Amazon (AMZN, Financial) controls a huge part of the e-commerce market (roughly 50%). Most people would agree that the online retailer is well on its way to becoming a monopoly, if it has not already done so. But the implications of this extend beyond online retail. We have explored in previous articles how Amazon has leveraged its dominance in the e-commerce market to tackle competitors in the logistics, cloud computing and streaming services markets, to name just a few.
We have also discussed how Amazon uses predatory pricing to undercut competitors in these various verticals to create a captive pool of consumers. Why haven’t regulators done something about this? Well, one reason that we looked at previously is that antitrust regulators in the U.S. require concrete evidence that a company is abusing its dominance in some way.
As Amazon’s low pricing benefits consumers, at least in the short term, it is difficult to make a case that people who buy products from Amazon are suffering from its quasi-monopolistic status. However, there is a group that certainly has been adversely affected by this -- Amazon’s third-party merchants.
Predatory tactics hurt vendors
For starters, Amazon charges its third-party merchants substantially more than alternative services -- up to 50 cents on the dollar -- Ebay charges sellers just 6 cents on the dollar. Importantly, this has not always been the case -- according to some merchants, Amazon’s share of their profits has almost tripled to 40% over the last few years. Amazon was happy to keep prices lower while its share of the e-commerce market was expanding. Now that merchants depend heavily on it, the company is able to hike prices. It’s no coincidence that Amazon has invested in so many other verticals. By developing sophisticated offerings in logistics, cloud computing, advertising, book publishing and so on, it has increased the pressure on merchants to flock to its marketplace.
To make matters worse, Amazon recently conducted a purge of its suppliers, forcing them to become third-party vendors instead. By doing so, the company saves on storage and shipping, and decreases its risk of holding unsold inventory. Moreover, it gets to take its cut of the sellers’ profits. For the suppliers whose contracts were suddenly canceled by Amazon, there was little choice except to accept the new terms.
Furthermore, when Amazon does sell its own goods, it can abuse its position as the operator of the marketplace by undercutting its vendor’s products and displaying its own products more prominently. Amazon has had a group of "Can’t Realize a Profit" products for years (which the company is now phasing out), the mere existence of which is further evidence of these tactics.
Summary
One wonders how long regulators will allow this to go on for. Sure, the end consumer is not being adversely impacted by these practices (yet). But the market consists of more than Amazon and its customers. Perhaps it is time to realize that.
Disclosure: The author owns no stocks mentioned.
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