Digital Economy Antitrust: Congress Aims Big, But Inflicts the Pain on Small Businesses

Small businesses – beware! Senators Amy Klobuchar (D-MN) and Charles Grassley (R-IA) are pushing to have a vote in a matter of weeks on S.2992, the bad-for-small business, intentionally misnamed “American Innovation and Choice Online Act”(AICOA). The stated intent of this legislation is to limit the growth of America’s most successful digital companies; but the consequences of this far-reaching regulation will be borne by small-and-medium-sized businesses (SMBs). In particular, the bill will prevent Amazon from providing valuable services to small businesses that benefit from the marketplace and use the Amazon store to reach customers all over the world. 

Back in 2000, when Amazon opened its marketplace up to third-party sellers, know-it-all Wall Street analysts scoffed at the idea of a retailer inviting competitors into its own store. Today, third-party sellers represent a majority of sales on Amazon’s site, and for a bevy of reasons, the marketplace has become an extraordinary win-win for customers and small sellers.

• Consumers can find millions of different products in one place, and small sellers can reach millions of consumers who were previously unreachable.
• Consumers benefit from verified reviews and Prime shipping, and small sellers benefit from access to Fulfillment-by-Amazon (FBA) logistics and Prime credibility and trust.
• The marketplace has democratized retail for small sellers, who previously were blocked by elite buyers who control access to large retail chains’ store shelves.
• On the marketplace, small sellers and consumers have direct relationships, so they can solve problems faster and communicate directly about potential and future products. In traditional retail, small sellers never meet or receive input from the ultimate consumer as the big retailer controls the customers.

Amazon pioneered the integrated retail/marketplace model. Recently, retailers like Walmart and Target have established marketplaces for sellers, and many big-name retailers have identified growing their marketplace as a priority. Those companies should be concerned because the legislation doesn’t just break the marketplace for Amazon. It makes it illogical for any company to operate both a large, successful marketplace and a retail business because it prohibits common retail practices while running a marketplace and subjects the integrated enterprise to crippling fines. The bill makes it illegal to:

• Promote a platform’s own products – just like how physical retailers do on the end cap of an aisle in a store
• Organize your shopping experience – just like how physical retailers do in arranging shelves and what product is placed where
• Use your own store’s data to ensure that your store’s prices and inventory meet customers’ demands – a core function for all retailers for inventory management

This sends a chilling message to all retailers wishing to pursue the integrated marketplace model, which significantly benefits SMBs that leverage the marketplace tools to scale efficiently and customize their path to success. Legislation like the anti-tech bill from Senator Klobuchar facially targets only a handful of firms, but it would ruin opportunities for a generation of small businesses. 

By empowering small businesses to find customers, access markets, and grow their businesses, marketplaces naturally drive prices down and increase quality across product lines, industries, and regions. This is the very definition of spurring competition. This model has allowed small businesses across the country and the world to participate in the retail revolution and has benefitted millions of American consumers. 

Is it any wonder that small businesses have pushed Congress to reject S.2992? Congress needs to focus on the issues that matter most to small businesses – inflation, gas prices and transportation costs, the supply chain, and COVID.

Perhaps the most extraordinary part of this bill is that none of the practices are inherently anticompetitive – the bill’s proponents are defining them as anti-competitive only if done by a very large company. If S.2992 becomes law and breaks Amazon Prime or the entire marketplace, small sellers will lose out on millions of consumers. Today, other marketplaces like Walmart and Target are growing without Congressional help. But, under this legislation, even those companies will be incentivized not to gain the economies of scale that benefit small sellers in their store, or would even discourage those companies from allowing the third party sales they would normally allow to compete with Amazon’s thriving marketplace of first party and third party sellers. S 2992 supporters ignore that 87% of Amazon Marketplace sellers are also selling on other marketplaces and helping the newer marketplaces compete. Congress doesn’t need to push something that already is happening organically.

By empowering small businesses to innovate and find new customers, marketplaces will naturally drive prices down and quality will increase across product lines, industries, and regions. Modern-day marketplaces have allowed small businesses from across the country to participate in the retail revolution and have benefited millions of Americans. The proposed S.2992 would grind that progress to a halt and if the proponents of the legislation are truly intent on supporting small businesses, they should focus their efforts on the issues that are actually threatening their success.

Click here for additional information on S.2992 and how it would impact small businesses.