Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Amazon: The Coming Antitrust Battle?

|Includes: Amazon.com, Inc. (AMZN)

Summary

Donald Trump signaled that he believes Bezos and Amazon could be in violation of antitrust rules

Despite Trump's claims, Amazon's merger with Whole Foods would decrease prices

If antitrust rules are changed, there could be a case against Amazon

Amazon’s stock preformed well since the crash of 2008 as it has gone up over 2700%.  As their stock climbs higher and grabs more control in the e-commerce arena, there will be more calls that they are breaking antitrust rules.

Donald Trump discussed numerous times how Amazon has an antitrust problem and criticized CEO Jeff Bezos regarding his ownership of the Washington Post.  President Trump feels that the Bezos has an unfair advantage in giving his company better press coverage. 

With Amazon’s acquisition of Whole Foods, there are more rumblings whether Trump’s administration will act against Bezo’s company.  Despite his strong rhetoric against Bezos & company, it will be difficult for his administration to enforce antitrust laws in this situation.

When looking at whether companies break antitrust laws, the FTC goes after firms that negatively impact consumer prices.  This vertical merger of Amazon and Whole Foods supposedly will decrease food prices via economies of scale.  Amazon possesses the logistics infrastructure, while Whole Foods is one of the largest organic food retailers in the U.S.    

With this merger, Amazon will only account for 3.5% of the grocery market.  This amount is minuscule compared to other retailers such as Walmart, which has approximately 17 % of the grocer market share.  The FTC should approve this merger as Amazon won’t dominate this market.  The FTC blocked some mergers such as Whole Foods and Wild Oats.  Both of these companies are organic grocers, and the FTC’s decision stemmed from how they believed both of these companies would dominate the organic grocery market. Some state that Amazon will retain more power, however, that doesn’t mean it will be guilty of antitrust laws.

Others argue that Amazon became an online behemoth via a $1.46 subsidy from the U.S. post office.  Since Amazon customers use the post office in large numbers, the post office is able to provide this discount to these Amazon users.  The government created this benefit as the Uncle Sam finances the post office.  In addition, most companies don’t get this discount since they don’t have enough volume of shipments.  The free market didn’t provide this subsidy to Amazon and some populists in government may have a valid argument to eliminate this handout.   

Although it remains unlikely that the FTC won’t label Amazon as violating antitrust laws, there are several politicians raising alarm about Amazon. Congressman Ro Khanna believes antitrust laws need to be updated to include how a merger would impact employment, income, and small companies.  In this current environment, Amazon’s merger would probably pass due to lower prices.  With a new way of examining potential antitrusts violations, this would potentially prevent the likes of Amazon from becoming even more powerful. 

Analyzing from an unbiased perspective, the current President is unpredictable.  John Kelly, a four star general, recently replaced Reince Preibus as chief of staff.  They will be preoccupied in repealing Obamacare, and cleaning house in D.C.  Focusing on Amazon will most likely placed on the back-burner.  Once they care of healthcare and tax reform, they can then look at Amazon.   

Currently, the most Donald Trump can do regarding Amazon is just tweet negatively regarding Jeff Bezos and Amazon.  The FTC will probably not do anything now regarding the Whole Foods merger.  The President realizes that the economy is still growing and now may not be the time to go after Bezos.  As I mentioned in my previous article, the economy will continue to grow since the yield curve is positive.  The minute the yield curve turns negative, we will most likely be in a recession.  This can happen within the next few years, and this may be Trump’s moment to find a scapegoat like Amazon.  The current laws won’t do anything for antitrust.  However, if antitrust rules are revised as Ro Khanna suggests, Trump may finally be able to get back at Bezos.

Regardless whether Amazon is breaking antitrust violations is not the issue.  The issue for them will be whether Congress decides to go after them due to their major concentration of power in the e-commerce market.  Should the economy slow down within the next few years, D.C. may surprise the public and go after Amazon.  If this occurs, the party may be over for the bull market in Amazon’s stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I have QID as a hedge