This is an excellent point. Markets consolidate because mega-corps enjoy massive economies of scale. Do people remember what e-commerce was like before Amazon? You waited a week to get products in the mail. It was Amazon’s massive scale that made next day free shipping possible.
True, much larger than B2C. But there's a reason why B2C is more attractive and the reason is monopolistic. As the article notes, there isn't a clear monopoly or substantial leader in the B2B supply space - a result of the market being so huge and fragmented.
What makes markets attractive is their size and potential to establish monopoly - which Amazon has achieved in the western world in B2C ecommerce.
It will be interesting to see how they get on with AmazonSupply, it's a market they can gain leadership in for sure when you consider the products are commodities and it's mainly a logistics problem (they already accel in this regard obviously)
Less competitive marketplaces harm consumers. Consolidation means less competition. Amazon is already under antitrust charges and investigations in the EU and US for these types of misdeeds.
The online marketplace certainly engenders more efficient competition between sellers.
The landscape has changed but small businesses are still selling stuff. There are over 1.9 million small and medium sized business which use the amazon marketplace.
Mom and pop stores are now mom and pop sellers with amazon taking a cut. They make less money but don't have to pay rent for a commercial property.
Amazon is big but its certainly not an unprecedented level of horizontal domination. There's still walmart, ebay, alibaba, shopify...unless you're only looking at book sales.
Vertical integration wise it's trying to go there with its foray into business shipping + whole foods/amazon basics etc but seeing as its not close to dominant in terms of producing goods in any sector that I know of it's not inherently problematic.
Obviously things are different and worse in some respects (and better in others), but comparing it to the East India Company is very over the top at this point.
To me the real problem isn't the size of Amazon's business, but rather the nature of it.
Amazon is both the owner of the most successful and widely used marketplace, as well as a competitor of the merchants in that marketplace.
Having access to all of the transactional and user data, Amazon has an unarguable advantage over the rest of the merchants in it's market. They can beat anyone on price, placement, or delivery speed.
Barrier to entry into running a competitor market is effectively controlled by network effect. Simply running a competent customer service system and keeping prices within a certain range close to lowest provides an effective license to eternal profit.
Adding competing products when successful volumes are proven by their merchants gives them a very effective way to widen that profit on demand at the expense of their merchants and ultimately to the detriment of their customers who wind up paying more with less available selection.
It is how it works given enough time and size and spherical cows and a bit of vacuum. :)
Amazon does provide jobs, in fact it provides too many jobs, crowding out other buyers on the local market, then after they downside/close, Amazon can effectively set the price of labor there, and it sets it to the minimum. (Meaning Amazon takes all the economic surplus produced, basically those who work there cannot save, cannot really raise children, etc.)
The problem is not that the market doesn't work, the problem is that it doesn't help with the desirable things society wants.
And if we only consider economic surplus, it is better to have Amazon there than not. (Before Amazon we can assume people there had even worse jobs, and the region heavily subsidized by various welfare programs.) But big companies inherently do very profitable things that look like coordination (ie. they look like they are in a cartel), that's why - other factors being equal - they won't open factories/warehouses in already saturated labor markets, instead they pick a place where cost of operation is cheaper (wages are lower).
And then through consolidation the market can get into a (pathological) state where there are only big companies, and they just buy/deter/sabotage new small companies.
Taking your business elsewhere only works when individual customers represent a significant proportion of a company's income. With the volume Amazon handles, any individual attempt to send market signals is completely drowned out by noise and marketting. To send such a market signal strongly enough to be received, you would have to have an advertising campaign on the scale of another massive corporation. That indicates market failure. It is well known that markets are not resilient against tragedy of the commons, prisoner's dilemma, and similar phenomena.
While I am no fan of the federal government, I am even less of a fan of a federal government that is dwarfed and captured by the power of giant corporate conglomerates, nor am I a fan of corporations large enough to act as governments in their own right. Therefore it is necessary for the size of the largest businesses to not exceed the power of the federal government, and it is necessary for there to be actionable antagonism between the interests of business and government.
Markets can only be free if this balance of scale between public and private interests is maintained.
That's sort of true in ideal circumstances, but when you get to a point where you have a Wal*Mart of Amazon vs. small independent retailers, they have so much money compared to competitors that they don't have to be especially efficient. Megacorps can even undersell competitors and take a loss until the competition taps out, and now they have no incentive to respond to demand efficiently because they are the only seller.
And monopsonies. In terms of the situation the article discusses, that's arguably more important. If there are lots of little businesses, geographically distributed, the chances of them all ordering more or cancelling existing orders in synchronization is very small. But when you have one or a few large companies ordering nationally or multinationally, the peaks and valleys of the supply chain are going to be much more consequential.
> We used to have competition legislation that dealt with this.
There is also a government role in making sure an efficient and fair market exists for goods, by working against cartels and monopolies for instance.
The gas price shock is partly caused by a massive supply shock, but also an unwillingness of the cartel to increase supply, since they are doing just fine with the high prices.
I think we are seeing something similar with (for instance) Amazon. A gross simplification is that Amazon has achieved market dominance in many goods. This has reduced competition from smaller businesses, who can't compete in price. However those local stockholders would have been more resilient in the supply chain crisis than the Amazon ecosystem, because they bulk shipped stock to their warehouse (where they held stock), vs drop shipping it on demand from some distant place. This was costlier at the time, but arguably better for the environment and the resilience of the economy.
Right now Amazon is not the cheapest on anything and doesn't have everything in stock for 24 hour delivery any more. It doesn't fulfil its promise of being cheaper or faster. Government could put various controls on Amazon, but instead let us traditional businesses fight to stay alive against it (or be forced to sell through it!). Personally I think Amazon marketplace should be split from Amazon the store for this reason. You can't be the marketplace and a participant.
Out of all the natural tech monopolies, Amazon is the ONLY one that did the opposite of exercising market power. They actually brought fast shipping to the market. A decade ago, you had to pay a crap ton of money to ship things even two days. They forced the incumbents such as Walmart to change. They’re constantly improving e-commerce. Heck they even opened up aws and created an entire industry. Amazon did more to reshape commerce in the US than anyone in the past two decades.
Amazon is Amazon because they didn't let size dull their edge.
Unfortunately, that cuts both ways. There are a lot of ways to be exploitive, to your and your customers' benefits, when you're a $113 B revenue/quarter company, that simply aren't available when you're a startup.
Hell, Walmart pioneered the "How'd you like to sell in our stores?" + "You need to reduce prices, or it'd be a shame if we, your biggest customer, had to drop you" two step. And Amazon pioneered hyperscale logistics efficiencies. Both of which only work if you're giant.
If we want a return to competition of yore, I think it's only going to happen if we (a) prevent "extra-large" companies from having in-house logistics & (b) prevent predatory contracts and pricing when a size disparity exists (e.g. Walmart/supplier).
And given both of these are pretty fundamental to the way many companies work, I'm not even sure they'd be feasible.
free market requires competition, otherwise it stops optimizing for providing better and better value propositions
each market is an optimization algorithm, but if the search space is too big, it gets into a pathological state (market failure), and any economic surplus resulting from optimization goes into keeping it in this state (which is likely profit maximizing for a small subset of participants, sellers or buyers, depending on monopoly or monopsony situation of course)
Amazon spends its profit on crushing competition instead of providing a better marketplace.
Regulations are ineffective if they can't move the market out of this failure mode. (I.e. fines have to be big enough and the actual compliance has to affect a large enough part of the market.)
As long as it takes a few months (or less) to set up a new established seller of things, and as long as the advantage of having a non-fraudelent business is less than doing these scams, the scamming will continue.
Fundamental dilemma of Amazon is that they want fungibility. A book is a book, even if it's new, mint condition, used, dusty, hardcover, paperback, large font, high quality, cheap paper, fancy cover, etc.
But this works well only for books, where it's obvious to check. (Are every page readable and present? yes, great. no? refund.)
But this breaks down almost immediately where fakes and knockoffs and cheap shit is much cheaper to produce (so the price is very competitive), works kind of okayish initially (so hard to check for non-experts). For example any appliance and furniture (see the endless variations on office and "gaming" chairs, tablets, powerbanks, USB hubs, cables, gadgets, mouses, keyboards, monitors, dietary supplements, fitness machines, car addons, etc.)
Just look at how long it took Amazon to get as big as it did - and Amazon didn't have much competition in its first few years ffs, they were the pioneers of e-commerce. The survivors from the first dot-com boom are so entrenched by now they are literally impossible to ever unseat unless government regulation intervenes - either in the form of marketplace regulation, anti-trust action or, like the EU is trying to break PayPal, forcing banks to offer fast payments.
That's a common view, but I don't think the evidence supports it. What "corruption" and "regulatory capture" did Amazon or Google leverage in coming to dominate multiple verticals?
Instead, I think technology is the culprit. Technology pushes out the boundary where economies of scale give way to diseconomies of scale. Mom & pops can't compete with Amazon not because Amazon has a few senators in its pocket. They can't do it because Amazon's immense scale (multiple robotic warehouses, in-house shipping and logistics expertise, etc.) makes it impossible to compete on price and quality.
So are the barriers to entry obvious or nonexistent? Because you described both. Not only are they barriers, but vertically integrated monopolies have been illegal for a century. If erecting economic moats is the entire point of Amazon like you said, then it’s obvious they need to be broken up.
You really don’t think small, independent merchants are affected by Amazon’s 2 day delivery or taking back any return? That’s naive.
That is true for all consolidated markets. Everyone could in theory create a service to compete with Amazon. There is really nothing preventing people from doing that apart from the fact that it is extremely difficult to penetrate that market.
In this sense those are walled gardens, but because of the nature of those markets. E-commerce, telecommunications, datacenter, banking to some degree are all examples of hard to penetrate markets.
The original article goes on to explain that going head to head against solutions that are consolidated in these market are a waste of time and money. Better to find and exploit a niche that is still untouched.
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