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Comment by ThePhysicist | Hacker News Reader

In Germany Amazon pressured third-party sellers to use their fulfillment/warehousing service, which would reveal to them where those sellers source their goods from. They then just went to those sources and offered them a better deal, cutting out the third-party seller. So basically third-party sellers are doing free market research for Amazon: They take on the entrepreneurial risk and if they're successful Amazon will know exactly how many goods they sell to which customers and from who they get those goods. They can then use that information in their own product strategy and simply take over the business of their most profitable sellers. Really clever strategy IMHO, albeit not very fair.

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> Really clever strategy

Reminds me of my clever card playing strategy where I peek at everybody's cards.

That’s not like this at all. You have businesses who are making a profit off of an information asymmetry and reselling goods for higher prices. Totally normal, not begrudging it. But it’s always a risk that someone will figure out your suppliers and cut you out of the deal.

Have you never looked around to figure out where some dropshipper gets their stuff and bought direct?

> Totally normal, not begrudging it. But it’s always a risk that someone will figure out your suppliers and cut you out of the deal.

The risk is quite a bit larger if a large player like Amazon pressures you to tell them who your suppliers are.

> Have you never looked around to figure out where some dropshipper gets their stuff and bought direct?

Amazon exploiting their market position is not the same thing.

No, your strategy would be clever, like Amazon is clever, if you convinced the other players to show you their cards.

It's more like "if you convinced the other players to sit in front a mirror"

This is exactly the same thing Walmart used to do.

They would buy supply of a product from a startup supplier, who had done all the work of sourcing and designing the production of their product, and then demand ever-declining prices of said supply until the startup supplier had no choice but to abandon ship due to lack of profitability. At which point Walmart would simply re-create the supply chain themselves.

The solution is to never deal with a corporation like Amazon or Walmart, Bezos didn't get to be a pretend-astronaut wannabe by paying his bills.

Remember when Walmart got caught doing this, and then they tried to counter with the Made In USA ad campaign? They don't even bother any more though.

The difference between Walmart and Amazon, is that Amazon can study products it had no analog for. It could decide that it wants to enter a market, study sales patterns, force a supply chain change that let them spy on it, and launch their own products from that data.

The depth of data they have is much deeper. Walmart hasn't had 3rd party sellers for as long as Amazon, and that sort of historical sales data is priceless to retailers. They don't willingly share that.

I've heard similar stories where small suppliers are crushed by large customers.

But how do you get around this? Is there a way of engaging with these big companies as a small player? Or is it just a fool's errand?

> Or is it just a fool's errand?

I'd say yes.

Consider the possible outcomes:

1. your product doesn't sell very well, but doesn't fail entirely. you bought yourself a job, basically, you work longer hours for the same or a little less money than you made when you were employed.

2. your product doesn't sell well enough to stay on the shelves, you've probably sunk some of your own money into a failed venture and if you have debt you're probably looking at bankruptcy.

3. your product sells well, Amazon or Walmart steal it from you.

I'd say the only way to win this game is not play. Build a product for a nice market outside of their clientele's price target that sells at a premium Amazon and Walmart shoppers are unwilling to pay.

Really clever strategy IMHO

Really clever short term strategy. Once word gets out only sellers who don't care will list their products, and your product listings will be page after page of cheap, knock-off crap only an idiot would buy.

looks at Amazon listings

Yep.

Yes, Amazon is rotting from the inside by their own foul tactics. But by then, everybody involved will be heroes of their field and Bezos will literally be flying away on a rocket.

Bezos can't fly away since all of his rockets fall right back, he's never made it to orbit.

Let me this get out first - It's scummy.

However, by no means is this different from the store branded products you find at Safeway or Walgreens. They do the exact same thing. The vendors pay for shelf space, share their profits, only for the supermarkets to copy the product and sell it as store branded ones.

Like a lot of things a fresh perspective helps. People are talking about it now but it was a minor shock when I saw this the first time I visited the US (2012is). I was curious on how the brands were okay with it. I assume they rely on their brand sway. Apparently it's been a thing that goes back a very very long time.

a lot of times it’s the same company selling the high end brand and the low end copy.

store branded products have a reputation as crappy ripoffs, can you tell these amazon products are from amazon? Haven't used amazon in years so wouldn't know.

AmazonBasics is the predominant brand they use. But they definitely have some sneaky ones as well

https://www.amazon.com/b?node=17728530011

Many brands do not want to sell branded products at a discount, so they see the store brand as a positive.

Some stores manage to get their brands recognized as high-quality, but not nearly as many as you probably think. The usual consumer recognition is that they are knock-offs. So the more known brands don't see them as direct competition.

> by no means is this different from the store branded products you find at Safeway or Walgreens

It is different because Amazon controls exposure to products. In the store if I want ketchup, Heinz and the store brand are right next to each other and easily distinguishable. Amazon can bury the original product on page 2 of the search results. Also, its not always obvious in Amazon's search results that there is a viable option other than the Amazon branded product.

Stores absolutely use placement to promote one product over another. Eye level shelves are prime space, low ones near the floor are for cheap products with low margins. And “end caps” (the short end of an aisle of shelving) are for high visibility product placement.

The brick and mortar equivalent of pushing search results to page 2 is to just stop carrying the product—considerably worse than being on page 2.

>The brick and mortar equivalent of pushing search results to page 2 is to just stop carrying the product—considerably worse than being on page 2.

But no plausible deniability.

No, that is not the brick and mortar equivalent at all.

Amazon does not purchase most of the inventory listed in its search results.

Retail stores actually buy (almost) everything they sell (albeit at lower "wholesale" prices), and "resell" to end customers. So when a retail store stops carrying a product, they stop buying the product from the supplier, and that is always because the item was not profitable to sell.

(In rare cases, they sell on consignment, but such arrangements would apply to less than .001% of products sold at retail. Selling on consignment has a whole host of separate issues, which is why it is so rare even though it would seem most profitable to retail stores.)

> Retail stores actually buy everything they sell

This is true in general, but not absolutely true.

In some cases, manufacturers rent shelf space from stores, then pay the store a commission for each unit sold.

Various power tool manufacturers use this model, the name of which eludes me at this moment. I think Moleskine also does it.

Yep. Then the vendor has to add the responsibility of covering “shrinkage”, as the store doesn’t care when the product is stolen, as it doesn’t belong to them!

???

Vendors do not cover shrinkage, except for the rare items sold on consignment. Shrinkage losses are either absorbed by the store or handled by insurance.

Rack jobbing means the vendor stocks the shelves, sometimes literally. The vendor isn’t paid until the item sells. That’s common for a variety of merchants.

https://en.wikipedia.org/wiki/Rack_jobber

Yes, in rare cases, such as for low volume goods (or new goods with an unproven sales history), manufacturers might sell inventory on consignment through a retail store.

But that is the exception that proves the rule, and suppliers go into those situations with the option of simply selling to competing retail stores.

What I've noticed is many retailers only carry one or two name brands and flank them with their store brands of which they usually have three tiers.

So for example you only find Ryobi tools at the Home Depot but Craftsman and Black+Decker are exclusive to Lowes. Grocery stores do similar exclusivity with certain brands, Sargento's cheese comes to mind.

A comment like this pops up every time this happens with Amazon, and it's not even remotely the same thing at all.

Amazon only "resells" a limited subset of products. Most of the products on Amazon are sold on consignment or by third party sellers with fulfillment by Amazon.

Stores buy all of their products from their suppliers, both the name brand products and the store brand products and "resell" those products to end customers. In fact, the same company (or companies) supplies both the name brand and store brand products. Store brand products are just white label variants of the name brand. The supplier deliberately offers it as part of a market segmentation strategy, with the goal of making the name brand appear (more) premium.

Suppliers also do not pay for shelf space for most products in grocery stores. Paying for shelf space is an optional marketing strategy; suppliers can choose to pay for premium placement, and if they do not the store will simply place the most profitable items in the premium locations.

Suppliers also don't share their profits, and I don't know where you got that idea from. Suppliers sell to grocery stores at wholesale prices. And the grocery stores than "resell" those items at a markup to end customers.

Finally, grocery stores very rarely sell items on consignment, because most suppliers won't put up with that shit. Only low volume or new/trial products with no sales history get sold on consignment, because the store can't and won't purchase perishable inventory without knowing how (or when) it will sell.

Store brands for stuff like bread, etc. are not only bought from the same manufacturers as the "real stuff", they show up on the same trucks and are faced by the employees of the same distributor.

Just because something is made by the same manufacturer at the same location, doesn't mean that the manufacturer used the same inputs/recipes in everything it produces. It can easily have different lines that use different quality levels of input at different price points.

Of course. The manufacturer is getting the benefit of price differentiation without brand diffusion. And?

I felt the implication of your original comment was "store brands are functionally the same as name brands", and wanted to clarify that was not necessarily the case. Apologies if I misunderstood.

I believe there is one glaring difference: The deception/sneakiness factor. I know Kirkland is Costco's brand, Great Value is Walmart's brand, No Name is Superstore.

That being said, Amazon has taken a step in the right direction by being open about it's brands: https://www.amazon.com/b?node=17728530011

Does this not fall under "unreasonably constraining competition" section of anti-trust laws? I'm only familiar with the US anti-trust debates (and even then, not too familiar) is there a German equivalent that should be preventing this?

Also, isn't there a law strictly forbids this in Germany? As a middle-man, you are not allowed to use their data to compete with them? Because the place I work has a marketplace with third party sellers as well and we have internal rules explicitly disallows this, cited by our compliance team because of the regulations.

Then it is good for Amazon that the European retail operations are run in Luxembourg under Amazon SARL I guess.

În Germany it might stand, but you are forgetting the American legal system is very much moneybased, so Amazon can just fight it in court an win, or at worst settle, which I have no doubt it's overall still a win

But as an Amazon employee you need to sign a non compete agreement. https://www.cnbc.com/2020/06/11/aws-case-against-worker-who-...

Or we do stop Amazon, and others, or the future will be the corporate hell that 80s movies predicted.

Amazon makes vendors sign non-competes too!

But Amazon won't sign one.

This was recently rolled back for some vendors. https://www.kaspien.com/blog/amazon-fair-pricing-policy-whic...

Italy has similar organisations with clever strategies. They make you offers you can't refuse.

Those organisations have gotten so big, they've branched out and are now multi-national. They have been quite successful. I hear their biggest competitor is called RICO.

>They take on the entrepreneurial risk and if they're successful Amazon will know exactly how many goods they sell to which customers and from who they get those goods.

What "entrepreneurial risk" are they taking there? Sending the initial batch of products over and creating a product listing? Are they involved with the design/creation of the product itself? If they're just taking already designed/made products and reselling on amazon, and amazon's cutting them out, I can't say I feel sorry for them losing their middle-man position.

> What "entrepreneurial risk" are they taking there?

Maybe identifying which product is good for the market, who is the best supplier, using social media to market the product and create a demand?

Not to forget the financial risk of inventory.

They're taking on financial risk but I wouldn't call it entrepreneurial risk. They can list any number of products at time, risking nothing but money. There's nothing innovative or novel being added to the world.

The closest thing to entrepreneurial risk is the "creating demand" claim but that seems unlikely to be very true in most cases. In most cases, they're likely capturing demand on Amazon itself by being among the first to list a product.

It seems pretty clear that they're arbitraging and Amazon is taking advantage of its position to out-arbitrage them. In many cases, it seems reasonable to assume Amazon would've tried selling the product themselves regardless.

These arbitragers probably just have to accept that the reward for finding new products to arbitrage is very time-limited, because if Amazon doesn't start competing with them, someone else will.

This is a great example of a ruthlessness, but highly functional, capitalist market. It seems to work out great for consumers, all things considered.

What else are they going to lose? Money is kind of a big deal and unless a failed business owner gets a finger taken it is the biggest thing to lose

That's a major risk

Besides money, entrepreneurs invest a lot of time and energy.

Buying on one market and selling on another is not much more than gambling/speculation/trading.

Seems like a real stretch to call it entrepreneurship.

And, importantly, it's also their money. Perhaps personal, perhaps a loan. But they don't get to just pull in VC funding under the assumption that they can burn through it, close shop, and carry on like nothing happened. This is the real entrepreneurial risk.

> What "entrepreneurial risk" are they taking there

If there was no entrepreneurial risk, why wouldn't Amazon just use it's AI to predetermine all the successful combinations of product+supplier+customers ? There would be zero reason for Amazon to allow third party sellers, except for very niche areas. This is a very predatory practice and I'm amazed they're allowed to do it.

Why does the entrepreneur not just setup their own website, and sell everything themselves?

Because Amazon offers logistics in exchange for (allegedly) a reasonable fee, not for "steal my trade secrets and undermine my business"

Also presumably because lots of shopping activity starts and ends on amazon, and if you aren't listed there, you'll lose sales.

> and if you aren't listed there [on Amazon], you'll lose sales.

Those sales were never yours to lose, right?

That's true, but I think there's a solid case for why this type of practice is anti-competitive and unfair.

Let's say I own a restaurant and instead of improving my food or service I go to my competitor's food suppliers and offer them extra money to not sell to any of my competitors. In isolation, there shouldn't be anything wrong with me making an agreement with another private corporation, but the effect of this is that it creates an unfair playing field for my competition.

Amazon's position as both the marketplace and a competitor in that marketplace, creates very similar "unfair" circumstances that benefit them uniquely on that marketplace (for example placing their offerings higher up in search results, or creating special "recommendations" specifically for their offerings, etc) not to mention, the unique access to information that they have into how well their competitors do (which is not inherently unfair, but when combined with all of the other aspects does make a decent case for fitting the "unreasonably constraining competition" section of anti-trust law)

With your restaurant example, you are describing an "exclusive dealing agreement". This usually takes monopolistic conditions to become illegal.

Personally I don't like what Amazon is doing. But I don't think it is illegal under current anti-trust laws. The laws really need to change, but I don't see that happening.

You're right it definitely doesn't fit neatly under any current anti-trust laws.

I think the justification for why something like exclusive dealing agreements in monopolistic conditions is unfair could definitely be applied to why being a competitor in your own marketplace, while leveraging your customer's data, and boosting your own listings could be deemed unfair and lead to monopolistic conditions too.

"offer them extra money to not sell to any of my competitors"

Is that what Amazon is doing?

some people’s news choices begin and end on Facebook. Does that mean Facebook would have a monopoly on news if it that market shared increased enough? What’s stopping people from just typing in a non Amazon.com address into their browser?

I get maybe for the older population but that’d put a 10-20 year cap on Amazon dominance before the majority of their customer base understands the internet enough to look for alternatives if amazons service isn’t good enough.

You ask that about Facebook and thanks to the recent outage we can already see that YES Facebook is having a significant impact on traffic to non-Facebook news sites. When Facebook went down earlier this month there was a 40% spike in traffic to news sites during the outage.

Now imagine a company that has been just as effective as Facebook at replacing/consuming/killing it's competition in the retail space and you've got Amazon. If Amazon went down for a proportional extended period, say for a few days, you'd likely see a massive spike in sales at other retailers just as we saw a massive spike in new site traffic when Facebook was down.

They pay Amazon for that middle-man position already. And then Amazon gets to determine that it's more profitable for them to also compete with you in addition to taking the cut from your sales.

I find it interesting the FedEx hasn’t entered this market by purchase someone like Square and competing with Amazon. At this pace, left unchecked, Amazon is going to destroy their business as well.

I properly should buy some amazon stock then..

I don't know about the US, in Europe FBA (Fulfillment by Amazon) is getting competition from affiliates from Hermes (the logistics arm of Otto Group, one Amazon's biggest competition in Germany) and others. Multi marketplace capability and cost being among the main reasons.

Cleverness has a strange meaning nowadays

It's quite simple. More money = more clever.

Though, it sound like the bottom line us good: completion helps consumers, as the efficiency goes up (no unefficient small middle man) and eventually the price goes down?

Medium term, in long term we end up getting lot less new novel products as cost of developing those won't be recouped.

This is not true. These products are not “developed” by the middle-man seller. They are simply identified and repackaged from their existing factories in low cost regions. If anything, this would force “entrepreneurs” to actually develop a product which is difficult and risky rather than just further rent-seeking on a global scale.

Completely and patently false. Amazon is literally copying and reselling completely unique designs/products after determining through their marketplace data that it would be worth their time to do so. They're using their own data to undermine the companies that they should be dealing with in good faith.

It doesn't sound bad when you're just talking about one product or company but we're not just talking about one. Amazon has done this to thousands of products as part of a plan to use third party sellers as guinea pigs to see what products will sell enough to rip off. This is systemic anti-competitive behavior that is at the very least unethical if not outright criminal.

https://www.theverge.com/2021/3/3/22311574/peak-design-video...

Thank you for making my point. That bag doesn’t compete with the Peak design bag in any way other than general shape. It’s poorer in design and quality at every step and the user reviews show this clearly when comparing both products. It’s safe to say that Peak is in no danger from poor quality knockoffs because they actually have a value proposition that customers recognize. Lastly, if you need non-public “analytics” to know that Peak bags are popular…

Now what happens when quality and design aren't a priority? Cleaning products, adapters, chargers, widgets like a cutlery tray or kitchen scrubber... not every product can't be knocked off.

Maybe you're going to tell me everything in your home is of the highest quality, but trust me that isn't how the vast majority do their purchasing.

This one was probably affected by the Peak marketing campaign, but when it happens hundreds of times,it's not Verge news any more, it's just life. See: how so many T shirt and hoodie designs in mass market stores are ripped off indie artists.

Isn't it abuse of dominant position?

don't grocery stores do this too?

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