Amazon, E-Commerce and Monopolies

A couple of interesting comments in response to my post yesterday on Matthew Yglesias and Amazon.

First, JW writes:

I’m not sure I agree with your point…I think the reason e-commerce and Amazon are less scary is that it is harder to charge monopolistic prices because entry is so easy. If Amazon starts charging monopolistic prices, Walmart.com will just start running ads that say “Amazon is charging monopolistic prices, come to us, we guarantee our prices will be lower.” When you say “this does not mean customers will not buy elsewhere if the price is right; it is just that with economies of scale, very few competitors will be able to compete with Amazon” then that’s a good thing, no? Amazon is making a profit *not* because they are a monopolist in that description, but because they sell things cheaper than everybody else. We’re not worried about monopolists who gain advantages through cheaper prices, are we?

We are generally in agreement here that monopolists who are essentially taking advantage of lower prices are not a bad thing. But two caveats. Most importantly, the ease of entry into e-commerce markets is overrated. (Its significant that the example JW uses of someone competing with Amazon is Walmart, not a fledgling retailer.) First-mover advantage has not gone anywhere and indeed, thanks to viral effects, might have become even more pronounced; offline capital still counts in an online economy i.e., entry barriers are even lower for those with offline capital to spend. (This is most visibly seen in blogging.) Second, what might make Amazon’s practices problematic is what it might do to competitors in an effort to be able to offer the lower prices it does. These practices are what might attract anti-trust scrutiny. So it is not the end state only that matters but the damage done to markets before hand that will attract the FTC and Justice Department (if things ever get to that pass).

Then, Malcolm S. writes:

I think it is a little more complicated. Amazon is huge, but still small compared with their main competitor. Amazon isn’t going after the small retail stores, they are unintended collateral damage, Amazon is after Walmart. And Walmart still has roughly 7X Amazon’s revenues. That there is finally competition for Walmart seems good to me, but Amazon will have to remain very low margin to compete. We can start to wonder about Amazon gearing up for Monopoly when Walmart has been defeated, until then we are moving away from the pure monopsony that Walmart had become, where they were the only game in town if you wanted to sell product.

Malcolm’s point reinforces my response to Yglesias yesterday: Amazon is interesting in cornering the retail market and not interested in going after retail suppliers. Whether ‘even’ this is viable will depend a great deal on the race to the bottom that lies ahead for Walmart and Amazon. Consumers might do well as a result, but one fears for Walmart and Amazon employees: after all, the biggest savings are always made by cutting corners when it comes to labor. Someone remind me: are their employees unionized?

Matthew Yglesias Does Not Seem to Understand E-Commerce

Matthew Yglesias is skeptical of people who think e-commerce giant Amazon has a creepy, monopolistic plan to take over the world of retail. He quotes Jay Goltz, ‘proprietor of a small retail store’ as saying it is ‘impossible to make money competing with Amazon…because Amazon itself isn’t making money’:

Why would a company choose to operate without a profit? Because it wants to provide great value? Check. Because it wants everyone to love the brand? Check. Because it wants to gain market share? Check. Because it wants to put everyone else out of business, so that it can one day flick a switch to raise prices and make a fortune? CHECK!…Gaining market share by not taking a profit makes the most sense if you are planning to raise prices later when you have less competition.

Yglesias acknowledges this Amazon strategy is widely talked about, but still, he wonders:

But it’s hard to see how that plan would work. Part of the genius of the Internet is that it makes it much easier for brands to directly market their wares to people. It’s easy to see how Amazon might put K-Mart out of business, but the only way for them to put Samsung out of business would be to actually manufacture mobile phones and televisions. And if Amazon ever starts trying to charge outrageous markups on Samsung’s products, people would just buy directly from Samsung. Amazon would probably be more efficient at delivering things quickly, but then any price premium Amazon charges would be in effect an upcharge for fast delivery not a monopoly rent. And most of the time delivery speed just isn’t that big a deal.

My guess is that Amazon’s growth-first strategy really is exactly what it looks like—a strategy to pursue growth-first that shareholders tolerate because Jeff Bezos is executing it really well and he has a compelling vision. But “drive the competition out and then raise prices” is very much a meatspace business strategy. In a world where physical location doesn’t matter very much, it’s hard to see how you could pull it off. And even if you could pull it off, you’d still have to just assume that the Justice Department and the FTC would for some reason fail to enforce the anti-trust laws.

There are several problems with this optimism.

First, Yglesias is comparing apples and oranges. The threat from Amazon is not to primary manufacturers but to the retail business. Why would Amazon ever want to put those who manufacture the goods it retails out of business? Amazon’s primary value as a retailer selling everything under the sun is in making it unattractive to shop anywhere else. This does not mean customers will not buy elsewhere if the price is right; it is just that with economies of scale, very few competitors will be able to compete with Amazon. Monopolistic behavior is thus still available to those who practice e-commerce; physical location is irrelevant, here, yes, but not in the way that Yglesias imagines. It does not insulate against the acquisition of monopoly.

Second, suppose we grant Yglesias’ assumption that Amazon would need to hurt Samsung in order to live up to its supposed monopolistic threat. Amazon could still do so by providing a clearinghouse for Samsung competitors and marketing them aggressively, by making Samsung look less attractive (with aggressive markups), by monopolizing retail spaces and reducing Samsung’s distribution capabilities. It is not the case that the ‘only way’ Amazon could hurt Samsung is by manufacturing the same items that Samsung does.  That assertion shows a lack of understanding of Amazon’s capabilities, many made possible by its operational medium.

Lastly, I find Yglesias’ faith in the FTC and Justice Department quite touching.

Jonathan Baron’s ‘Against Bioethics’

I’ve been reading and discussing Jonathan Baron‘s Against Bioethics (MIT Press, 2006) this semester – with the Faculty Discussion Group at the Wolfe Institute for the Humanities at Brooklyn College. Roughly, Baron’s thesis is that utility-based decision-theoretic analysis would improve the quality and outcomes of decision making in the medical sphere, which is currently bogged down in a morass of poorly understood and specified deontological principles, biases and heuristics.

My disagreements with Baron are extensive, even as ironically, I agree with him that some kind of utilitarian decision analysis might often be useful in some domains of medical decision making. I often find myself experiencing what Baron would very likely dismiss as the ‘yuck factor’ – a cluster of heuristics and biases that make it so that I find certain courses of actions offensive or problematic, even when there appear to be apparently very good consequentialist or utilitarian arguments for them. I agree that the ‘yuck factor’ is often not a useful guide to action and can lead to problematic beliefs – such as homophobia for instance. Still, I wouldn’t know how else to characterize my opposition to organ sales (a topic on which I have written before, here, on this blog, where I worried about whether these would encourage the poorest to sell their organs at very low prices), or to using subjects in poor countries for drug trials.

Here, the objections are familiar: both practices are forms of exploitation; they capitalize on the weak–economic and otherwise–situation of those exploited under the guise of providing them a better life. The responses to these are familiar too; ultimately, what we get is the following:

From a utilitarian perspective, the behavior of the researchers…is still better than not doing the study at all or doing it in a rich country, but perhaps not as good as possible. [Or in the case of organ sales, we get better outcomes with organ markets than we do in a situation with no organ markets.]

If this argument–that the ostensible exploiters are making a bad situation better, not worse, by their ‘exploitative’ behavior–sounds familiar, it should. Because it is the same one used to excuse the use of sweatshops in places such as Bangladesh, which every once in a while kill hundreds of their workers. It should also be familiar because the dichotomy presented in it is an old one: either the exploitative action is taken, or the status quo of poverty–pernicious in all its forms–persists. Perhaps the disruption of the status quo is deadly, but that price comes out in the wash for we have better outcomes in the final reckoning, provided the correct option is chosen.

While the acceptance of the terms of the dichotomy is interesting what is perhaps even more so is the uncritical acceptance of, in the case of pharmaceutical industry, a very particular corporate axiom: if observing the boundaries noted by a particular ethical injunction is likely to effect profit margins adversely (note: not doing away with them entirely) then so much the worse for the ethical injunction.  The deployment of these arguments in the case of drug testing shows how well-entrenched this principle has become.

Rebuilding the Squat, One Set at a Time

Writing lifting reports can be extremely self-indulgent: look at me, I lift weight. But they can also be honest reckonings of weaknesses, failures, setbacks and all the other roadbumps that interfere with our smooth progress towards long-set goals. So I write ‘em; I haven’t done so too often out here but this year, I hope to rectify that.

So, here is the year’s first report. This time on the year’s squatting thus far. As is the case with most who take the squat seriously, it rapidly becomes the centerpiece of one’s lifting; no other lift’s ‘numbers’ matter quite as much; no other lift is tracked so extensively.

I feel especially inspired to write a brief note on my squatting because of having carried out what amounts to a successful reconstruction and rebuild of the lift this year.When the year began, I had lost some contact with a regular lifting schedule thanks to my new-born daughter’s arrival. I returned to squatting in mid-January and completed a cycle of squatting at Crossfit South Brooklyn, spread out over six weeks or so. I missed only a couple of sessions and slowly started to recover some strength, with my numbers creeping back up. I then began a second cycle and early in it, injured my back at the bottom of a squat. I was not squatting very close to a maximum; the week before I had squatted 240 pounds for sets across (three sets of five reps at the same weight), and on this occasion, I had been squatting 225. But the back felt bad and that was that. The next week, after resting, I tried again, and felt the soreness and stiffness again. No bueno.

It was time to deload. I set my work weight all the way back to 205, and recommenced my lifting sessions again. With a difference: this time I did sets of 5, 5, followed by a repout (i.e., as many reps as possible). This way, I hoped to continue to work on strength as well by adding a little volume to my lifts at a sub-maximal load. It worked; the following were my lifts over the next few weeks, leading up to today:

205: 5, 5, 10

210: 5, 5, 10

215: 5, 5, 12

220: 5, 5, 10

225: 5, 5, 10

230: 5, 5, 10

235: 5, 5, 10

240: 5, 5, 10

245: 5, 5, 11

250: 5, 5, 10

At this point, I began microloading in 2.5lb increments, as I was getting close to the maximum weight I have ever done for reps, 260 lbs):

252.5: 5, 5, 9

255: 5, 5, 10

257.5: 5, 5, 10

260: 5, 5, 9

Today, for the set above, I think I had the 10th rep but my back was getting sore and tired as I was waiting too long between reps to catch my breath. When I went down for the 10th, I collapsed at the bottom and couldn’ t stand back up. Still, nine was not bad at all. This session now counts as some kind of personal record for the last time I had squatted 260 lbs, I had done it for three sets of five reps.

These last few weeks of squatting then have been deeply satisfying: when I began them, I was injured, scared, and worried that I would not regain strength, and remain injured and out of action. But thanks to some judicious ego-swallowing and a patient, yet ambitious approach to recovery, I was able to lift my way back into some real strength gains.

Much hard work to be done over the summer (especially on squat technique), but for the time being, at least the squat is back in business.

Orin Kerr Thinks Executive Branch Searches of The Press Are a ‘Non-Story’

Orin Kerr suggests the story of the US Department of Justice seizing AP phone records isn’t one, wraps up with a flourish, hands out a few pokes at anti-government paranoia, and then asks a series of what he undoubtedly takes to be particularly incisive and penetrating questions:

Based on what we know so far, then, I don’t see much evidence of an abuse. Of course, I realize that some VC readers strongly believe that everything the government does is an abuse: All investigations are abuses unless there is proof beyond a reasonable doubt to the contrary. To not realize this is to be a pro-government lackey. Or even worse, Stewart Baker. But I would ask readers inclined to see this as an abuse to identify exactly what the government did wrong based on what we know so far. Was the DOJ wrong to investigate the case at all? If it was okay for them to investigate the case, was it wrong for them to try to find out who the AP reporters were calling? If it was okay for them to get records of who the AP reporters were calling, was it wrong for them to obtain the records from the personal and work phone numbers of all the reporters whose names were listed as being involved in the story and their editor? If it was okay for them to obtain the records of those phone lines, was the problem that the records covered two months — and if so, what was the proper length of time the records should have covered?

I get that many people will want to use this story as a generic “DOJ abuse” story and not look too closely at it. And I also understand that those who think leaks are good things will see investigations of leaks as inherently bad. But at least based on what we know so far, I don’t yet see a strong case that collecting these records was an abuse of the investigative process.

This summation and dismissal of the ‘non-story’ of a major news organization having its phone records seized by the legal wing of the executive branch is remarkable for its straightforward intention to treat the questions above as merely rhetorical: Of course, the DOJ is not ‘wrong’ to investigate aggressively, using all means at its disposal, whistleblowers providing information to the press. It should therefore seek to identify them relying on problematic doctrines of search and seizure of personal information provided to third-parties. These searches should be broad and extensive, casting as wide a net as possible.

In this conception of executive power, there is a visible asymmetry: the threat might be perceived dimly, but the response is clear and powerful, with few limits on its application.

For Kerr, therefore, it is a ‘non-story’ when a massive exertion of executive branch power is directed at a component of the polity vital to its information gathering and reporting functions, one of whose central functions has been exercising vigilance and oversight on that same power; it is a ‘non-story’ when exercises of executive power directed toward dubious ends such as prosecuting whistleblowers might result in an attenuated and impaired  domain of political discourse. This is of little concern to Kerr in his reckonings of whether legal propriety has been kept, of whether there has been an ‘abuse of the investigative process.’ But how could there be one, when the context of the ‘investigative process’ matters so little?

Constraints, Creativity, and Programming

Last year, in a post on Goethe and Nietzsche, which invoked the Freedom program (to cure Internet distraction), and which noted the role constraints played in artistic creation, I had referred obliquely to a chapter in my book Decoding Liberation, in which ‘Scott Dexter and I tried to develop a theory of aesthetics for software, a crucial role in which is played by the presence of technical constraints on programmers’ work.’

Today, I’d like to provide a brief excerpt from Chapter 3, ‘Free Software and the Aesthetics of Code’, pp. 90-91:

Understanding how a particularly ingenious piece of code confronts and subsequently masters constraints is crucial to understanding creativity and beauty in programming. Programmers have a deep sense of how their work is made more creative by the presence of the physical constraints of computing devices. Programmers who worked in the early era of computing struggled, in particular, to write code that would work in the tiny memory banks of the time — the onboard mission computer for the Apollo 11 project had a memory of 72 kilobytes, less than that found in today’s least-sophisticated cell phone. This struggle was reflected in the nature of the appreciation programmers accorded each other’s work. Steven Levy’s ethnography of the early programming culture, Hackers, describes the obsession with  ”bumming” instructions from code:

A certain esthetic of programming style had emerged. Because of the limited  memory space of the TX-0 (a handicap that extended to all computers of that era), hackers came to deeply appreciate innovative techniques which allowed programs to do complicated tasks with very few instructions. . . . [S]ometimes when you didn’t need speed or space much, and you weren’t thinking about art and beauty, you’d hack together an ugly program, attacking the problem with “brute force” methods. . . . [O]ne could recognize elegant shortcuts to shave off an instruction or two, or, better yet, rethink the whole problem and devise a new algorithm which would save  a whole block of instructions. . . . [B]y approaching the problem from an off-beat angle that no one had thought of before but that in retrospect, made total sense. There was definitely an artistic impulse residing in those who could use this genius from Mars technique (Levy 1994).

These programmers experienced the relaxation of the constraint of system memory, brought on by advances in manufacturing techniques, as a loss of aesthetic pleasure. The relative abundance of storage and processing power has resulted in a new aesthetic category. One of the most damning aesthetic characterizations of software is “bloated,” that is, using many more instructions, and, hence, storage space, than necessary; laments about modern software often take the shape of complaints about its excessive memory consumption (Wirth 1995; Salkever 2003). Huge executables are disparaged as “bloatware,” not least because of the diminished ingenuity they reflect (Levy 1994). Judgments of elegant code reflect this concern with conciseness: “I worked with some great Forth hackers at the time, and it was truly amazing what could be accomplished with what today would be a laughingly tiny memory footprint” (Warsaw 1999).

The peculiar marriage of constraints, functionality, and aesthetic sensibility in source code highlights a parallel between programming and architecture. An awareness of gravity’s constraints is crucial in our aesthetic assessment of a building, as we assess its ability to master the weight of materials, to make different materials cohere. While striving to make the work visually pleasing, the architect is subject to the constraints of the requirements of the structure’s inhabitants, much as the programmer is subject to the constraints of design specifications, user requirements, and computing power.

Artists in other genres struggle similarly: creative artistic action is often a matter of finding local maxima of aesthetic value, subject to certain constraints (Gaut and Livingston 2003). These constraints may be imposed on the artist, as in censorship laws; they may be voluntarily assumed, as when a composer decides to write a piece in sonata form; or they may be invented by the artists themselves, as in Picasso and Braque’s invention of Cubism. Whatever the origin of the constraints, “creative action is governed by them,” and “artistically relevant goals,” such as the facilitation of   communication between artists and the public, are advanced by them (Elster 2000, 212). The connection between creativity and coping with constraints is explicit in programming: “It is possible to be creative in programming, and that deals with far more ill-defined questions, such as minimizing the amount of intermediate data required, or the amount of program storage, or the amount of execution time, and so on” (Mills 1983)….Thus, the act of programming, in its most creative moments, endeavors to meet constraints imposed by nature through the physicality of computation, by the users of the program and their desires for functionality and usability, and by the programming community through the development of shared standards.

The Slap of Love: A Mother’s Day Story

I should have 9511 stories about my mother. One for my every day of my life that she was alive. Today, I’ll recount just one of them.

As just-above-waist-high kids, my brother and I used the local park for our evening sports sessions. In the winters, this mean cricket; in the summers, soccer. Play ended when it became dark; in the winters, this dreaded time came earlier than it did in the summers, and because cricket was played with a dangerous hard ball, nightfall was not a barrier to be trifled with. Summers were a different matter; we were playing soccer and kicking and running around with our feet. We could, often would, play well into the dark, testing the boundaries of how long we could stay out without getting yelled at for being late for homework or dinner.

On one such summer evening, our soccer game ran late as usual. The streets around us brightened even as the park darkened and our game continued. Then, the ball was kicked to the sidelines and appeared to run out into the street adjoining the park. My brother sprinted after it, desperate to get it back into play so the game could resume. Unknown to him a strand of barbed wire was strewn across one of the breaks in the park’s wall. In the daytime, this was clearly visible, and those entering the park from that unofficial entrance had gingerly stepped around this bizarre barrier. (Perhaps placed there to stop animals from entering the park).

My brother ran into the that strand of wire at full tilt. As he did so, we saw him lifted off the ground and become entangled, heard him scream, and then, silence. We  ran over, extricated him from the wire, and stood him up. His shirt was torn, his skin was scratched at several points, and ominously, his face was streaked with blood. Horrified, wondering whether my brother had been blinded, I walked him–stoically silent–back to our home, where, terrifyingly, my parents awaited.

My mother’s face blanched as she saw my brother’s face. But she said nothing as she raced to the medicine cabinet and returning with cotton wool swabs, a mug of water, and some antiseptic solution, quickly got to work. She efficiently cleaned and wiped and medicated. And then, one of her swipes revealed that the blood on the face did not conceal a gouged out eye. My brother had not been blinded; he had gotten away with a cut above the eye.

At this point, my mother slapped my brother. It wasn’t a hard blow; but a stinger across the cheek, nonetheless. My brother, quietly undergoing the patchwork till then, stared back at my mother, astonished and hurt. What was that for?

Watching this little drama go down, I wasn’t puzzled at all. My mother must have been petrified when I had brought my brother home late, a bloody mess. She loved us, powerfully, a love that often racked her with deep fears that we might ever be hurt in any way. But she had suppressed every other reaction of hers in favor of immediately providing succor to him. With the most immediate wounds cleaned and shown to be non-threatening, her relief had combined with the anger she had felt at my brother for subjecting her to that terrible anxiety.  That slap followed. I felt sorry for my brother but I felt for my mother too. I knew why she had snapped. And slapped.