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Economic Turbulence in the Amazon Era

Updated: Mar 25, Inc. is the world’s largest online retailer, known for its vast range of products and incomparable delivery times. Almost everyone I know in the U.S. either has an Amazon Prime membership or has used Amazon to ship items that can be found within a five-mile radius. The company is a giant, responsible for approximately 40% of America’s online spending in 2021 by a significant margin. When the COVID-19 pandemic hit and people were homebound, Amazon became one of the largest contributors to internet traffic. 

U.S. government data estimates place Amazon’s share of all U.S. retail sales at 5%, which accounts for up to $367.19 billion in U.S. e-commerce sales as of February 2021. This statistic may not be as surprising knowing that Jeff Bezos, the founder of Amazon, holds the crown—or space helmet—as the second richest man in the world, with an estimated net worth of $201 billion.

As a multinational e-commerce titan across multiple industries, Amazon has rippling effects on the U.S. economy that seep through the country’s employment, small market share, retail pricing and company wages. In terms of economic dominance, the absence of shopfronts removes a significant portion of the company’s overhead costs that other retailers have to pay, allowing Amazon to place price points much lower than its competitors. This forces the hands of smaller businesses to either adapt or shut down—a hand dealt to them by people selling similar and cheaper goods behind computer screens.

Employment plummets as small businesses that choose not to use Amazon’s platform are unable to take off successfully and are forced to shut down. Individuals will almost never opt to spend double the amount of time and money retrieving items at a local store. This also illustrates the higher barriers that smaller businesses must climb to enter the market without the use of Amazon’s platform. Companies are forced into an “if you can’t beat them, join them” situation which, again, does not fall under the definition of fair competition.

With low prices and fast shipping, Amazon has begun to form a monopoly by controlling the consumption patterns of customers through the use of algorithms that generate product recommendations and “company-directed marketing.” Through carefully curated items that meet their analyzed desires, Amazon has a stronghold on consumer demand and increases its market power.

Additionally, Amazon employs approximately 950,000 people in the U.S., which allows the company to control industry wages. One out of every 153 Americans in the labor force is an Amazon employee, a larger population than the entire residential construction industry. Therefore, the wages set at Amazon serve as a benchmark for other large companies in the private sector.

When Amazon raised its minimum wage to $15 per hour, Walmart responded by raising its minimum wage to $11 per hour, up from the national hourly salary of $7.25. With such a massive number of workers, Amazon can indirectly impact the wages in the industry, and consequently, potentially lead to a rise in inflation.

While Amazon clearly has a stronghold on demand patterns, the company has faced minimal backlash from federal regulators to dampen its market power. How does Amazon control so much without any government interference? The answer deals with the fine print written in some regulatory frameworks set in the U.S.

For example, antitrust laws are designed to protect market competition in favor of consumer welfare by ensuring strong incentives for fair business practices that keep prices low. However, the low price of Amazon’s products makes it difficult for the current regulatory framework to restructure the company’s market influence, and in turn, is unprepared to lawyer up against a powerful company.

It can be argued that the doctrines’ focus on price and output as the sole range to determine consumer welfare risks enforcers “overlooking the structural weakening of competition,” and hence, undermining consumer welfare. The definition of consumer welfare includes the accessibility of products with quality, heterogeneity and innovation through the redistribution of market power in an effort to increase people’s accessibility to markets. 

Therefore, antitrust laws should be amended to govern the Amazon era in order to defend the U.S. against monopolistic and anticompetitive practices of e-commerce retailers. The modernization of antitrust laws is imperative to protect jobs, products and consumer choice.

The opinions expressed in this article are those of the individual author.


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