Amazon is a web-based retail giant known throughout the world. The company is frequently in the spotlight and is a hot topic in today’s economic news. Forbes contributor, Laura Heller wrote an interesting piece about Amazon called, “Amazon’s Growing Power in the U.S. Economy”. This article delves into Amazon’s increasing role in American homes and lives and also discusses the implications of such a mega business and what it could mean for the U.S. Economy.
One of the central themes, albeit not often mentioned topics in the article, is how Amazon is monopolizing the economy. A topic that is often brought up whenever Amazon is discussed. However, going further than that, this article also discusses demand in the economy, and price elasticity. All topics that tie in to what we have discussed in class. According to the article, half of the households in the U.S are now subscribed in Amazon’s Prime program. The article highlights how Amazon is impacting daily transactions and growing in the daily activities of Americans.
According to the Institute for Local Self-Reliance, ISLR, half of all online shopping searches originate on Amazon and Amazon captures almost 1 in every two dollars spent online by Americans (DePillis, 2018). Currently, Amazon sells more books and toys than any other online retailers. By next year, it is predicted that Amazon will also leads sales, both on and offline, in apparel and consumer electronics. The company is also currently heavily investing in groceries as well, meaning they could also be impacting that industry in the next five to ten years.
Mrs. Heller further explains how Amazon is actively working to bring new shoppers into its ecosystem as well as working on converting current shoppers into using Amazon flagship products, like the Echo and Echo Dot, for purchasing items directly from the website (Heller, 2016). This article ties it neatly into what we have been learning in class. In regard to monopolization, ILSR contends that Amazon’s growing dominance poses a threat to the economy through increased monopolization in industry. This is heavily based on Amazon recent acquisition of Whole Foods taking the retail giant into new territory. All of this “makes Amazon appear as an intimidator, a hegemonic firm dominating the retail market” (Marathe, 2018).
However, this does not equate to Amazon being a monopoly because it ignores the basic premise of what constitutes a monopoly and consumer behaviors. In our studies, we learned about Natural Monopolies. These are firms that originated with a high startup cost and eventually incurred low marginal coast as the output volume increased. These natural monopolies don’t imply that only one firm is providing the services or goods, it just means that the provision of those same services and goods by multiple firms is possibly inefficient.
However, even in this regard, Amazon doesn’t fit the definition of a natural monopoly either. In 2016, retail revenue was $3.7 trillion, where Amazon only constituted $135 billion. This is insignificant compared to Wal-marts $500 billion. Critics that believe Amazon is a monopoly fail to consider the role of consumer purchasing behavior. As we learned, this plays a huge role in the market. Monopolist are free to charge higher than market prices because there is no competition. This is different than Amazons tactics.
Consumers still have a choice on whether that want to purchase a good at amazons’ price. Take a phone case for instance, consumer can compare prices between Amazon and Best Buy, say they decide to purchase through best buy because they had the lower price and offered free shipping. Where Amazon only offers free shipping for Prime members. Not all buyers are willing to pay the member fees for Prime benefits or extra for shipping. This is exactly what demonstrates that Amazon is not a monopoly. All consumers have a maximum willingness to pay, some consumers will choose not to pay a higher price for increased benefits.
This is a choice making behaviors that is absent when monopiles exists. Even though Amazon is not currently a monopoly, its rapid growth does suggest it will dominate the retail market in the next ten years. However, the company does face constant competition, in particular from Walmart, keeping the company from monopolizing the market.