Is Amazon becoming a monopoly? (What to know!)
The Washington, D.C. attorney general recently sued Amazon, accusing the online retail giant of stifling competition and unfairly raising prices. In a press release with reporters, the attorney general said Amazon has been illegally abusing and maintaining its monopoly power for years through price controls in the online retail marketplace.
Since Amazon is one of the top tech giants focused on e-commerce, artificial intelligence, and digital streaming, it begs the question, “Is Amazon becoming a monopoly?” Read on to find out…
Is Amazon becoming a monopoly?
While Amazon is growing every day, they don’t have a monopoly on market share and probably won’t for many years.Amazon is very competitive, but they still competesometimes losing out to other major players like Walmart, Target and Best Buy.
For a more in-depth answer to whether Amazon is or will become a monopoly, read on…
Is Amazon a Monopoly?
Before answering this question, it is best to familiarize yourself with terms such as monopoly law and antitrust law. According to the FTC, a monopoly occurs when a company restricts competition by establishing monopoly power.
To determine whether the companies under investigation have monopoly power, courts typically look at market share and whether they exclude other competitors.
A court will not find a monopoly if the company under investigation does not sell more than 50% of a particular good or service in a particular region. Furthermore, monopoly power should be sustainable. Firms need to have enduring monopoly power that is not unduly affected by the entry of new firms or by several other competitive forces.
Generally speaking, U.S. antitrust law focuses on protecting customers from any harm a company may cause. Here, the core principles are protecting consumers from predatory behaviour and ensuring competition. This strengthens the open market economy and thus prevents monopolies.
Most antitrust laws stem from the Sherman Act of 1890, whose goal was to preserve free competition as a rule of trade. Generally speaking, the fundamental goal of antitrust law is to ensure that companies have strong incentives to keep prices low and to improve operational efficiency.
The main characteristics of a monopoly market
Here are some characteristics of a monopoly market:
- Single Supplier: A single supplier is responsible for overseeing the monopoly market. Therefore, the market demand for the product is the demand provided by the entity.
- Entry and Exit Barriers: There are many barriers to entry and exit in this market. They include resource ownership, high initial capital, government licensing and copyright. If the government believes that the product or service provided by a monopoly is necessary to the public, it may ban the company from the market. Simply put, the government may prevent utilities such as telephone and power companies from exiting the market.
- Profit Maximizer: The main goal in a monopoly environment is profit maximization. A monopoly has the ability to raise prices and make higher profits because there is no competition. Any price set by the monopolist becomes the market price.
- Product Uniqueness: An important determinant of a monopoly market is the uniqueness of the product. There is no close substitute for the product or service provided by the monopoly.
- Price discrimination: Companies operating in monopoly markets are free to change the quantity or price of products and services. Price discrimination occurs when an organization sells similar products at different prices to different customers. Given the elasticity of the market, an organization will sell a greater quantity of the product if the price is low, and a smaller quantity if the price is high.
Why is Amazon not a monopoly?
While most would argue that Amazon is slowly becoming a monopoly, business experts disagree. Here are some reasons why Amazon is not a monopoly:
Amazon does not meet the Federal Trade Commission’s (FTC) definition of a monopoly. It lacks the necessary market share of more than 50% for a given good or service in a given geographic location. This is despite economic muscle in a wide range of industries including web services, entertainment, grocery and retail.
Currently, the e-commerce industry has the most significant market share (close to 50%). However, that percentage is not enough for the FTC to classify Amazon as a monopoly. The FTC’s definition of a monopoly depends not on company size, but on pricing, stifling competition, and consumer welfare. Unless the law changes, Amazon is free to continue acquiring companies and entering different industries.
For most monopolies, a standout feature is higher-than-normal pricing with less competition. To gain monopoly power, companies first need to have the long-term ability to raise prices. Amazon’s low prices are a big factor in deflation, which leads to negative inflation. Additionally, Amazon does not restrict any transaction activity, as it allows sellers to use the Amazon marketplace to find buyers for their products.
While Amazon may have established a dominant position, there are still plenty of new entrants into the market that they compete with. While Amazon may be a large business, if you analyze its behavior from the perspective of the Federal Trade Commission, it’s not close to a monopoly.
Top Amazon Competitors
Here is a list of the top businesses competing with Amazon:
- Online store
- Alibaba Group
Does Amazon have a monopoly?
Monopoly is the opposite of monopoly. In a monopoly, only one buyer has complete control over the market because they are the primary buyers of the seller’s products and services.
In the case of Amazon, this may apply to its impact on the prices charged by shipping companies like UPS and FedEx.It also includes areas where Amazon is the sole employer and seeks to reduce employee wages
Want to learn more about Amazon? Check out these articles to find out if you can use Google Pay on Amazon, what to do if your Amazon order shows delivered but you haven’t received it, and can you return an open item to Amazon?
Although Amazon has not yet been labeled a monopoly, as it gains more market share, it could threaten its competitors and begin enacting anticompetitive behaviors such as higher prices, lower product quality to increase profits, and low productivity.
The Ending Platform Monopoly Law, once passed, would make it illegal for companies to favor their own products over those of competitors. So, if antitrust laws become more aggressive and strict, Amazon could gain the monopoly title and pay potential fines.