By Jonathan Goodwin
Monopolies have historically been a detriment, typically delivering restricted supply and inflated prices. From US Steel’s slipshod management of the industry to AT&T’s suppression of telecom innovation and Microsoft’s bundling of Internet Explorer and Windows, there’s a track record of companies consolidating significant market power and abusing consumers.
Recent murmurings on Capitol Hill and on Wall Street have suggested that Amazon is in the same boat, that’s it’s a monopoly in need of immediate antitrust activity by regulators. However, the online retail platform can hardly be blamed for its success and shouldn’t be punished by such a misrepresentation.
The Platform Is King
First and foremost, Amazon demonstrates what should be well-known by now: platforms strongly tend to upend existing or create new markets, often becoming the dominant player.
Google created the market for search and is now the verb used by many to mean “search for information.” Uber disrupted the ride-hailing world and incumbent taxi companies with its platform approach, also becoming another industry-wide verb. Facebook blew up the largely nascent social media world and took it by storm, capturing over 2 billion users.
Platforms have winner-take-all dynamics because they scale really well, but they don’t create harmful monopolies because they deliver increased efficiencies and value to the consumer.
At present, Amazon delivers an efficient shopping experience with an unparalleled product catalog, competitive pricing, and a very economical shipping program that delivers inside two days. Amazon’s innovations only serve to improve market outcomes, not harm the consumer through inefficiencies and gouging.
As well, when a platform is seen ascending to market dominance, the typical response is to build a competing one and vie for the top spot. Microsoft launched Bing to compete with Google; Zelle was created to compete with Venmo and Square Cash; Lyft found room to compete with Uber.
While platforms often win the market, it’s never a sure thing. There’s almost always room to compete and room to fail. MySpace didn’t retain its hold over social networking; dozens of nuanced Tinder competitors are certainly doomed to fail; Grubwithus couldn’t get strangers to eat with each other.
Incumbent or adjacent companies always have an opportunity –they merely need to seize it and be smart.
Why Amazon’s Succeeded So Far
When Netflix started delivering DVDs by mail and launched its streaming service, no one thought to blame it for Blockbuster’s losses. As it became the dominant site for watching movies and shows and Blockbuster went belly-up, no one was suddenly bearish or calling it a monopoly.
It was simply innovation taking its natural course –what economist Joseph Schumpeter termed “creative destruction.”
Amazon is having the same effect, yet in more avenues than is typically seen. Its marketplace model is built on a bedrock of third-party sellers, which translates quite well across verticals, from apparel and groceries to industrial goods and medical supplies.
Amazon may steamroll its competition, but it is in itself an engine of competition. Those third-party sellers still compete on price and quality, but in a new venue. Consumers benefit from this transformation due to the increased convenience, with no harm in sight.
This capital-light approach means Amazon can deliver better prices, forcing incumbents to reevaluate their business models.
Look at Circuit City, which firmly believed it was safe from the transition to online retail, even being so bold as to sell many of its products on Amazon’s newly minted Marketplace. Long story short:Circuit City watched its margins shrink even as the stock hit all-time highs. Just a few years later, bankruptcy.
Learn The Lesson
Surely Circuit City can be forgiven – it was the first of its kind to really fall so hard due to Amazon. In the meantime, traditional retail is experiencing a quasi-apocalypse, driven by shifts toward online shopping, but also by gross inefficiencies in the status quo of malls and brick-and-mortar stores.
Retailers like Macy’s and Sears have had every chance to innovate and produce a marketplace for their vertical –or they could have even established a partnership with Amazon that would have made them much more indispensable.
Instead, these companies pursued business as usual and are closing stores in unprecedented numbers, largely ignorant of the headwinds blowing in their faces and not delivering better outcomes to consumers.
Meanwhile, Amazon was prepared to seize on the growth of online retail and provided competitive pricing and superb convenience. Anyone could have done it – CEO Jeff Bezos started the company by driving book orders to the post office in a Chevy Blazer.
A company with a few billion in annual revenue could have at least made some strategic investments or partnerships with startups in the industry as a hedge against disruption. Now, retailers’ stocks are in freefall without any visible path to recovery.
The same thing is playing out in B2B distribution. Amazon is innovating with a marketplace model in markets like industrial supply, wholesale food, medical supply, and many more. The total addressable market for this new expansion amounts to about $8 trillion and much of it is highly commoditized and fragmented, which leave the door open for Amazon’s disruption.
Incumbents are either shoving their heads in the sand or trying to backhandedly fight a price war that Amazon is poised to ultimately win. History is repeating itself.
Don’t Punish Success
Pegging Amazon as a monopolist in need of breaking up is backwards. Bezos and his cohort are simply innovating aged industries in severe need of modernizing. Every opportunity they exploit is one ignored by the incumbent players.
Established B2B distributors are hardly choosing to compete – they won’t even address the $500 billion elephant in the room on their oft-underwhelming earnings calls. Their market is a massive one and the margins are good, so Amazon’s disruptive waves will be far-reaching and quite painful.
Amazon’s incredible expansions are not the doings of a greedy monopolist; they’re the actions of inspired innovators which have yet to be met with equally spirited competition. And there’s no end in sight.
When the status quo gets upended and giant companies start flopping harder and more often, the blame lies not with Amazon, but with the executives who refused to take a chance on something new.
Filed under:Platform Innovation | Topics:
FAQs
A monopsony, unlike a monopoly, is a market condition where there's only one buyer for a good or service. Amazon seems to fit this bill in two ways: how it treats its third-party sellers and how it acts in the labor market.
Is Amazon an example of monopoly? ›
Amazon has monopoly power over most of its third-party sellers and many of its suppliers, the majority staff alleges. Amazon's market share of U.S. online retail sales is “likely understated” at 40%, according to the report, which says “more credible” estimates place it around 50% or more.
Is Amazon a monopoly or perfect competition? ›
Moreover, Amazon's strength on the market is given by its low prices, which runs contrary to a monopoly. Therefore, Amazon's competitive environment includes both competition and cooperation. This is a new and distinct competitive environment that is distinct from being a monopoly.
What makes a company not a monopoly? ›
Market Power
Courts look at the firm's market share, but typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area.
Who is Amazon's biggest competitor? ›
Walmart dominates the physical space, but Amazon leads online. Although Walmart has been around for 30 years longer, the two fight for the same customers now. The brands compete on everything from innovation to digital growth, logistics, and sustainability.
Is Amazon Basics a monopoly? ›
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.
What type of competition is Amazon? ›
Amazon has competition in different sectors. Its biggest retail competitors are Alibaba, eBay, Walmart, JD, Flipkart, and Rakuten. For the online streaming services audience, Amazon competes with Netflix, Hulu, Apple TV, and Disney+.
What type of market is Amazon in? ›
Amazon.com, Inc. (/ˈæməzɒn/ AM-ə-zon) is an American multinational technology company focusing on e-commerce, cloud computing, online advertising, digital streaming, and artificial intelligence.
At what point does a company become a monopoly? ›
Monopolies FAQs
A monopoly is when one company and its product dominate an entire industry whereby there is little to no competition and consumers must purchase that specific good or service from the one company.
Is Amazon a perfectly competitive market? ›
Answer and Explanation: Yes, it is a perfectly competitive industry.
But nowadays there are different alternatives (HBO, Amazon, Disney, Hulu, etc) that provide similar services and related technology in the US economy. Therefore, Netflix cannot be considered a monopoly structure because it is not the only choice for consumers.
What are Amazon's top 3 competitors? ›
Amazon's retail store rivals include Target, Walmart, Best Buy, and Costco. For subscription services, Amazon competes with Netflix, Apple, and Google.
Why is Amazon better than Walmart? ›
For affordable grocery shopping and fresh grocery delivery, Walmart wins. For a larger inventory of items (including handmade artisanal goods), and a plethora of streaming services and Whole Foods Market deals, Amazon is the retailer for you.
Who is the parent company of Amazon? ›
Amazon Parent Company
Amazon Inc. is an American tech company focusing on e-commerce, cloud computing, digital streaming, and artificial intelligence. The company started in 1994 and founded by Jeff Bezos.
What is the biggest monopoly? ›
Founded in 1933 by the Standard Oil Company of California, Aramco was taken over by the Saudi Arabian government in the 1970s. Today, most of the government's budget revenues come from Aramco's revenues. In 2019, Aramco set a record with the world's largest IPO, raising more than $25 billion from 3 billion shares sold.
Is an Apple a monopoly? ›
And the judge ruled that Apple doesn't have monopoly power because customers can choose Android phones instead. She did find, however, that Apple's policies violated California's Unfair Competition Law.
Is Walmart a monopoly? ›
The size of Walmart in comparison to its competitors gives Walmart the characteristic of a monopoly. The organization has approximately 8500 stores.
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References.
Amazon also agreed to change rules that made it difficult for workers to organize together. The NLRB found that the company violated labor laws during a union election in Bessemer, Alabama as well, and ordered a redo. In the original election, workers voted against unionizing by over two to one.
Why is Amazon so competitive? ›
In comparison to other websites, Amazon offers a more user-friendly experience to its clients. Major differentiators include improved search and query capabilities, suggestions based on prior purchases, one-click ordering at check-out, numerous user reviews and ratings, and dash buttons for automatic re-buying.
Why Amazon has a competitive advantage? ›
The main element of competitive advantage of Amazon is that it provides a great customer service experience, such as easy to operate, fast online order, smooth checkout, and stress-free returns. These factors made Amazon unique and have a competitive difference among all other competitors.
By inventing the market for public cloud services, AWS enjoyed a significant first-mover advantage over competitors that ceded Amazon years to develop services, build infrastructure and woo customers. But Amazon is only part of an emerging oligopoly where customers will have real choice.
Why is Apple not a monopoly? ›
Among other things, the judge said that Apple's restrictive rules on app distribution were justified because they improve security and privacy. And the judge ruled that Apple doesn't have monopoly power because customers can choose Android phones instead.
Are Google and Amazon monopolies? ›
Antitrust measures should be used to break up the companies so they don't stifle the digital market, according to the report. A US congressional report has accused Amazon, Apple, Facebook and Google of monopolising the digital market and recommended antitrust laws be used to break up these companies.
Is Starbucks a monopoly? ›
Starbucks is a famous American multinational chain of coffeehouses, which is also characterized as the largest chain of the coffeehouse. It is considered an oligopoly because it is one of the few firms that... See full answer below.
Is Google a monopoly? ›
In October 2020, in the final months of the Trump administration, the U.S. Department of Justice sued Google for violating antitrust law in 2020, alleging that the company unlawfully maintained its monopoly in search and search advertising by using its “monopoly profits to buy preferential treatment for its search ...
Is Walmart considered a monopoly? ›
Walmart is never largely affected by the pricing strategies of its competitors but instead its competitors are the ones who have to adapt their prices to match the prices of Walmart. The size of Walmart in comparison to its competitors gives Walmart the characteristic of a monopoly.
Is Facebook a true monopoly? ›
Because of Facebook's market dominance, any existing or new competitors find it difficult to compete in this arena. Facebook could be considered a monopoly that has too much power, for three simple reasons: its dominant user base, its pricing power, and its lack of direct competition.
Is Facebook a monopoly? ›
But there is evidence that Facebook—once a dominant monopoly rightly blamed for all sorts of societal ills—is on the precipice of dropping out of this group through years of sheer mismanagement, a failure to innovate, setting money on fire in pursuit of a metaverse that seemingly no one wants, a vulnerable business ...
Why did McDonald's get rid of monopoly? ›
Fraud. In 2001, the U.S. promotion was halted after fraud was uncovered. A subcontracting company, Simon Marketing (then a subsidiary of Cyrk), which had been hired by McDonald's to organize and promote the game, failed to recognize a flaw in its procedures.
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