Tuesday, October 21, 2014

Economy: Why Liberals Don´t Understand Amazon.com

(Drivebycuriosity) - Amazon.com seems to be the scapegoat of the liberal media. Liberal magazines and newspapers like "The New Yorker" and the "New York Times" have been bashing the e-commerce company for a while (driveby). Now the leftish "The New Republic" demands that Amazon.com has to be stopped (newrepublic). They claim that Amazon has already become a monopoly and will soon abuse her power to exploit the consumers.

This is quite nonsense. Amazon.com is far from being a monopoly and will never become one. The competition is already fierce and is getting stronger. Amazon.com has to compete against companies which are even bigger and more powerful than the online pioneer. Google for instance uses her muscles to become a huge online seller. Amazon.com is starting same-day delivery of goods in some places - and Google does the same and delivers products from Costco, Target, Walgreens, and other brick-and-mortar stores on the same day of the order. Apple sells a lot books, music and video via iTunes and people can choose whether they read e-books on Amazon`s Kindle or on Apple`s iPad.

And there are many more competitors. The retail behemoth Walmart, who`s revenues are around 5-times of Amazon´s - is powering into e-commerce and so do a lot of other companies. The competition is getting more and more international. There are already many fast growing Amazon copies in Japan, Russia, Brazil, Korea, India and other countries. The Chinese Internet goliath Alibaba, which had recently his IPO on the New York Stock Exchange, made a $202 million investment for a 39% stake in 2-day shipping service Shoprunner, an US company. This membership-based shipping plan is a rival to Amazon Prime that works with dozens of U.S. retailers. Alibaba already dominates e-commerce in her home country (around 70% market share) and is the largest and most valuable e-commerce company in the world, according to Forbes (forbes). Amazon is just a dwarf in China with a market share of below 10%.

The competition is a big gain for consumers who can expect cheap goods comfortably delivered. If Amazon would raise prices, reduce service quality and selection as "The New Republic" alleges, this would strengthen her competitors and would attract more companies to enter the e-commerce business.

The continuous Amazon bashing by the liberal media is not a  coincidence. Liberals don`t understand economy and they mistrust markets. They underestimate  - or bluntly ignore - the power of competition. They believe that markets have to get regulated by the government otherwise they would be destroyed by monopolies.

But monopolies are rare. Every time when someone - or a company - has a successful business others will try to copy him and to get a huge share of the pie. There are 2 exemptions: 
- Artificial Monopolies which are created by government regulations. Book publishers are monopolies because by law (copyrights) nobody else is allowed to print the same book without their permission.
- Natural monopoly: It doesn`t make sense to run say 10 railroads between say New York and Bostn because this would multiply the costs by 10 and each railway company would make huge losses. (In the 19th century there had been competition among US railway companies. Most of them went soon bust).

Selling goods online is not a natural monopoly, every body can do that.

Disclosure: I am an investor in Amazon.com, user of a Kindle and subscriber of Amazon Prime.

No comments:

Post a Comment