Amazon has a reputation in many circles for being a ruthless competitor. Some have even gone so far as to wonder why Amazon hasn’t been the subject of an anti-trust lawsuit brought by the DOJ or one of their smaller competitors.
I used to defend Amazon with the argument that they hadn’t broken any laws and that their behavior might be ruthless but it wasn’t illegal. But after what I read today I am no longer sure if that is true.
Businessweek posted an excerpt this morning of Brad Stone’s latest book. The book in question is a critical look at Amazon, Jeff Bezos, and how he is slowly becoming Doctor Evil. It’s a good read, but there is one part in particular that caught my eye.
I’m talking about the section that focuses on how Amazon acquired Diapers.com in 2010:
In 2009, Jeff Blackburn, Amazon’s senior vice president for business development, ominously informed the Quidsi co-founders over an introductory lunch that the e-commerce giant was getting ready to invest in the category and that the startup should think seriously about selling to Amazon. According to conversations with insiders at both companies, Lore and Bharara replied that they wanted to remain private and build an independent company. Blackburn told the Quidsi founders that they should call him if they ever reconsidered.
Soon after, Quidsi noticed Amazon dropping prices up to 30 percent on diapers and other baby products. As an experiment, Quidsi executives manipulated their prices and then watched as Amazon’s website changed its prices accordingly. Amazon’s pricing bots—software that carefully monitors other companies’ prices and adjusts Amazon’s to match—were tracking Diapers.com.
In September 2010, he and Bharara traveled to Seattle to discuss the possibility of Amazon acquiring Quidsi. While they were in that early morning meeting with Bezos, Amazon sent out a press release introducing a service called Amazon Mom. It was a sweet deal for new parents: They could get up to a year’s worth of free two-day Prime shipping (a program that usually cost $79 a year). Customers also could get an additional 30 percent off the already-discounted diapers if they signed up for regular monthly deliveries as part of a service called Subscribe and Save. Back in New Jersey, Quidsi employees desperately tried to call their founders to discuss a public response to Amazon Mom. The pair couldn’t be reached: They were still in the meeting at Amazon’s headquarters.
On the one hand, this is just Amazon living up to its original name. On the other hand I am surprised that this didn’t result in an anti-trust action. Folks, this is almost exactly a situation that inspired anti-trust laws in the first place, so you would think that Amazon would have been investigated and (hopefully) prosecuted.
The deal was investigated by the FTC but was eventually allowed to go through:
The Federal Trade Commission scrutinized the acquisition for four and a half months, going beyond the standard review to the second-request phase, where companies must provide more information about a transaction. The deal raised a host of red flags, such as the elimination of a major player in a competitive category, according to an FTC official familiar with the review. The merger was eventually approved, in part because it did not result in a monopoly. Costco Wholesale, Target, and plenty of other companies sold diapers online and off.
It’s pretty clear why. One, Amazon doesn’t dominate that market niche, and two, they didn’t jack up prices after the acquisition.
This second point was one of the reasons that Apple and their co-conspirators lost, and it’s also something Amazon generally refuses to do. Even though many of Amazon’s detractor’s claim that Amazon is going to do this eventually, there’s no sign that Amazon has done it yet.
And so long as they keep their prices low they will probably be able to skirt anti-trust violations just about forever.