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HomeEconomicsThe e-commerce giant: Is Amazon playing selfish?

The e-commerce giant: Is Amazon playing selfish?

By Archit Jain

Last week, JPMorgan retail analyst Matt Boss commented that “If you’re not online and if you’re not Amazon, you need to offer value.” He was referring to his two best measures—convenience and value—to determine which stocks to purchase in face of a soaring Dow Jones, which is fast marching towards a historic 20,000 points. Amazon embodies convenience, and any firm willing to fight the e-commerce behemoth would have to offer value.

Amazon – playing unfair?

A few days ago, Amazon geared up for its busiest Christmas ever. It kept customers busy the whole day with last minute shoppers going online early morning to buy presents. The demand for gift cards peaked at 10 am. A little after 12 pm, demand for digital content (including Amazon music, Prime video and Kindle Apps) maxed, which people were buying for the new devices they received in the morning. By 9 pm, new ‘best deals’ were up on the website.

Amazon, the e-commerce giant experienced record sales this Christmas

This year Amazon experienced the busiest Christmas with sale figures going off the charts. | Photo Courtesy : The Denver Post

Boss’ sensational statement begs the question of just how desirable this growing influence wielded by Amazon is.

Amazon is not a monopoly and does not violate the Sherman Antitrust Act.

Even the most liberal interpretation of its share of America’s e-commerce market puts the figure at less than 50%. This is far lower than the 70% that federal courts require as proof of monopoly power.

Moreover, there is little evidence that Amazon uses whatever market power it has (it does have a lot in the e-book market) to the detriment of consumers.

Moreover, there is little evidence that Amazon uses whatever market power it has (it does have a lot in the e-book market) to the detriment of consumers. The illegal exercise of such power would constitute, for example, raising prices by curtailing supply or keeping competitors out through predatory pricing. Amazon, on the contrary, has never reported any meaningful profits. In 2013, it earned $274 million from $74.5 billion in sales—a profit margin of 0.37%.

What, then, is the grave concern?

Nobel-prize winning economist Paul Krugman pointed out that, despite its fair play in the market in which it sells, the company has been exploiting publishers and authors from whom it buys books.

Amazon, in economics jargon, is not a monopolist, but a monopsonist.

This would mean that it does not unfairly raise prices of what it sells. However, it unfairly lowers prices of what it buys.

A case in point is the open commercial warfare that broke out between Amazon and Hachette, a major publishing house, in 2014. Amazon had been demanding a bigger cut of the price of Hachette books it sells. When the latter refused, Amazon started disrupting it sales. It began delaying the delivery of Hachette’s books, raising their prices and steering customers to other publishers. It has since become uneconomical for several publishers to sell their works via Amazon. Also, their content is gradually being replaced by Amazon’s own low overhead self-publishing model, which mostly produces garbage.

By squeezing publishers, Amazon ultimately hurts not only the authors but also the readers.

By squeezing publishers, Amazon ultimately hurts not only the authors but also the readers. As it turns out, these readers are less likely to read and enjoy books that it refuses to carry.

So, while Amazon is cheap, fast and convenient, there are legitimate concerns about some of the practices that are making it the superstar of retail.


Featured Image Courtesy : Newsweek
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