Amazon'S Dangerous Potential Monopoly
Amazon is among the four great Big Tech companies dominating market. In recent years, these Big Tech companies have garnered scrutiny at home and abroad. Google ran afoul with the European Union resulting in $9 billon dollars in fines. Facebook has received criticism for failing to address fake news story on it’s platform. These two giants while increasingly powerful deal primarily in the digital realm with a few exceptions. The company Amazon excels in both the digital and physical markets. Amazon’s growing power has drawn the ire of journals and politicians alike. Amazon currently stands outside the standard definition of a monopoly, but this definition proves to be inefficient in addressing current concerns. In this essay the following topics will be used to support the thesis. First, Amazon’s undercutting of competitors and the power of its platform. Then the impact of Amazon’s acquisitions on various industries. Concluding with classification of Amazon as a monopoly and the risk of it gaining a new kind of monopoly. These points will be used to support the thesis: Amazon has potential to become a dangerous monopoly unlike those seen in the past. Government intervention by reclassification of a monopoly can halt Amazon’s advance.
By undercutting the competition Amazon prevents fair competition. Achieving a monopoly in a market is no easy task. The first step is edging out the competition. On its online retail platform, Amazon lists more than 330 million products not including items they produce themselves under the AmazonBasics brand (Duhigg 11). Theses third party sellers pay fees to Amazon for housing inventory and logistics purposes. By using the platform these businesses face competition with counterfeiters and Amazon itself. Using collected consumer data, Amazon can create imitations of best-selling items and sell them at a reduced price (Duhigg 22). Despite Amazon’s efforts counterfeiters and foreign sellers have placed on the platform thousands of unsafe, deceptively labeled or federally banned items according to the Wall Street Journal. Journalist Lina Khan argues that Amazon has an inherent advantage that undermines fair competition when it competes against other sellers and owns the platform where the deals are done (Streitfeld 6). With a customer base of millions combined with the ability to forgo profits to undercut prices Amazon forces small business owners in a difficult situation. Either play by their rules or risk being left in the dust.
Through corporate acquisition Amazon has been able to expand its business in diverse markets. In 2017, Amazon purchased the supermarket chain Whole Foods for $14 billon cementing their place in physical retail. The merger concerned some like Rep. David Cicilline of Rhode Island but failed to spark wider outrage. Amazon’s expansion into brick-and-mortar includes Amazon Books. By providing books at a discount Amazon had disrupted the business model in publishing. A failure to cross-subsidize in response to Amazon had resulted in consolidation among book publishers. John Stuart Mill speaks on natural and artificial monopolies with “All the natural monopolies (meaning thereby those which are created by circumstances, and not by law)” (Boardman 292). Through acquisition Amazon seeks to create a natural monopoly while still avoiding an artificial monopoly imposed by the government by sustaining losses and investing at the expense of profits (Meyer). Another part of keeping out of the government’s sights is Amazon’s strategy on federal taxes. By paying employees in stocks and research and development credits they receive more than 1. 1 billion in tax breaks. instead of traditional wages they are able to receive a 1. 1 billion deduction. Financial filings report Amazon paid nearly zero U. S. federal income tax in 2018 (Duhigg 29). Aggressive acquisition is a common character of a monopoly as is structural dominance which Amazon is growing close to achieving
By current standards Amazon isn’t classified as a monopoly but these standards can be updated. Monopolies have been around as long as men wished to amass wealth. Aristotle wrote of a man in Silcily who “bought up all the iron from the iron mines, when merchants came to buy iron, he was the only seller and without much increasing the price he gained 200%” (Boardman 89). The United States Department of Justice, reports that a market share of greater then 50% has been necessary for courts to find the existence of monopoly power. Amazon is projected to control only 10% of all retail sales in the U. S. far below the standard (Sizemore). These numbers fail to account for the part Amazon plays in many industries. Unlike previous monopolies like Standard Oil who controlled 90 percent of oil production when it was dismembered by the Supreme Court (Ladd), Amazon has its finger in many pies. Through the subscription service Amazon Prime they are able to compete with major streaming services Netflick and Hulu. They provide cloud computing and web services. With Amazon Music they can stand toe to toe with iTunes and Spotify. Alexa, the virtual assistant bundled in Echo smart speaker rivals Microsoft’s Cortana and Apple’s own Siri. No other tech company comes close to all the services Amazon can provide. Amazon may still be behind in the retail front by being the seventh-largest retailer in the U. S. They make up for it with online presence, 44 cents of every dollar Americans spend online goes to Amazon. The nearest online competitive, Ebay is only six cents of every dollar (Meyer). Under the current measure of the law Amazon cannot be considered a monopoly. With growing support for new antitrust legislation it’s possible for the government to reinterpret legal precedents regarding monopolies. Politicians from both sides of the isle have set their sights on Amazon and it’s practices. With its size and reach in the market no current corporation can rival Amazon but the federal government has corrected the market before.
Amazon has potential to gain a monopoly different from the traditional definition. The evolution of technology and market elements indicates a need for the classification of a monopoly to be changed to reflect current trends. In owning the platform that many of its competitors are compelled to use to make a profit as well as selling on that same platform Amazon has an inherent advantage. By failing to remove counterfeiters on it’s platform they further handicap their competitors and put the safety of consumers at risk. Through acquisition of an array of different companies spanning multiple industries, Amazon obtains more control of its supply line. Rival companies are forced to consolidate product inventory to compete with Amazon price cuts creating fewer diverse options for consumers. Using strategies including paying employees in stock and inflating losses through development Amazon is able to avoid paying U. S federal income tax. Amazon’s control of just 10% of retail sales in the US doesn’t take into account the control it sustains in other industries. For every dollar Americans spend online 44 cents of that dollar goes to Amazon with the closest competitor far from close. With a massive selection of products spanning multiple industries they’re able to compete on a level unlike any company before them.
