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Amazon’s Big Secret

The Atlantic [unpaywalled] – “…Nearly 30 years after the company was founded, we still don’t really know where its profits come from. The answer will loom large in the antitrust case against it. Under SEC rules, public corporations must file quarterly reports disclosing revenue, expenses, profits, and other metrics. Initially, only company-wide data were required. But in 1966, the Senate antitrust subcommittee held a series of hearings exploring how weak financial-reporting rules threatened competitive markets. A main focus was how conglomerates—companies that combine multiple businesses under one roof—could hide information about their subsidiaries that, if revealed, might be evidence of anticompetitive behavior. Following the hearings, the SEC revised its rules to require corporations to disclose financial data for each of their major divisions, or segments. The aim was to ensure that investors and the public had a clear view of each unit on its own. But in practice, the SEC has given corporations “near total managerial discretion” to decide what counts as a segment, as a 2021 report from the Institute for Innovation and Public Purpose at University College London put it. This has allowed them to lump together different business lines and report only aggregated data for the whole, making it possible to conceal that a division is generating the kind of jumbo profits that might alert antitrust enforcers to a lack of competition. It also allows corporations to hide sustained losses in particular divisions, which can be a sign of a monopoly in the making. Indeed, for much of the 20th century, a top concern of antitrust was “cross-subsidization”—when a corporation uses excess profits obtained by monopolizing one market to fund large losses in another. In her classic 1904 exposé of Standard Oil, Ida Tarbell, the mother of investigative journalism, described how John D. Rockefeller’s company would sell below cost in a given region until it drove the competition out of business, sustaining those losses by charging exorbitant prices in places where the monopoly was already established. In the 1930s and ’40s, General Electric likewise relied on excess profits from its light-bulb monopoly to sell home appliances at a loss. (A federal antitrust case brought against GE in 1941 eventually broke its hold on the light-bulb market.)..”

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