The Industry

HQ2 Is an Antitrust Issue

Amazon’s “contest” for extracting massive subsidies from cities shows how it flexes its monopolistic power.

An Amazon Books store
An Amazon Books store is seen in D.C. on March 26. Jim Watson/AFP/Getty Images

Whatever glimmering opulence Amazon brings to its new campuses in Queens, New York, and Crystal City, Virginia, will be paid for with more than Prime memberships. The e-commerce giant will have paid for them with its size and influence. Critics of the company and these deals may see Amazon’s retail and real estate practices as separate issues—one of market concentration, the other of runaway corporate welfare. In fact, they’re both issues of monopolistic power. Amazon secured its lavish, taxpayer-funded agreement to open East Coast headquarters in Queens and Arlington by flexing the same bargaining muscle the company has used for years to crush rivals and snatch market share.

Critics see a strong antitrust case in the way the world’s largest online retailer has wielded its power against merchants and manufacturers. They can add local governments to the list. “Amazon expects to dictate terms to everybody,” says Stacy Mitchell, the co-director of the Institute for Local Self-Reliance and a longtime Amazon critic. “That includes sellers, suppliers, and now cities.”

During Amazon’s yearlong, ostensibly public quest to find a second headquarters, the company relied on its power to extract coffer-scrubbing concessions from local governments. In total, New York and Virginia will give Amazon upward of $2.8 billion in handouts, grants, and other concessions—including money to help build the new corporate campuses. Amazon hardly had to ask for these multibillion-dollar concessions. Trained by a culture of generous corporate-relocation incentives, local leaders instinctively knew they had to heave money at Amazon if they wanted any chance of landing its new offices.

At the onset, Amazon promised to create a corporate campus that was a “full equal to [its] Seattle headquarters.” Anxious about losing well-paid technology workers to other cities and states, government officials rushed to show exactly how much money and control they would give away to land Amazon. They revealed this information enthusiastically to one of the world’s most aggressive data collectors without so much as an inkling that Amazon might choose their region for its second headquarters.

In the end, Amazon took taxpayer handouts twice and gave each city only half of what it initially promised to deliver—all while gleaning exactly what governments across the country were willing to part with to get a piece of the company’s business. The next time Amazon wants to build a new warehouse or data center anywhere in America, it knows exactly what local governments can and will offer.

If Amazon wields this kind of immense power when negotiating with American cities—powerful, populous economic centers—antitrust officials can surely understand what it’s like to be a retailer trying to compete with Amazon on Amazon’s own platform.

Take the apparel industry. Amazon’s pitch to name-brand fashion labels was simple: Sell your shoes and clothes in the Amazon marketplace and we will deliver your products to tens of millions of customers captured by their Prime memberships. With brick-and-mortar retailers struggling and the Amazon marketplace bombarded by shady third-party sellers, brands caved into the company’s massive retail power and struck deals to sell their full product lines on Amazon; by 2014, an industry report found that companies that partnered with Amazon, including Levi’s, Burberry, and others, secured better placement in the online marketplace and succeeded in curtailing third-party sellers of their brands.

Amazon provides those companies with a much-needed platform—but in exchange, it takes a cut of their sales and collects troves of data about what customers are shopping for. As it struck those deals, Amazon has quietly started using the data gleaned from those sales to steer customers toward its multiple in-house clothing brands, including fast fashion label Lark & Ro, which doubled its sales over 2017.

Savvy clothing moguls knew the threat when they saw it. “[Amazon] is going to be massive in apparel over time,” Levi’s chief executive Chip Bergh told a trade publication, according to the Financial Times. “Their real power, over time, is going to be the data they’re able to collect on their consumer. It’s just a question of time.”

Mitchell says it’s all part of a pattern. Industry by industry, she says, “it became clear that they were not here as a partner. They are here to eat your lunch.”

While host cities and states obviously mean something different to Amazon than sellers who use its retail platform, the company’s tactics are much the same: Amazon’s immense power proves too tempting for its potential partners to resist—and once the company gets what it wants, it collects the data and the concessions, then delivers far less that what it promised.

On Tuesday, Open Markets Institute, a think tank pushing for stronger antitrust enforcement, called for an investigation of the company’s HQ2 search process. Matthew Stoller, policy director at the institute, argued that Amazon has now shown clearly that its power can sway governments as well as commerce. “Increasingly it has a new weapon, which is size,” he said. “At this point, the company is so large that, as we can see with this HQ2 scam, it is beginning to use politics itself as a competitive weapon.”

There are scant few other American companies whose presence can promise such fortune for the city and state in which it resides. Amazon was wrong to abuse that promise. Without intervention from America’s trustbusters, the public should fear what abuses the company’s power might permit in the future.