Amazon, E-Commerce and Monopolies

A couple of interesting comments in response to my post yesterday on Matthew Yglesias and Amazon.

First, JW writes:

I’m not sure I agree with your point…I think the reason e-commerce and Amazon are less scary is that it is harder to charge monopolistic prices because entry is so easy. If Amazon starts charging monopolistic prices, Walmart.com will just start running ads that say “Amazon is charging monopolistic prices, come to us, we guarantee our prices will be lower.” When you say “this does not mean customers will not buy elsewhere if the price is right; it is just that with economies of scale, very few competitors will be able to compete with Amazon” then that’s a good thing, no? Amazon is making a profit *not* because they are a monopolist in that description, but because they sell things cheaper than everybody else. We’re not worried about monopolists who gain advantages through cheaper prices, are we?

We are generally in agreement here that monopolists who are essentially taking advantage of lower prices are not a bad thing. But two caveats. Most importantly, the ease of entry into e-commerce markets is overrated. (Its significant that the example JW uses of someone competing with Amazon is Walmart, not a fledgling retailer.) First-mover advantage has not gone anywhere and indeed, thanks to viral effects, might have become even more pronounced; offline capital still counts in an online economy i.e., entry barriers are even lower for those with offline capital to spend. (This is most visibly seen in blogging.) Second, what might make Amazon’s practices problematic is what it might do to competitors in an effort to be able to offer the lower prices it does. These practices are what might attract anti-trust scrutiny. So it is not the end state only that matters but the damage done to markets before hand that will attract the FTC and Justice Department (if things ever get to that pass).

Then, Malcolm S. writes:

I think it is a little more complicated. Amazon is huge, but still small compared with their main competitor. Amazon isn’t going after the small retail stores, they are unintended collateral damage, Amazon is after Walmart. And Walmart still has roughly 7X Amazon’s revenues. That there is finally competition for Walmart seems good to me, but Amazon will have to remain very low margin to compete. We can start to wonder about Amazon gearing up for Monopoly when Walmart has been defeated, until then we are moving away from the pure monopsony that Walmart had become, where they were the only game in town if you wanted to sell product.

Malcolm’s point reinforces my response to Yglesias yesterday: Amazon is interesting in cornering the retail market and not interested in going after retail suppliers. Whether ‘even’ this is viable will depend a great deal on the race to the bottom that lies ahead for Walmart and Amazon. Consumers might do well as a result, but one fears for Walmart and Amazon employees: after all, the biggest savings are always made by cutting corners when it comes to labor. Someone remind me: are their employees unionized?

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