Amazon was recently sued by the Washington DC Attorney General. He claimed that Amazon had stifled competition and inflated prices. In a press conference with reporters, the Attorney general stated that Amazon had been illegally abusing its monopoly power by controlling prices across the online retail marketplace for many years.
Amazon is one of the largest technology companies that focuses on ecommerce, artificial intelligence and digital streaming. This raises the question: “Is Amazon becoming an monopoly?”
Amazon is becoming a Monopoly
Amazon is expanding rapidly, but they don’t have a monopoly of their market share. This will likely change in the coming years. Amazon is highly competitive, but they still compete with other major players such as Walmart, Target, BestBuy, and BestBuy.
Continue reading to find out more about whether Amazon is or will be a monopoly.
Is Amazon a Monopoly?
It is a good idea to be familiar with terms like monopoly or antitrust law before answering this question. The Federal Trade Commission states that a monopoly is when a firm restricts competition through monopoly power.
Courts usually examine the market share of the company being investigated to determine if it has monopoly power.
The courts will not find monopoly power if the company under investigation does not have more than 50% of the sales of the particular product or service in a given region. The monopoly power must be long-lasting. It is important that the firm has a long-lasting monopoly power that isn’t affected by new firms and other competition.
The US antitrust law is focused on protecting customers against any harm caused by companies. The core principle of US antitrust law is to protect consumers from predatory practices and promote competition. This helps to strengthen the open-market economy and prevent monopolies.
The Sherman Act of 1890 is the most important antitrust law. Its goal was to protect free competition as a rule of trade. Antitrust laws generally have the fundamental goal to ensure strong incentives for businesses to maintain low prices and improve efficiency.
The Key Characteristics of a Monopolistic Market
Here are some characteristics that make up a monopolistic marketplace:
- Monopolistic Market: Only one supplier can regulate a market. This is why a product’s market need is the demand that this entity provides.
- Barriers to Entry and Exit: This market has many barriers to entry. These include high initial capital, resource ownership, government licenses and copyright. The government may block a company from leaving the market if it believes the products and services provided by the monopoly are essential to the public. The government can block public utilities companies like telephone and electricity from leaving the market.
- Profit Maximizer: In a monopolistic setting, the primary goal is to maximize profits. Because there is no competition, a monopoly can raise prices and make more profits. The market price is the price that the monopoly sets.
- Unique products are a significant indicator of a monopolistic marketplace. There are no comparable products or services to the ones provided by the monopoly.
- Price discrimination: In a monopolistic market, a company can change the price or quantity of its product or service. Price discrimination occurs when an organization sells the same product to different customers at different price points. Because of the elastic nature the market, an organization may sell more product quantities at lower prices and less at higher prices.
Amazon is not a Monopoly
Although many people might argue that Amazon is becoming a monopoly in the marketplace, commerce experts disagree. These are the reasons Amazon isn’t a monopoly.
Amazon does not meet the Federal Trade Commission (FTC’s) definition of a “monopoly”. It does not have the required market share of more than 50 percent for a particular product or service in a certain geographic location. Despite having strong economic power in many industries, such as entertainment, retail, grocery and web services, this is not the case.
The e-commerce sector currently holds close to 50% of the market. The FTC does not consider Amazon a monopoly because the percentage isn’t high enough. FTC defines a monopoly based on company size, pricing, stifling of competition and consumer welfare. Amazon can continue to gain companies and enter new industries unless the law is changed.
A monopoly’s most distinctive characteristic is its ability to fix higher prices than normal when there is less competition. Firms must have the ability to raise prices over time to gain monopoly power. Amazon’s low prices contribute significantly to negative inflation rates. Amazon doesn’t restrict trading activity as it allows sellers to use its Amazon Marketplace platform to find buyers.
Amazon has established a dominance but there are still many new competitors in the market. Amazon is a huge company, but if you look at its actions through those of the Federal Trade Commission it’s not close to monopoly.
Top Amazon Sellers
Here’s a list of top Amazon competitors:
- Online stores
- Alibaba Group
Is Amazon a Monopsony?
Monopsony is the antithesis of a monopoly. Monopsony is the opposite of monopoly. It means that only one buyer has complete control over the market. They are the top purchasers of services and products from sellers.
This could be Amazon’s leverage over shipping companies like UPS and FedEx. It includes areas where Amazon is the sole employer, and can bring down employee wages.
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Amazon has yet to be called a monopoly but it is gaining more market share and could start to threaten its competitors by engaging in anti-competitive conduct such as increasing prices and lowering product quality to increase profits and efficiency.
When passed, the Ending Platform Monopolies Act will make it illegal to favor products of customers over their own. If antitrust laws are more strict and aggressive, Amazon could be given the monopoly title and face possible fines.
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