Economics: Are Amazon`s Prices Really Too Low"?

(Drivebycuriosity) - America has a long antitrust tradition. The trustbusters tried to prevent that monopolies & cartels harm the consumers and charge too high prices. Since President Biden came into office a new group of new trustbusters, who call themselves "progressives", came to power. They don´t care about consumers, prices and economics. They see big companies, especially Amazon,  generally as evil and they try to fight them whatever they do.

President Biden appointed Lina Khan, a "progressive" activist who became famous by writing an anti-Amazon pamphlet, to chairperson of the powerful Federal Trade Commission (FTC), America´s antitrust authority.  "Lina Khan, has an explicit beef with Amazon and has stated publicly, absent any formal hearing, that the company is guilty of antitrust violations and should be broken up." (yalejreg.com wsj.com). 

Instead of fighting against price hikes the progressives  fight against low prices. Biden protege Khan laments that Amazon is too cheap which is bad (yalelawjournal reason).  She claims that Amazon`s low prices squeeze competitors out of the market and create a monopoly (lawyers call this predation). 

Really? Since Amazon started in the late 1990s it has been charging low prices, but the number of competitors has been swiftly climbing year over year. In spite of Amazon´s "too low and predatory prices" (Kahn) there are now thousands of companies selling online, including giants like Walmart, Target, Best Buy & Costco, who all developed large online departments, and there exist also a lot online platforms like Overstock, Shopify, Wayfair, Etsy & Ebay, who all are copying Amazon`s success. Many of them are growing faster than Amazon (emarketer ). 

Amazon`s success did not hinter potential competitors, quite the opposite, it inspired many others to offer similar services. A former Amazon employee used his knowledge to start in 2012 Instacart, an online grocery with annual revenues around $1.5 billion. These competitors all are getting better over the time, challenging Amazon more and more. Apparently Khan lost the sense of reality.

The alleged predation, becoming a monopolist by cutting prices so low that other shops cannot compete anymore (price dumping), does not make sense. If the new born monopolist would hike prices again (to cover the losses caused by price dumping), the new profits would immediately attract new competitors. 

Does anyone believe that Amazon can get so cheap that Walmart, Target and the rest of the US retail would go out of business?  In 2016 Walmart acquired Amazon competitor Jet.com and transformed it into her own e-commerce department. If Amazon would really attack the competitor Shopify with extremely discounted prices - as some naive trustbusters believe ( recode) - Walmart, or another big corporation (including hedge fund), could buy the e-commerce platform. Amazon would rather go bankrupt than squeeze Walmart, Target & Co. out of the market.

Amazon has low prices because they created a huge network of distribution centers which are efficient and reduce the average costs. Amazon`s rise created more competition not less because it inspired many others to become the "next Amazon". The competition with Amazon forces the whole retail industry to innovate as well. Amazon`s rise forced US retail to act efficient, to cut costs and to curb prices. Without Amazon today´s inflation rate would even be higher. Biden and Elizabeth Warren claim that the inflation is caused by the "greed" of big corporations, but Biden´s trustbusters want to fight Amazon´s low prices!

The hipster antitrust movement ignores, maybe even doesn`t understand, that the power of companies is  constrained by competition (except competition if forbidden by patents or other laws. Don´t print US Dollars!) When a corporation has success, her rising profits attracts automatically others who want a share from the pie. The Internet makes it very easy to compare prices and to switch to other shops, news providers & entertainers, sharpening the competition. Customers can choose the company which has the best quality, the best service and/or the lowest prices which gives the consumers a lot power. As a result, customers have more power than the corporations.

Millions depend on Amazon`s fast reliable deliveries and benefit from low prices. Amazon makes the US economy more efficient and curbs the inflation. But the arrogant progressives want to stop the company for ideological reasons.