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UC Law Science and Technology Journal

Abstract

Amazon’s maturing e-commerce platform has seen its business strategy evolve from growth at any cost to a “quest for profit”, underpinned by its burgeoning $37.7bn advertising business. Through advertising, Amazon compels its captive third-party merchant ecosystem to pay for one of its most valuable assets – customer attention. Advertising leverages Amazon’s unique position as a discovery platform. Discovery is governed by Amazon’s algorithms — the nerve centre of its conduct and a critical guide to market structure. Algorithms are the principal market institution coordinating exchange online, yet often escape market investigations.

Prevailing doctrine assumes that platform rent extraction, via algorithmic allocations to lower quality sponsored output, cannot persist since “competition is just a click away”: optimizing users, facing negligible search costs, will seek out higher quality results.

We show that antitrust’s benchmark model of competition, premised on perfect information and consumer rationality, is unable to dissect platform power today, grounded in algorithms exploiting the highly uncertain and informationally abundant decision-making environment. Users, reliant on a platform’s algorithms for decision-making, may continue to click on inferior quality advertising information when prioritized by the platform. This allows Amazon to extract pecuniary rents from its ecosystem and impair fair competition by making product visibility conditional on payment.

We explore antitrust and consumer protection paradigms for limiting platform exploitation through advertising. We focus on the relationship between the level of information and the level of competition in a market. Dominance is when a platform can disregard the full information content of its ecosystem and still profit.

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