Thread by @CarmeloCennamo

The Italian competition authority @antitrust_it has fined @AmazonItalia €1.13bn for abuse of dominant position: Amazon gives preferential treatment to third-party sellers who use its own logistics and delivery services, ie., Prime affiliated sellers on.ft.com/3lUSXJB

After the fine to @Google by the EU, this is a clear signal that antitrust authorities are taking issue with alleged “self-preferencing practices”. Details for the @AmazonItalia alleged abusive conduct 👇 For non Italian speakers: I’ll give key points
agcm.it/dotcmsdoc/alle…

Reaction by small players, competitors and many anti Big Tech would probably be like this…

But the decision poses serious questions about what’s legitimate design of platform #ecosystem and whether firms orchestrating a platform marketplace can actually build an ecosystem (structuring co-specialized relationships). Is this the end of ecosystems? Facts first

The AGCM, @antitrust_it, accuses @AmazonItalia of levering its dominant position in e-commerce marketplace market to induce sellers to use its own logistics services (fulfillment by Amazon - FBA) at detriment of other competitors in logistics market for e-commerce.

Sellers using FBA can obtain the Prime badge and with it expect a number of benefits, including participation to Amazon special sales events (eg. Black Friday), “free shipping” to Amazon Prime clients, higher chances to adjudicate the Buy Box.

Because of it, sellers using FBA obtain greater visibility and higher sales. Also, they are not subject to performance evaluation metrics other sellers are subject to satisfy Amazon service standards.

@AmazonItalia is accused to use this FBA-Prime tying strategy to exclude non-FBA sellers from Prime benefits, undermine ability of other logistic providers to compete and contend Amazon’s position, and induce sellers to single-homing to the marketplace.

This practice is judged as anticompetitive and detrimental to competition in the e-commerce logistics market, the e-commerce marketplace market, and ultimately producing negative effects for final customers. Ok….

Some numbers:
In 2016 @AmazonItalia was head-to-head with @eBay_Italia. But in 2019 Amazon gained about [70 -75%] market share in terms of gross merchandise value (GMV) of sellers, while eBay mkt share dropped to [10_15%], ~ [20-25%] of Amazon GMV

Number of retailers on @AmazonItalia has grown over the years while the number of retailers on major competitor @eBay_Italia has remained stable.

@AmazonItalia has also seen increase in monthly visits. More sellers, more products, more buyers, more sellers….Indirect network effects in action!

And now the interesting point. The power of ecosystem! In an research commissioned by eBay, they note: “Perceptions of eBay trail those of Amazon, especially in … trust, shipping, and returns”. This shows in the numbers 👇

They add: “Preference for eBay is softening, and eBay fails to convert awareness into visitation or preference effectively”… “eBay preference is dropping among its most loyal buyers”. That is not the case for @AmazonItalia - very high and consistent conversion rate👇

So, is this competitive effect due to market tipping (indirect network effects) or superior customer experience due to Amazon ecosystem around Prime service? @amazon think is the latter

According to @amazon CEO @JeffBezos in a 2015 letter to shareholders “FBA is the glue that inextricably links Marketplace and Prime. Thanks to FBA, Marketplace and Prime are no longer two things... Their economics and customer experience are now happily and deeply intertwined”

Why is this about ecosystem? @amazon has turned (a set of) arms-length relationships in the marketplace in co-specialized relationships, creating non-generic complementarities that allowed Amazon to shape a particular customer experience - the Amazon’s shopping way!

We discuss specifically the @amazon Prime strategy in our 2018 SMJ paper as example of the firm’s attempt to build an ecosystem of cospecialized sellers on top of the marketplace as way to shape value creation dynamics in specific ways

Are thus ecosystems type of structures largely anticompetitive? @antitrust_it concedes that @AmazonItalia has a buz model built around a “complete ecosystem” integrating multiple services, whereby Amazon plays multiple roles. This is not a problem per se

However, @antitrust_it thinks @AmazonItalia has “artificially tied two separate services”, Prime Seller benefits and FBA service, to “create an illegitimate incentive” to buy FBA services. This strategy “ falsifies” competition between its logistic service and competitors’ ones

The key issue, thus, is that Prime sellers (ie, those buying FBA service) have benefits over other sellers (those not using FBA). The authority is demanding equal access for ALL (!) sellers to Prime benefits independent of their FBA use on the basis of uniform standards

But, we see these “exclusive” type of relationships with preferential treatment in all kind of ecosystems, from apps to games to ERP systems. That’s how firms “orchestrate” the ecosystem, promoting some value creation paths, not others.

See e.g., work by @tomkudos, @gjrietveld & @mschilli1, @tkretschmer_LMU et al., ….

We are back to the original puzzle: if ecosystems are designed around non fungible investments, creating “meta-organizations” of aligned set of firms towards specific value propositions for the customer, are ecosystems de facto anticompetitive in excluding not aligned firms?

@threadreaderapp unroll

Read the thread as blogpost here: threadreaderapp.com/thread/1470197…

As I keep thinking about the puzzle, I offer few additional considerations. First: self-preferencing, in and by itself cannot represent harmful conduct. Coopetition with complementors is a key part of the platform ecosystem model that help create value and make it work!

Conceptual work by eg. @theplatformguy shows how the dual model of operating the marketplace while also competing with complementors is efficient if not desirable feature. Check Andrei Hagiu’s work here: papers.ssrn.com/sol3/papers.cf…

Some empirical work on innovation platform ecosystems show how platforms use their own products not just to increase efficiency but to steer the ecosystem towards desired tech development trajectories and thus stimulate innovation.

See eg. work by @tomkudos in the Android-apps context: papers.ssrn.com/sol3/papers.cf…
And my own work (sorry, is this self-referencing?) in the video games context : journals.sagepub.com/doi/abs/10.117…

And there is also work specific on Amazon’s own prime products by Feng Zhu (HBS) showing how these products, while capturing increasing value, help expand demand for the product category, precisely because of the benefits associated with shipping onlinelibrary.wiley.com/doi/abs/10.100…

Second: we thus need a specific and better theory of harm when judging these “self-preferencing” practices. What the decision is after might have to do more with bundling services than with preferential treatment

In these regards, one would have liked to see evidence that this bundle was not needed to properly run the Amazon marketplace…that is, Amazon can perfectly deliver value by keeping them separate. What if instead it is thanks to it that Amazon can increase value to users?

Third: which brings me to my third point - user benefits! Is new antitrust getting away from any considerations of consumer welfare? Shall we just focus on “fairness” without any considerations on why the practice is put in place and who stands to benefit from it?

But how do we then establish an “objective” principle (or at least parameter) of fairness if we just consider split of the pie without accounting for how big the pie is being made?

Fourth: while arguments and evidence of the abusive conduct by @AmazonItalia might be not grounded on a solid theory of harm and leave more doubts, the remedy being proposed by the @antitrust_it seems in fact very sensible to me.

It does not constrain Amazon’s ability to define standards and operations to run the service the Amazon way, or ban them from running their own logistic service. But it puts constraints on Amazon’s *possibly* taking arbitrary excluding choices against competing logistic services

This, to me, allows Amazon to still keep control over the overall ecosystem, keeping logistic firms and sellers up to its own standards. It allows discretion in design of the rules, but constrains discretion in application of the conditions. Isn’t this a win-win?

@threadreaderapp unroll