enriches the Fed first and foremost. Even if you buy gold with your hard earned cash - the bank is still the winner, as in order for your purchase to take place and in order for your employer or business client to pay you, someone already did the job of borrowing money into existence. The gold likely originates from some bank's vault and it'll go back to the same vault when you're finished with it.

Foreign capital, corporate capital, mom'n'pop shop or Amazon / Wallmart - all the same. If you're a central bank issuing money with interest, all you see is paper exiting and assets entering, until the bank owns everything there is to own and we hold all notes they could print.

The banking and governmetn systems are so vast - there is no escape whatsoever, unless the masters themselves make a mistake. The only option left to us citizens is to travel - trade one slave master for another.

The way to avoild the bank would be to live on a plot of land owned under allodial title, while bartering goods without paying taxes. First option is unattainable. Second option is illegal.

Living off the grid is bullshit and accomplishes nothing, unless you own your own planet.

FoggyWorld's picture

Where I live there barely is anything to buy locally other than one expensive supermarket and half a dozen fast food places though the big ones have left.   Empty malls just sit and gather dust.

I was in a beautiful village outside of Philadelphia the other day and the Main Street was mostly built in the 1700's.   Those houses in many cases were converted to small shops but now they are more than half empty and only with a great deal of money could they be returned to housing.  

No one in retail can compete with Amazon in fly over America.  Sounds like an Obama plan.

"Things fall apart [if] the center cannot hold,"  as Yeats said so long ago.

 

 

 

EmmittFitzhume's picture

Bezos is a huge democrat, so no it's not getting too big

yogibear's picture

Democrats will let Amazon swollow up everything. It's the communist way.

debtor of last resort's picture

You're too big yourself, fuckhead.

Chupacabra-322's picture

Wait for it....wait for it.

It's "To Big to Fail."

espirit's picture

+1 Beat me to it.

Gonna be lots of good company in the camps.

Chupacabra-322's picture

Not to mention this Pure Evil War Criminal Evil Psychopath CIA Stooge manages their Cloud plus owns their Presstitute mouth piece Scripted False Narrative PsyOp newspaper WSJ along with all the #Vault7 UMBRAGE, "Fun & Games."

Quite a RIP I just posted.

PontifexMaximus's picture

This david civilline is only asking about the take over of whole food markets? This is only the beginning. Why didn't he ask any questions about AWS? Aaah, that was no take over, but in the end, isn't the outcome the same?

Vinividivinci's picture

How cuuute...a politician voices concern over to much corporate power...

wisehiney's picture

Gov subsidised fucks.

All of them.

The plan is to kill all of  those American entrepreneurs that they hold them in utter contempt.

With our own money.

forestgump227's picture

So Kass the idiot loser who thought amazon was a bad investment in 2014 is now telling us the same thing. 

 

Why should we listen to this idiot loser?

 

He is obviously the last person to anyone should listen to about amazon.

Kass is just a jeoulous wall street millionaire whore who should be bankrupt but thanks to the wall street whore culture he is still making millions. Sad! 

truthseeker47's picture

Bezos can easily fix this problem, he'll just buy the government.

Slippery Slope's picture

Stop Oligarchs from owning media!

Take the Washington Post from Bezos

GTC's picture

Fuck Bezos and Amazon. 

I wont buy shit from them. 

NotApplicable's picture

The only time USPS delivers my Amazon packages is if it's from a 3rd party seller.

Jimbeau's picture

Fewer and fewer corporations surviving...
Any idea when we get to the "Rollerball" point of just THE corporation?

nailgunner44's picture

One corporation to rule them all, and in the darkness bind them.

zipit's picture

All together now, F*CK JB!

Swamp Yankee's picture

"Dr Evil"  Ok, Congress, how much is this goin to cost me?

 

Congress: "not much Mr Evil, just certain 'cooperations' and 'considerations'...."

 

Dr Evil "Thats DOCTOR to you! I did not spend 12 years at the university of wrongdoing to be called 'mister' ! "

estebanDido's picture

Monopolies are the best cure for capitalism.

JuliaS's picture

Monopolies, with no outside help, expire naturally, like the dinosaurs. They become slow, inflexible and eventually are consumed by their own bureaucratic structure, while low overhead startups take over. It is only due to selective government meddling in the sector that too big to fail companies survive.

I'm for zero tax zero subsidy policy. Government should monitor, prevent and punish crime instead of picking winners and losers.

Look at Microsoft. Antitrust cases did nothing to undermine its business model. The market did. They're a shadow of the former company thanks to inability to adapt to the internet, mobile communications, digital software distribution, augmented OS pricing and every other thing that has zero to do with the government.

Got to give bureaucrats some credit though. Those white collar fidget spinners will take credit for just about anything. Apparently we succeeded in Aleppo this week! Thank god for our brave pencil pushers in uniform!

Utopia Planitia's picture

... checking the DNC donor list ...  Hey guys, looks like this Jeffrey Jorgensen hasn't poney'd up his "fair share" to our fund!  Time to start twisting the skrews!  hehehehehehe...

ASimpleTrader's picture

Somehow Amazon is too big to exist but we have banks that are too big to fail...

People forget that Amazon also acts as a sale portal for a ton of small companies that sell and ship though Amazon's sales portal.