New rules needed to ensure a fair go in the Amazon age of competition
Sydney Morning Herald, 19 August 2017
Last year, for the first time in history, we reached the point where the handful of largest global firms were technology companies. Facebook, Apple, Microsoft, Google and Amazon have together been dubbed ‘the Frightful Five’. But when top venture capital investors were asked last month to name the leader, the consensus was Amazon.
Founded in 1994, Amazon now accounts for more than half of all new online spending in the United States. Over the past decade, Amazon’s share price has risen 14-fold. Its market capitalisation now nudges half a trillion US dollars. By 2020, investors believe that Amazon’s sales will be three times as large as they are today. That would be the biggest growth story in corporate history.
With Amazon set to launch operations in Australia next year, local retailers understandably have the heebie jeebies. Dubbed ‘the country killer’ by Morgan Stanley, the firm is likely to aim to hook Australians by encouraging the growth of Prime, which provides members with free shipping in exchange for a US$99 annual fee, and now covers some 80 million US households. Expect to see Echo devices in your friends’ living rooms, Dash buttons in their cupboards, and perhaps even drones dropping packages on their doorsteps.
But the question that has many retailers ducking for cover is exactly what effect Amazon will have on competition in Australia.
Despite the apocalyptic warnings, there are reasons for consumers to be excited. More than half of Australia’s industries are concentrated, meaning the four largest firms control at least a third of the market. This means we should be welcoming new entrants with open arms. Indeed, several of the markets Amazon is eyeing off are particularly concentrated. In each of grocery retailing, department stores and postal services, the four biggest competitors control more than 90 per cent of the market. Having a bit more consumer choice would be a welcome change.
It’s not just consumers who could benefit. Having another buyer of their products and produce would give many of our farmers and small suppliers a much-needed alternative to the big supermarkets. Giving them a bit more bargaining power in the market place could do wonders. With dairy farmers being forced to swallow retrospective price cuts and small suppliers waiting too long to get paid, some fresh alternatives could do much to improve competition in our markets.
Amazon is also willing to try new things. While plenty of us have fretted over sluggish innovation and stagnating productivity, Amazon has been quietly creating one of the most novel companies in the world. Kiva robots make for safer and speedier warehouses. Amazon Web Services is the world’s largest provider of cloud computing services. Amazon Go stores let customers simply grab their groceries and leave the shop. The firm’s bruising workplace culture leaves something to be desired, but few doubt that Amazon is revolutionising retail.
The challenge now is to ensure that we don’t simply replace one concentrated market with another. Because it is both a retailer and a sales platform, one US competition expert recently argued that we should think of Amazon as akin to a nineteenth century private railroad owner. In its dispute with major publisher Hachette, Amazon temporarily halted sales of thousands of Hachette e-books. As the long history of competition law shows, even those firms with the best intentions can be tempted to behave badly when they have excessive market power.
Part of the answer lies in making sure that the competition watchdog has the tools it needs to protect consumers. Alongside Shadow Consumer Affairs Minister Tim Hammond, we’ve been arguing for the Australian Competition and Consumer Commission to be given stronger powers, more resources, and tougher penalties.
Labor wants to see the competition watchdog with a market studies power, so it can investigate industries where consumers might be getting a raw deal. We’re pleased that the Coalition has adopted our policy of raising the maximum fine for consumer rip-offs, but we also think that the fine for anti-competitive conduct should be increased, bringing it in line with the penalties that apply in the European Union. And we’re keen to see some of those extra resources given back to the Australian Competition and Consumer Commission, doubling its litigation budget.
We’ll hear from plenty of Amazon boosters and bashers over coming months, and both sides will have a kernel of truth. But the right approach isn’t to overreact; it’s to ensure our competition laws are modernised so Australians get a fair go in the Amazon age.
Andrew Leigh is the Shadow Minister for Competition and Productivity.