On Friday morning, Amazon announced it was buying Whole Foods Market for more than $13 billion. About an hour later, Amazon’s stock had risen by about 3 percent, adding $14 billion to its value.
Amazon basically bought the country’s sixth-largest grocery store for free.
As the financial reporter Ben Walsh pointed out on Twitter, this is the opposite of what’s supposed to happen—normally, the acquiring company’s share price falls after a major purchase—and it suggests that investors now believe something odd is going on with Amazon. What could it be?
From a straightforward standpoint, the Whole Foods acquisition means that Amazon will now participate in the $700 billion grocery-store business. Jeff Bezos, the company’s president and CEO, has made grabs at that market for several years—launching Amazon Fresh, a food home-delivery service, and opening several Amazon-branded bodegas in Seattle. Now he owns one of the industry’s best-known brand names.
But Amazon paid a premium to buy Whole Foods, so its new full entry into another industry doesn’t quite explain the rise. Instead, the boost in share price suggests something more ominous: An incredible amount of economic power is now concentrated in Amazon, Inc., and investors now believe it is stifling competition in the retail sector and the broader American economy.
And it is successful on nearly all of those fronts. Last year, Amazon sold six times as much online as Walmart, Target, Best Buy, Nordstrom, Home Depot, Macy’s, Kohl’s, and Costco did combined. Amazon also generated 30 percent of all U.S. retail sales growth, online or offline.
Yet Amazon’s dominance extends far beyond retail. It also lends credit, publishes books, designs clothing, and manufactures hardware. Three years ago, it bought Twitch.com, a central player in the $1-billion business of e-sports. And on top of all this, it operates Amazon Web Services, a $12-billion business that rents servers, bandwidth, and computing power to other companies. Slack, Netflix, Dropbox, Tumblr, Pinterest, and the federal government all use Amazon Web Services.
“I think of Amazon as serving almost as the essential infrastructure for the American economy at this point, when it comes to commerce. And that affords Amazon a lot of power and control,” says Lina Khan, a fellow on the Open Markets team at New America, a center-left think tank.
In January, Khan called for Amazon to receive more antitrust scrutiny in an article in The Yale Law Journal.
Historically, many of Amazon’s critics have focused on their Marketplace feature, which allows small businesses to sell their goods through Amazon’s website. Some merchants have accused Amazon of secretly using Marketplace as a laboratory: After collecting data on which products do best, it introduces low-price competitors available through its flagship service.
The Institute for Local Self-Reliance, a nonpartisan advocacy group, has also criticized Amazon for this alleged anticompetitive behavior. “By controlling this critical infrastructure, Amazon both competes with other companies and sets the terms by which these same rivals can reach the market. Locally owned retailers and independent manufacturers have been among the hardest hit,” said a recent report from the group.