How did Amazon realize the monopoly of the market that economists thought was 'impossible'?
Amazon, which operates one of the world's largest e-commerce sites, handles all kinds of products and has overwhelming market power in the retail market. However, some economists familiar with antitrust laws believed that ``It is theoretically impossible for Amazon to monopolize the market.'' Author and journalist
Pluralistic: Amazon's financial shell game let it create an “impossible” monopoly (01 Mar 2024) – Pluralistic: Daily links from Cory Doctorow
https://pluralistic.net/2024/03/01/managerial-discretion/#junk-fees
According to Doctorow, many of the modern economists who created antitrust laws did not take real-world mechanisms as their starting point, but instead developed models based on abstract principles such as ``actors who make rational choices.'' He was said to have been building. Doctorow points out that the mathematical models created in this way are abstract and elegant, but disconnected from reality.
Based on this model of modern economics, it was thought to be ``impossible'' for Amazon to dominate the market in selling all kinds of products. For example, suppose Amazon sells a certain product at a price well below cost in an attempt to monopolize the market by eliminating competitors. In this case, it is assumed that eventually Amazon will be unable to bear the deficit and will return to its original price, and if that happens, other companies will be able to return to competition.
Next, let's consider a case where Amazon tries to maintain a permanent deficit by covering up losses on a particular product with profits from another business. Even in this case, a competitor in a business with high profit margins operates a business with a lower profit margin than Amazon, and Amazon loses its share of the business that had high profit margins, and as a result, it becomes unable to make up for the deficit. It was thought that the price would be restored.
Based on such a model, Amazon would not have overwhelming market power, but reality did not go in the direction economists thought. In fact, Amazon successfully competed with Diapers.com , an online specialty store for baby products, by offering deep discounts on diapers and other products, and succeeded in stealing customers while losing money.・We are acquiring com .
Doctorow points out that Amazon was able to gain market power, contrary to economists' predictions, because it gained ``access to capital markets.'' A typical business pursues 'profit' obtained from selling products, but Amazon pursues profits not from selling products but from 'rent' collected from
First, in developed countries such as the United States, the majority of households use Amazon. It seems that 90% of users who subscribe to Amazon Prime search on Amazon first when purchasing something, and products that are not sold on Amazon are the same as those that do not exist for those users. If sales on Amazon account for 10% of the entire business, being unable to sell on Amazon will be a big blow for the business, so Amazon can extract the maximum concession from the business. This structure, in which a single platform becomes the primary purchaser of various products and effectively controls the market, is called a monopsony .
Amazon, which has become a monopsony, is able to collect huge fees from individual sellers. According to Doctorow, the total amount of various fees (junk fees) that Amazon collects from sellers reaches 45 to 51% of product sales. In other words, if a company sells a 100 yen product on Amazon, the selling company will charge Amazon 45 to 51 yen in fees in various forms. In addition, Amazon provides sellers with an 'automatic price setting tool,' but the price that can be set with this tool is limited to the sales price on other companies' sites, and sellers can choose a price lower than that on Amazon. They say they are being forced to sell.
In response to criticism of the structure of its mail-order platform, Amazon claims that ``45 to 51% fees are barely breaking even, and the majority of profits are derived from Amazon Web Services (AWS).'' . Mr. Doctorow points out that the junk fees that Amazon earned in 2023 have reached $ 130 billion (about 19.5 trillion yen), and it is difficult to imagine that all of this will be wiped out by operating expenses.
However, although Amazon is a public company, it does not disclose the profits and losses of its online shopping platform in its financial disclosures. This is because companies can group multiple business units together and aggregate their profits and losses, hiding the profits and losses of each segment. Amazon is not the only one using this loophole, but Google also does not disclose how much money it makes from YouTube, and Apple does not disclose how much money it makes from the App Store.
Mr. Doctorow argues that Amazon is a ``child of runaway capitalism'' and has become a post-capitalist company that earns ``rent'' rather than ``profit.'' At first glance, Amazon's online shopping platform appears to be a bazaar filled with merchants, but in reality, just as the stores in the bazaar at Disneyland are all operated by Disney, Amazon owns multiple sellers. It is pointed out that the structure is dominated by
Lina Khan , the chair of the U.S. Federal Trade Commission, wrote a paper in 2017 while attending law school entitled ' Amazon's Antitrust Paradox,' in which she argued that Amazon He explained how he gained market power by deviating from the legal framework of sellers and becoming the largest platform. Mr. Khan and his colleagues are suing Amazon under antitrust law based on this claim, and future developments are attracting attention.
Amazon is being sued by regulators and 17 states for violating antitrust laws, and the existence of a mysterious price manipulation algorithm called ``Project Nessie'' has come to light - GIGAZINE
Mr. Doctorow pointed out that although economists had long believed that a monopoly like Amazon was impossible, Amazon has now thoroughly exercised its market power and obtained huge sales from junk fees. Amazon's claim that this junk fee is being wiped out as operating expenses is hard to believe, and Amazon argued that e-commerce profits and losses should be reported separately.
Related Posts:
in Note, Posted by log1h_ik