Summary
A member of Congress and a hedge fund manager are among those who believe that Amazon’s growth will be capped by enforcement of antitrust laws. While this threat might boost the coffers of antitrust lawyers, the legal basis for such fears is weak.
And those who bet on Amazon’s decline are likely in for a world of hurt. (I have no financial interest in Amazon securities.)
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I was surprised to see that a well-known hedge fund manager had concluded that potential antitrust problems were reason enough to sell short the shares of Amazon. I don’t know how many share he shorted but given the views of a Stanford Law School professor, I am questioning the wisdom of that hedge fund manager.
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I think it’s safe to bet that Kass is wrong. In a July 15 interview with Stanford Law School professor Doug Melamed, argued that Amazon is not vulnerable to antitrust challenges from its Whole Foods acquisition. “The antitrust issue raised by the proposed acquisition is whether it will significantly reduce competition in an economic or antitrust market. As I understand the facts, while Amazon does sell some grocery products, it is not an important competitor of Whole Foods, so it is very hard to see how the acquisition might reduce existing or reasonably foreseeable competition between them,” said Melamed.
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Melamed thinks that this deal is good for competition in the grocery business. As he said, “To my knowledge, Amazon is not a needed supplier of inputs to Whole Foods’ competitors, nor Whole Foods to Amazon’s competitors, so it is hard to see how the acquisition might reduce competition between either Amazon or Whole Foods and third parties. Instead, it appears that the acquisition would facilitate Amazon’s entry into a new business or cost-effectively add to its distribution capabilities and, in those ways, enhance competition.”
Those seeking to argue against the merger would need to prove that it would so limit competition that the combined company could raise prices. As Melamed explained, “A market is defined based on the alternatives available to buyers. The enforcement agencies ask this question: What is the smallest group of products that, if combined in the hands of a single firm, would enable that firm profitably to charge prices higher than competitive prices?”
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