[pdonis]

> Hayek is arguing that no centralised agent has perfect information. The author is arguing that Amazon is approaching the stage when it would have perfect information about the consumers it serves.

This statement in the article is a huge misstatement.

First, Amazon only has information about the goods it sells. There are many things it doesn't sell, and many things that it can't sell. There are huge supply chains behind the products it sells that it does not see. There are also many things of value that are not exchanged with money.

Second, to the extent Amazon does have information about its customers, it has that information because of those customers' buying decisions. In other words, it has exactly the information that Hayek says a market participant has, and no more: the price at which other market participants will buy whatever quantity of one's products are sold.

[morningseagulls]

>> Hayek is arguing that no centralised agent has perfect information. The author is arguing that Amazon is approaching the stage when it would have perfect information about the consumers it serves.

>This statement in the article is a huge misstatement.

At least blame the right person: me. The above statement is a paraphrase of what I thought the author's argument was.

>First, Amazon only has information about the goods it sells.

>There are huge supply chains behind the products it sells that it does not see.

And it is in the process of acquiring more information. Amazon isn't just a retailer anymore: its main source of operating income is now AWS[0]. Also, dredmorbius has pointed out[1] that Amazon is doing vertical integration with its Amazon Business offering[2].

>There are many things it doesn't sell, and many things that it can't sell.

This is irrelevant, because these "many things" exist in a market outside of Amazon's "jurisdiction". Even in the historical centrally planned economies, these "many things" also existed.

>There are also many things of value that are not exchanged with money.

And they are getting rarer and rarer, because monetisation is now the Great Project.

>In other words, it has exactly the information that Hayek says a market participant has, and no more: the price at which other market participants will buy whatever quantity of one's products are sold.

Actually, Amazon has more information than a single market participant has. Since it is the market because it is a marketplace-as-a-service, it has exactly the information that Hayek says the sum total of all market participants have. This invalidates Hayek's argument that no centralised agent can possibly collect that much information. This point is what I believe the author of the article is trying to make.

[0] https://www.zdnet.com/article/in-2018-aws-delivered-most-of-...

[1] https://news.ycombinator.com/item?id=21306655

[2] https://www.amazon.com/b2b/info/amazon-business

[pdonis]

> The above statement is a paraphrase of what I thought the author's argument was.

Fair enough.

> Amazon has more information than a single market participant has. Since it is the market because it is a marketplace-as-a-service, it has exactly the information that Hayek says the sum total of all market participants have.

No, it doesn't. It has all the information that a large market participant has--i.e., a market participant that has a very large number of transactions with a very large number of other market participants. Hayek was perfectly well aware that such market participants existed (after all, such participants existed in his day--for example, Standard Oil).

But Amazon's information is still limited to information that a market participant can have: namely, as I said, the prices at which the various goods it sells are sold. It does not have any more information than that. It has information about a lot more transactions than most other market participants, but the information it has about each transaction is the same as what the other participant in the transaction has, no more.

[morningseagulls]

>Hayek was perfectly well aware that such market participants existed (after all, such participants existed in his day--for example, Standard Oil).

And Hayek did mention monopolies or "coordinated industries" as a "halfway house" between centrally planned economies and free markets. Sure.

>But Amazon's information is still limited to information that a market participant can have: namely, as I said, the prices at which the various goods it sells are sold. It does not have any more information than that.

Actually, Amazon does collect and process information that a market participant wouldn't normally have: consumer preferences.

Hayek argued that a central planner wouldn't be able to suck up the decentralised information embodied in every market participant. However, what Amazon is doing is mining the data it has about a consumer's purchase history, as well as the responses the consumer gave to recommendations made by its recommender engine. That is a lot more information than what most market participants would normally have access to.

Now, Hayek has outlined what he thinks is needed to construct a "rational economic order" in the beginning of "The Use of Knowledge in Society":

1) "If we possess all the relevant information",

2) "if we can start out from a given system of preferences",

3) "if we command complete knowledge of available means".

Unlike the monopolies of old, which may have 1) to some extent, Amazon also has 2), and is trying to acquire 3) with its Amazon Business offering. So its capabilities are arguably an improvement over the capabilities of the old monopolies.

[pdonis]

> Amazon does collect and process information that a market participant wouldn't normally have: consumer preferences.

This is wrong. A market participant does normally have information about the preferences of other market participants. That's precisely the information conveyed by market transactions, buying and selling certain quantities of certain goods at certain prices. The only difference between Amazon and you or I is that Amazon engages in a lot more transactions, so it makes a lot more sense for Amazon to invest significant resources in collecting and analyzing its transaction data. But that doesn't make Amazon a successful central planner; it just makes Amazon a successful large market participant.

> Unlike the monopolies of old, which may have 1) to some extent, Amazon also has 2), and is trying to acquire 3) with its Amazon Business offering

Wrong again. Amazon has none of those three, nor has any other monopolist in history. Or indeed any central planner such as the government of the Soviet Union. Nobody has all relevant information. Nobody can take an entire system of preferences as given. And nobody has complete knowledge of all available means. All three of those requirements are extremely strong, and Hayek meant them to be that way. He didn't mean them as approximations; he meant them as literal exact requirements, which no real entity can possibly fulfill. Certainly Amazon doesn't.

> its capabilities are arguably an improvement over the capabilities of the old monopolies

I think this is true, but it's a much, much weaker claim than the one you have been making.

[morningseagulls]

>> its capabilities are arguably an improvement over the capabilities of the old monopolies

>I think this is true, but it's a much, much weaker claim than the one you have been making.

I think you need to stop identifying me with the author of the article. My original comment was to make fun of the author for his ludicrous comment about Marxists calling it a day after nationalizing Amazon, which got some Marxists riled up:

>Perhaps we need to break up Amazon because communism? /s

The comment you replied to in starting this conversation spelled out exactly the same argument you made above:

>So a communist economy, in Marx's sense, is also an economy in which there's perfect information. That can't possibly happen in the real world, of course, and Hayek correctly points this out about a centralised bureaucracy.

So the "much, much weaker claim" is the one I have always been making.

>>> Unlike the monopolies of old, which may have 1) to some extent, Amazon also has 2), and is trying to acquire 3) with its Amazon Business offering

>Wrong again. Amazon has none of those three, nor has any other monopolist in history.

It's exhausting to have to always qualify my statements. Of course I did mean "Amazon also has 2) to some extent, and is trying to make inroads into acquiring 3) to some extent".

>> Amazon does collect and process information that a market participant wouldn't normally have: consumer preferences.

>This is wrong. A market participant does normally have information about the preferences of other market participants. That's precisely the information conveyed by market transactions, buying and selling certain quantities of certain goods at certain prices.

No, this is wrong. Amazon collects information about the preferences of market participants through non-market non-priced transactions as well. Here's a non-exhaustive list of such information collection:

- information from consumer responses to recommendations made by the recommender system

- information from consumers immediately after they've clicked on a link supplied by an Amazon associate, which then directs them to a product page.[0] Yes, there is a market transaction between Amazon and its associates, but at the time of the click, the information isn't generated from a market transaction between Amazon and the consumer.

- information supplied by consumers themselves through Amazon Lists, listing explicitly their preferences for goods and services.[1]

- information supplied by consumers themselves about their social network and preferences through Amazon Wish List.[1]

This is evidence for suggesting that "Amazon also has 2) [to some extent]", possibly to a greater extent than any monopolies of the past century has ever had.

[0] https://affiliate-program.amazon.com/

[1] https://www.amazon.com/gp/aw/ls

[pdonis]

> it is a marketplace-as-a-service

To the extent this makes a difference, because of Amazon's efforts to monopolize various market segments by undercutting competition, it decreases the amount of information Amazon has about other market participants. A perfect monopolist, by setting monopoly prices, decreases the value of the price information it gets through transactions, because there are no other competitors offering the same goods at different prices to compare to, so the prices of the monopolist's transactions convey less information about the preferences of other market participants. That makes the market less efficient.

[morningseagulls]

>>it is a marketplace-as-a-service

>To the extent this makes a difference

It does, because you're arguing as if Amazon sells stuff. It doesn't (just) do that: it's a market-maker that provides a venue for other vendors to sell stuff.

So it's already an error to talk about Amazon as a monopolist, when Amazon isn't the only marketplace out there with a global reach. But you're also making a category error, because you wrote:

>A perfect monopolist, by setting monopoly prices, decreases the value of the price information it gets through transactions, because there are no other competitors offering the same goods at different prices to compare to, so the prices of the monopolist's transactions convey less information about the preferences of other market participants.

Amazon doesn't set prices per se, at least not for vendors in its marketplace that are not itself. So it doesn't do whatever you think it's doing when you were writing that paragraph. Certainly there are "other competitors offering the same goods at different prices to compare" with, because Amazon's marketplace include other vendors. But Amazon is running a marketplace, not (just) being a vendor. There's a difference in category there.

[pdonis]

> it's a market-maker that provides a venue for other vendors to sell stuff

That's not what a market maker is. A market maker is a market participant that guarantees to buy or sell something if no other buyer or seller can be found.

Providing a venue for others to sell stuff is a straightforward market transaction: Amazon sells its services to others for a price. There's nothing special about it, and standard Hayekian economics accounts for it just fine.

> Amazon doesn't set prices per se

To the extent this is true (as you say, for vendors that are not itself), it just reinforces the point I made above: that what Amazon is doing as a "marketplace as a service" is just a straightforward market transaction, selling services for a price, and does not give Amazon any sort of special status.

> Amazon is running a marketplace, not (just) being a vendor.

Running a marketplace, if it does not mean being a monopolist (which you are insisting it does not), is being a vendor, a vendor of particular services.

[morningseagulls]

>> it's a market-maker that provides a venue for other vendors to sell stuff

>That's not what a market maker is. A market maker is a market participant that guarantees to buy or sell something if no other buyer or seller can be found.

Right, but the similarity between a market maker in finance, and a marketplace maker in ecommerce, is that both of them have a lot more information than an ordinary buyer or seller. It doesn't matter if Amazon doesn't really act as a counterparty: the point is about how much knowledge it has, compared to the average participant.

>Running a marketplace, if it does not mean being a monopolist (which you are insisting it does not), is being a vendor, a vendor of particular services.

I was pointing out that there are two levels we're looking at:

1. Amazon as a provider of a marketplace

2. Amazon as that marketplace and what it entails about how much knowledge it possesses.

Recall that this is in the context of Hayek's arguments in The Use of Knowledge in Society, because the article's author referenced that explicitly.

Now, when I said Amazon isn't a monopolist, this is in terms of 1. Amazon is definitely not the only provider of an ecommerce marketplace with a global reach. In that sense, it's not a monopoly.

But Amazon is a "monopoly" in the sense that Hayek alluded to in his essay, i.e. in terms of 2. Hayek wrote in that essay:

The halfway house between the two, about which many people talk but which few like when they see it, is the delegation of planning to organized industries, or, in other words, monopoly.

Technically, it is still an oligopolist, since it is not the sole provider of ecommerce in America, but "organized industries" sounds like an apt way to describe what Amazon is doing. And it's in this particular sense of Hayek's that I referred to Amazon as a "monopoly".