Should Amazon be allowed to sell on its own marketplace? – Hagiu, Teh and Wright say yes, with some important caveats

Andrei Hagiu, Tat-How Teh and Julia Wright have recently posted on the Internet an interesting paper trying to answer the question of whether Amazon should be allowed to sell on its own marketplace. This is a highly topical subject as concerns have been raised that Amazon’s dual role as operator of its marketplace and competitor on its marketplace could be used to harm competitors and breach competition laws, and the European Commission has launched a formal investigation into Amazon’s conduct. Some have also suggested that Amazon and other dominant platforms should not be allowed to exercise both roles.

Based on a theoretical model, Hagiu et al. conclude that “a structural remedy such as an outright ban on the dual mode would be detrimental consumer surplus or total welfare”, the main reason being that “in the dual mode the presence of the intermediary’s products constrains the pricing of the third-party sellers on its marketplace, which benefits consumers.” That seems to be a logical conclusion: in terms of prices, consumers will benefit from the extra competition brought by the platform.

Importantly, however, the authors do not consider that Amazon should be left free to do what it wants. Rather than banning the dual role outright, they claim that “policy interventions that target specific behaviors by the intermediary are preferable.”  These policy interventions could take two forms : (i) banning “the imitation of (highly) innovative third-party products by the intermediary” to restore the “sellers’ incentive to innovate while still preserving the various benefits associated with the dual mode” and (ii)  banning “the intermediary steering consumers towards its own product” as this “preserves the benefits of the dual mode while preventing the intermediary from extracting excessively high commissions from third-party sellers.”

Although the authors admit that these remedies would have the downside of requiring monitoring, some methods could used to reduce that burden  For instance, they suggest that to “prevent opportunistic steering, the intermediary may be required to provide public APIs that allow approved outsiders (e.g. policy makers or researchers) to audit their recommendation algorithms.” Regulators may also require the relevant intermediaries (e.g. Amazon) to maintain a ‘Chinese wall’ between their respective private label and marketplace divisions.” In a recent paper, Dimitrios Katsifis and I took an analogous approach when analysing the Apple App Store and the harm that could result from Apple’s dual role. An important difference, however, is that our proposed remedies were stronger as we do not think that light-touch measures of the type proposed by Hagiu et al. would be sufficient with such platforms.

(Image source: Business Insider)

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