Victoria Pembroke

Research Paper
Economics, Welles
January 14, 2019
Amazon: A Monopoly?

When was the last time you purchased something off of Amazon? Statistically speaking,

it was probably within the last few months or so. This is because as Amazon continues to grow

and expand into a site almost as vast as the rain forest its named after, it becomes easier and

more efficient for people across the globe to shop on the website and have their orders delivered

in days - or even just hours. However, with the growing popularity of Amazon and its sales

drastically increasing each year, many wonder if Amazon is or is becoming a monopoly, and

worry about how this will affect the global economy.

In order to adequately determine if Amazon is a monopoly, we must first understand

what exactly Amazon is. Amazon is a multinational technology company focusing on e-

commerce, cloud computing, and artificial intelligence based in Seattle, Washington. The

Company operates through three segments: North America, International, and Amazon Web

Services (AWS). The Company's products include merchandise and content that it purchases for

resale from vendors and those offered by third-party sellers. It also manufactures and sells

electronic devices. Because of its profusion of products, reasonable prices, and impressive

shipping speeds, Amazon is the world’s fourth most valuable company. Mainly online, the

company ships goods to billions of people around the world and has more than 300,000

employees worldwide, although it does rely on a growing fleet of robots (45,000) to retrieve

packages from storage and bring them to human employees. The company was started as a way

to purchase books online, but now the company sells just about everything from clothing to

delivery from your favorite restaurants. The company also offers a special membership called
“Amazon Prime,” which gives members opportunities to certain discounts, deals, shipping rates,

and access to the company’s streaming platform full of thousands of movies and TV shows.

Amazon ships 1.6 million packages a day, accounts for 43% of all online sales, and has a $356

billion valuation.

So, the company sounds pretty astounding, right? Well, that’s just the beginning. By

taking a closer look at Amazon’s and its competitors’ sales, we can better understand just how

big the company really is. Again, Amazon’s market value is about $356 billion, but Walmart,

Target, Best Buy, Macy’s, Kohl’s, Nordstrom, JCPenney, and Sears are all only $298 billion

combined. So, simply put, Amazon has a bigger valuation than all of the nation’s top retailers

combined, by $58 billion. Also, all of the previously listed retailers have had an average

decreasing market value of 51% in the last 10 years while Amazon’s increased by 1,934%.

Amazon’s projected stock market price for 2019 is $4,000, doubling what it was this past year.

How can all of this be? It’s simple: consumers are increasingly going online to do their shopping,

causing sales of brick and mortar retailers to plummet while Amazon, which again, accounts for

43% of all online sales, dominates the market. Of course, retailers like Walmart, Best Buy, and

Nordstrom are available online as well, but no company quite offers the deals and plethora of

products that Amazon does. The company has a total of 304 million users, 30 million mobile app

users per month, and 11 global marketplaces. Amazon acquired Zappos in November, 2009,

Kiva systems for $775 million in March, 2012, Twitch for $970 million in August, 2014, and

Whole Foods for $13.7 billion in June, 2017. With the company increases the way it is and

continuing to buy out other corporations, people are beginning to worry that its continued

expansion may lead to the company somehow monopolizing, and after their acquisition of Whole
Foods in 2017, in particular, many worry what it may mean for the quality and price of products

they know and love.

However, before we jump to any conclusions, we must first understand monopolies: what

they are, how they work, and in what ways they are regulated. A monopoly is defined as “the

exclusive possession or control of the supply or trade in a commodity or service.” Also, in order

for The United States Department of Justice to legally find an existence of monopoly power

within a company, then that company must have a market share of more than 50%. Amazon is

not, then, by definition and according to The United States Department of Justice, a monopoly,

because it controls only 5% of all retail sales in the United States and only 1% globally. Amazon

also doesn’t necessarily exhibit monopolistic behavior, defined as “when one provider is the

dominant provider in the market and that provider is able to to prevent others from offering

competing products and services.” There are still plenty of other retail providers that offer the

same products Amazon does, since after all, most of Amazon’s product are sold from different

companies separate from Amazon, and Amazon does not own these products. However, many

still do criticize Amazon for its “antitrust behavior,” relating to legislation preventing or

controlling trusts with the intention of promoting competition in business. Amazon also, while

accounting for only 1% of the global retail market, still accounts for 43% of all online sale,

which is very close to the 50%. So, technically speaking, Amazon is quite close to becoming an

online monopoly, whether the Department of Justice views it as so or not. However, legally

speaking, Amazon isn’t even close to monopolizing retail, but even if it were, the U.S.

government would regulate it through price capping, yardstick competition, and preventing the

growth of the monopoly power, all of which would be very detrimental to Amazon and actually

send the company backwards, so it really wouldn’t even be wise for them to try to monopolize.
However, if they did get close to monopolizing, there are loopholes they can attempt, such as

breaking up into five different companies: Amazon Web Services, Amazon Logistics, Amazon

Retail, Amazon Entertainment, and Amazon Health and Life Sciences.

Although Amazon is not technically a monopoly yet, or will be in the near future, it is

still interesting and important to know what a monopolizing Amazon could mean for the

economy. If Amazon were to monopolize, it would be detrimental to many customers as their

would be no industry competition, and therefore the company could set its prices as high as it

wanted; Amazon’s price would be the market price, and its demand, the market demand. With

such high prices, consumers would have less disposable income, and would purchase less,

creating a cycle that would hurt the overall economy. Amazon could also prove fatal to some

businesses, because it would have the option to refuse to sell to certain customers or companies,

which could potentially

close that company as they would have no other place to purchase the product in which they

needed. This could decrease the amount of businesses in other markets, and with less businesses

means less competition and less available jobs. Likewise, Amazon could just as easily refuse to

sell to certain areas, especially those with lower profit potential, which could further impoverish

a region and those within it. Amazon would also have little incentive for improvement since

there is no competition, and this could lead to them selling inferior goods at very high costs.

When there is a competitive market, businesses are able to compete with one-another by

innovating their products and further increasing the value of them to customers so more people

want to buy from them, but with no competition, such innovation would be pointless and even

counterproductive. Also, since there would only be one business in the retail market, there would

be a much smaller labor force offered, and this would therefore lead to a drastic increase in
unemployment. Amazon could also restrict supply of products and use the limited supply as a

form of blackmail, which would not only inflate prices also prove very dangerous if a country is

dependent on Amazon’s commodity, because the supply will always be unstable since its

dependent on Amazon’s willingness to sell. Because of all of these economic possibilities and

ways Amazon could control the market as a monopoly, Amazon would also have such immense

power and profits that they could gain political influence or use their power over supply in the

market as political leverage.

While Amazon is not technically a monopoly nor does it look like it will be one anytime

soon, there is no doubting its growing influence, incredibly high profits, and domination in retail

sales, specifically those online. However, we still must remain educated about companies and

those who exhibit either unethical behavior or behavior that could hurt our economy. With our

knowledge of what a monopoly could mean for the economy, we must continue to support

business who encourage competition and don’t exhibit monopolistic behavior. And while Adam

Smith may have theorized that a laissez faire, “invisible hand” economy with little government

interference was the best way to go, we should all be able to appreciate a little government

regulation, for regulating monopolistic companies is better for our economy than the permitting

them would ever be.

 Works Cited

Coen, Kate. “How Do Monopolies Affect a Market Economy?” Bizfluent, 26 Sept. 2017,

bizfluent.com/info-10068173-monopolies-affect-market-economy.html.

Manuel, Nicole. “How Does a Monopoly Affect Business and Consumers?” Small Business -

Chron.com, Chron.com, 26 June 2018,

smallbusiness.chron.com/monopoly-affect-business-consumers-70033.html.