Amazon Prime Day comes to a close today. Consumers are saving on clothing, toys, electronics, and household goods from the online retailer as well as deals from other retailers competing with Amazon. This is a prime example of how innovation and competition in retail deliver financial relief to American households—quite timely as they grapple with over 40-year-high inflation.
Now seems like an odd time for the Senate to consider legislation that would likely raise consumer prices and sacrifice the cost-saving conveniences they depend on. But conservatives and liberals will own these consequences if they advance the American Innovation and Choice Online Act (AICOA, S. 2992).
AICOA was introduced by Sens. Amy Klobuchar (D-MN) and Charles Grassley (R-IA) to reign in the activities of mega online companies—Apple, Amazon, Beta, Google, and Microsoft. Targeting companies with a market capitalization greater than $550 billion or 50 million US-based monthly active users, the bill bars them from engaging in common practices that have enabled them to deliver to consumers high-quality goods and services for little or no cost. This includes self-preferencing their own products on their platforms—something that brick-and-mortar retailers do for their in-house branded products, preloading apps on devices, and new restrictions on user non-public data.
Supporters claim that antitrust legislation is needed right now because anti-competitive activities are squashing competition. How ironic that Prime Day has actually sparked more competition in retail this year. Major national retailers such as Walmart, Target, and Best Buy, are going head-to-head with Amazon by offering competing deals and events. Other retailers from Mattress Firm to Nordstrom are taking advantage of this holiday to peel off shoppers already in the buying mood by offering deeper discounts on days that precede, follow and coincide with Amazon Prime Day.
This is an example of how innovation—creating a national consumer-driven holiday to spur mid-year shopping—begets competition and consumers win.
Prices on necessities such as gas and groceries have risen by double digits, making it difficult for millions of families, especially those living on fixed and low incomes. Households are also shelling out substantially more for non-essential items such as toys, furniture, appliances, and tools. Any savings that digital and analog retailers can pass along are welcomed.
Digital shopping holidays are just the icing on the cake of lower prices that online retailers offer. Remarkably, inflation remains low in the digital sector. May marked the second month where online price increases slowed, according to Adobe analytics. Overall, online prices rose just 2% year-over-year, which is far below the 8.6% increase in the consumer price index. Both electronics and toy prices were down 6.5% year-over-year.
The digital world fights inflation in several ways. Goods and services sold online tend to be cheaper, in part because of economies of scale and lower labor costs. In addition, price comparison tools and virtual shopping allow consumers to shop around for the lowest price on an item or service. This in turn forces companies to offer the best prices to attract those price-conscious shoppers.
In poll after poll, majorities of Americans name inflation as their top issue, not antitrust. Furthermore, 40% of U.S. adults specifically name inflation as one of up to five priorities for the government to work on in the next year—up sharply from 14% in December and less than 1% the year prior.
AICOA would work against the goal of lowering prices. It’s hard to imagine how it would not disrupt the marketplace in ways that leave consumers’ pocketbooks better off. According to pre-pandemic research from Harvard Business School Professor Alberto Cavallo, “fierce competition from Amazon puts downward pressure on prices charged by Walmart and other big multichannel retailers for the same items” but “the bigger ‘Amazon effect’ relates … to the pricing behaviors of these more traditional retailers.”
Digital prices may rise if Congress bans industry-wide practices such as the ability to self-preference goods. NERA Consulting conducted consumer research related to Amazon Prime and found that this bill along with another measure would “reduce consumer welfare by $22 billion per year, which is equivalent to a financial loss of $148.47 per year for each Amazon Prime member in the United States.”
Some conservatives likely support the bill as a way to show constituents that they are addressing Big Tech’s censorship of conservative speech. But the bill is counterproductive to that goal too: leftist groups believe that AICOA will spur greater moderation of speech, not reduce censorship.
Americans are clear: Congress should be laser-focused on tackling inflation. Disrupting the innovation that is spurring competition and leading to lower prices online would be a costly mistake for all.