Elizabeth Warren Should Focus on Amazon

(Bloomberg Opinion) -- Elizabeth Warren's proposal to break up “Big Tech” companies is sure to stoke debate and add to the tension between the Democratic Party and reliably Democratic Silicon Valley. While breaking up Big Tech isn't likely to happen anytime soon, one nuance in her proposal is worth thinking about, and that's whether tech companies that operate large marketplaces should also be able to participate in said marketplaces.

The most obvious impact this would have would be on Amazon. While in the universe of the American retail industry Amazon's market share remains in the single digits, in e-commerce it's got around 50 percent market share. When consumers shop on Amazon, they're presented with items sold by Amazon, and also items that Amazon doesn't own or warehouse but merely hosts the listings. It's also increasingly getting into the advertising business, so that when you're searching you'll be presented with a list of sponsored products in addition to whatever results a search may generate.

A third-party seller on Amazon has a difficult relationship with Amazon, which can act both as partner and competitor. Amazon can use its huge data sets to see how successful third-party sellers and products are, and if they meet a certain profitability threshold Amazon can decide to compete with that third-party seller directly.

Someone might say, isn't that what grocery stores or Costco do with private label goods or Costco's Kirkland brand? But the difference is that in physical retail, there are all sorts of stores where a producer can sell their products -- Walmart, Target, Costco, major grocery chains, and so on. In e-commerce, with half the market share, Amazon has a dominant position. While in the short run Amazon being able to compete with its third-party sellers may be good for consumers, who can end up with lower prices, in the long run it may mean fewer producers even bother to come up with new products, feeling that eventually Amazon will crowd them out of the marketplace.

Would restricting Amazon, which has grown so quickly and is popular with consumers, harm the economy? Government's antitrust fight with Microsoft a generation ago ended up paying dividends for innovation. In the 2000s a common critique of Microsoft was that it "missed" the internet, and smartphones, and social media, but to some extent that may have been because the company feared an expansion in emerging technologies would bring back more scrutiny from the government. As a result, new tech platforms and companies bloomed. The same could happen in the next decade if Amazon’s ambitions were reined in a little.

"Break up Big Tech" is an easy emotional hook, but hopefully Warren's proposal will get all Americans to think more about the power of tech companies and their platforms, and whether regulatory changes would best serve both consumers and producers.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

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