Economics: Is Amazon A Monopoly?

 (Drivebycuriosity) - The Biden Administration, represented by the Federal Trade Committee (FTC), America`s antitrust body, filed a huge law suit against Amazon. The suit is based on the claim that Amazon is a monopoly.

The word "monopoly" combines the Greek terms "mónos", meaning "single" or "alone" with the word "pōleîn", meaning "to sell" (wikipedia ). Economists use the term "monopoly" when there is just one seller (the monopolist) and there are no competitors. Doesn´t Amazon have competitors?

In 2017 FTC Chair Khan, then just a law student, published her famous paper: "Amazon`s Antitrust Paradox" ( yalelawjournal). The Khan claimed that Amazon will become a monopolist ( reason   yalelawjournal  driveby). She declared that Amazon´s prices are "too low" (!), which will drive competitors out of business and will hinder potential competitors to emerge. She was wrong, the number of Amazon competitors grew worldwide.

The law suit repeats Khan`s monopoly claim, which contravenes facts. Amazon experiences a strong and growing competition. In the second quarter 2023 Amazon`s online shops advanced just 5% Y-o-Y , while Walmart`s e-commerce segment expanded 24% and e-commerce platform Shopify´s revenues jumped 31% ( cnbc  ir.aboutamazon shopify). Both are eating Amazon´s market share, at least parts of it.

 

 

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                      Parallel Universe?

Khan`s law suit also ignores innovative newcomers who are aggressively entering the highly competitive market. In September the Chinese online service TikTok launched its e-commerce shop, called TikTok Shop, in the U.S. "in an effort to translate the app’s cultural relevance among young consumers to sales" ( apnews). More than 200,000 sellers have already registered for the TikTok Shop!

And the Chinese shopping app Temu is rapidly gaining ground (retailbrew ). CNBC reports: Since the Chinese shopping app launched in the U.S. a year ago, it has become the number one e-commerce app in the country, with downloads skyrocketing 50x from 600,000 to 30 million in just one quarter, according to Bernstein analysts. In contrast, Amazon’s downloads have dropped off a cliff, falling 40% in a year. Known for wild discounts and dirt-cheap prices that severely undercut Amazon’s, Temu has ratcheted up its ad spend to infiltrate the American consumer, set to spend an estimate $2 billion in marketing in 2023 ( cnbc). The Khan lives apparently in a parallel universe where only Amazon sells online.

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The rapid growth of Amazon challengers indicates a healthy competition. Amazon is far away from becoming a monopoly.  As in her flawed Amazon paper from 2017 Chair Khan overlooks that Amazon`s success is inspiring competition - not stifling. 

In the year 1995, when Jeff Bezos started Amazon, the company was the only one who sold online. Amazon was a monopoly - for a short time. Soon copy cats appeared - animated by Amazon´s success. They all want a piece of Amazon`s pie.   

Over the years the number of other online sellers, the competitors, has been swiftly climbing. Amazon survived - and could continue her growth - because the management has been been obsessed with efficiency, cost cutting and delivering goods cheap, fast & reliably. 

Amazon`s success story inspired myriads of copycats to offer similar services, a gain for the consumers. Amazon and their competitors have been constructing networks of huge fulfillment centers which are very efficient and save a lot of costs. The competition with Amazon inspired Walmart, Target and many other retailers to be more efficient and to curb their prices as well. The tough competition with Amazon forces other retailers to sell at relatively low prices.  

As a result online prices are already falling, helping to curb the general inflation. Adobe reports that online prices extended their deflationary trend (adobe ): "Online prices in August 2023 fell 3.2% year-over-year (YoY), hitting a 40-month low—and marking a full year (12 consecutive months) of YoY price decreases".

 

 

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                        Based On Ideology

Khan´s Amazon law suit is not based on facts but on ideology ( drivebycuriosity). Khan`s FTC represents a Marxist ideology, explained former FTC-Commissioner & Khan colleague Christine S. Wilson (ftc.gov ). According to Wilson the FTC tries to replace the market process of supply and demand by a continuously regulated environment. Wilson calls the FTC´s antitrust enforcement "a politicized exercise that serves as a tool of oppression".

Biden - and his protege Khan - hate Amazon because it is big and successful - and more popular than the President. I can buy an incredible array of goods through Amazon at prices that weren’t imaginable a few years back, delivered to my door within two days or less. The Khan wants to stop this.