Retail & logistics vertical integration: Implications on market definition

In the summer of 2020, the Italian postal sector regulator AGCom published an interim decision finding Amazon Italia Transport to hold allegedly significant market power (SMP) in a relevant market defined as “domestic B2C deferred e-commerce parcel delivery services”. AGCom’s interim finding of SMP was based on four alleged factors: i) Amazon’s presumed market share in the defined relevant market, which is a minor subset of all delivery services, ii) Amazon’s vertically integrated business model, iii) Amazon’s bargaining power vis-à-vis delivery service providers, and iv) the role of specific investments as entry barriers.  

The AGCom interim decision, as well as the latest policy position papers from the European Regulators Group for Postal Services trigger several questions relevant both to the future development of EU level postal policy and to regulatory outcomes in Italy: 

• What competitive forces, and thus what relevant market boundaries, exist for parcel delivery services in Italy?
• What evidence can conclusively prove/disprove that a company holds SMP therein?
• What is the role of vertical integration and buyer power in the delivery value chain and what impact does it have on competition and consumers?
• Does the growth in e-commerce delivery, “platformisation” and the success of vertically integrated players justify – as suggested by regulators – expansion of the current postal regulatory framework to impose regulatory obligations on parcel delivery, including on new types of business models?

This study provides observations for consideration by AGCom and other policymakers in evaluating the effect on parcel delivery activities of vertically integrated players and in relation to the ongoing evaluation of the European Postal Services Directive. Our main findings are as follows:

• The dynamic parcel delivery sector makes market definition challenging, as historic assumptions and simplifications may not hold.
• Empirical evidence, a necessary component of defining the relevant market, indicates broad relevant market(s) for parcel delivery in Italy.
• AGCom’s preliminary assessment contains multiple gaps, making it unable to establish a finding that Amazon holds SMP.
• Vertical integration in retail distribution value chain creates efficiencies and consumer benefits.
• New or expanded ex-ante parcel delivery services regulation could lead to regulatory failure, e.g. by putting benefits created by vertical integration at risk. Existing postal regulation already safeguards against past identified market failures such as under-provisioning, via the universal service mandate.

The study is commissioned by Amazon.

Download the executive summary in Italian here