Circle of Competence Issue #76

QUOTE OF THE WEEK

"A page of history is worth a volume of logic." - Justice Oliver Wendell Holmes

FOOD FOR THOUGHT

Amazon's antitrust antagonist (Lina Khan) has a breakthrough idea (New York Times)

Lina Khan's paper: Amazon's Antitrust Paradox (Yale Law Journal)

Antitrust in the internet era: the legacy of United States v. A&P - a response to Lina Khan's paper (George Mason Law & Economics Research)

The debate over how (or whether) to regulate big technology companies has fascinated me since hearings, fines, and opinions began swirling about some 3-5 years ago. This week, I read a great piece in the NYT about Lina Khan, a young law student, who is leading the charge on a new way of characterizing monopoly power that isn't centered around short-term price and consumer welfare (i.e. lower prices render consumers better off vs. forcing consumers to pay higher prices through monopoly power). However, political angles abound, and history has lessons to teach us about how policies will affect economic landscapes.

There are a two ways to characterize monopolistic behavior in my mind:

- Monopoly over market - can dictate consumer price (high hurts consumer, low benefits consumer) and dictate supplier terms (squeezing margins based on size and leverage)

- Monopoly over labor - can dictate wages paid (high benefits laborers, low hurts laborers)

On top of these two monopolistic behaviors, there is the sticky problem of tech companies misappropriating consumer data and the sly practices of extracting data we don't even know about or agree to give up. This is, in my mind, a separate privacy issue, not necessarily an antitrust issue (of course, one could argue that they've 'monopolized' our data, but that's a philosophical argument for another day), and thus I won't deal with this here.

Monopoly over market

Amazon clearly has a large share of online ecommerce, but instead of gouging prices, it is negotiating with its suppliers to cut prices for access to their marketplaces, which is borderline anti-competitive. This, in effect, benefits consumers immensely at the cost of suppliers' bottom lines. In the A&P case paper above, the parallels are eerily similar to Walmart and Amazon today given A&P's size at its zenith and similar practices of passing on supplier costs to consumers, thereby generating huge consumer surplus at the cost of their suppliers. Thus, the new debate can be summarized as: even if consumers are better off, Amazon's suppliers are hurting, their workers are paid minimally, and thus consumers are benefiting off the savings from lower suppliers and laborer wages. The question comes down to how to optimize this multi-stakeholder equation: a market approach or a new regulatory approach?

Monopoly over labor

This is a much harder case to make, given that workers who are demanding higher pay from the behemoth have the freedom to choose to work elsewhere at similarly demanding jobs for similar pay. The populist left merely treats Amazon as a whipping boy and argues for paying 'living wages' to its warehouse and supply workers, mainly due to its size and revenues. Again though, this is a cost saving to Amazon which is passed on to consumers.

To me, the whole debate around antitrust and big tech hinges around the key question of whose interests are we to prioritize? It could be labor, it could be small business, it could be consumers. But it will be very hard to consistently balance them all. Perhaps I'm wrong. I am certainly in favor of slapping companies with fines that misappropriate consumer data and employ blatant anti-competitive behaviors. But for Amazon, is the mere fact that they are big and therefore use their bargaining power to negotiate better terms a knock against them? I'd love to hear from folks on their thoughts around this.

WRITTEN WORD

TOP READ: What is a tech company? (Strachery, Ben Thompson)

Investors and operators: what I've learned from both worlds (Brent Beshore)

Fairfax to invest $5B in India (Economic Times of India)

Grantham, Mayo, van Otterlooo on corporate profit margins and reversion to the mean (GMO Quarterly)

ARP letter: Is ageing inflationary? (Absolute Return Partners, Niels Jensen)

Explaining treasury interest rates vs. crypto market interest rates (Moneyness)

SPOKEN WORD

TOP LISTEN: Adam Robinson on chess, global markets, and searching for secrets (North Star)

Science and religion in dialogue, by Dr. John Polkinghorne (The Boyle Lectures)

Crypto-negative: Vitalik Buterin on blockchain applications and disappointments so far (80,000 hours)

Crypto-positive: Dan Tapiero on bitcoin, gold, and the future of macro investing (Real Vision Finance)