How Amazon Created Its Monopoly That Kicks Competitors Out of the Market

How Did Amazon Created Monopoly

How many of you know? Amazon is producing the most products, acting as a retailer, and controlling the entire distribution infrastructure. Even the company does not give a choice to anyone looking to enter the online sales market. They have created a monopoly that kicks out every competitor in the market but the question remains, how did Bezos do it?

Do you think of Amazon as a retail company? Most people actually do. But this is an understandable mistake. After all, today the company sells more clothes, electronics, toys and books than many other companies combined in the world. If we get back in 2016, Amazon sales accounted for almost half the amount Americans spent on online shopping. 

Until 2015, most Internet acquisitions started with Google search. According to a 2016 report by Bloomberg, more than half of the online consumers go straight to Amazon. And the recent report by CNBC, more than 74% of consumers go to Amazon directly which has even moved to another level due to the COVID-19 pandemic. Amazon does not only bypass search engines rather controls over 89% of consumers who are highly likely to purchase from Amazon than other e-commerce platforms.  

Amazon’s True Role Behind the Retail Services

However, describing Amazon as a retailer is, in addition to misinterpreting its true role. If we see this giant as a retailer, it becomes a way of ignoring the fact that the company is a threat to the very idea of ​​a free market. 

Today Amazon does much more than resell the merchandise. Unknowingly It makes dress, shirts and baby wipes and a whole lot of products. It also produces successful films and series, delivers food, offers loans, etc. This is not the end of the story; it will soon become the largest seller of black-label medicines. For the record, they already have PillPack a whole service pharmacy company operating in the US. And now, According to a report by CNBC, Amazon is progressing to decipher the multibillion-dollar pharmaceutical industry and they have submitted a trademark for Amazon Pharmacy in several countries. (Source: CNBC)

Yet that is not enough. Jeff Bezos, president of Amazon, wants to go much further. His plan is to make Amazon the invisible base of the entire economy. The Amazon website is already the largest digital commerce platform in the world. On the other hand, it has built a huge digital Services department, for example, it marked 45%of cloud computing capacity around the world during its monopolistic move in 2016. They are offering its services to companies and institutions ranging from Netflix to the CIA. In addition, the company also has built a large distribution network that is responsible for delivering products from Amazon and other companies.

Amazon’s Systematic Exploitation of Competitors

Companies looking to enter the online sales market have no choice but to follow Amazon’s footsteps. With the launch of Amazon Prime and digital assistant Alexa, Bezos has convinced a number of giants, including General Electric’s and Ford, to adopt Amazon as a standard supplier. Today most Amazon Prime subscribers do not compare prices before purchasing a product. This forced competitors of all sizes, from major brands like Levi’s and KitchenAid to small producers, exponents of digital commerce, and independent physical stores to abandon the idea of ​​reaching their consumers directly. In short, today, a significant number of merchants rely solely on Amazon to sell their products.

Amazon does not hesitate to take advantage of this dependency. Now It is dictating terms and values ​​to its suppliers and using data provided by the companies themselves to weaken them as competitors. A company that makes a popular product and sells it on Amazon may, for example, come across an almost identical version of its product manufactured by Amazon and placed by it at the top of the site’s search results. A recent study concluded that, once a company starts selling its products on Amazon, it is only a matter of weeks before Amazon transfers the most popular items from that merchant to its own inventory.

The fact that Amazon is both a retail company and a sales platform gives it the weapons it needs to extort its competition. In 2017, Amazon reported dozens of retailers of counterfeit Nike products in the hope that Nike would agree, for the first time, to make a full line of its products available on the sales platform. Likewise, when publisher Hachette resisted Amazon’s demands during a negotiation over the price of her books, she was surprised by the removal of the purchase button from all of her products, which stopped thousands of her books from the reach of both buyers and sellers.

With the migration of physical commerce to the internet, Amazon assumed the role of a despot. It eventually means that, for all intents and purposes, digital commerce is no longer a market. Today it is a private area where a single company defines the terms under which we exchange goods and services. And Amazon decides which products, which new authors, which new inventions are worthy to be sold. In simple words, the entire market is just a puppet of Amazon.

Investors are fully aware of the implications of this Amazon monopoly. In the words of Chamath Palihapitiya, a tech venture investor, Amazon is “a trillion-dollar monopoly operating right under our nose”. But interestingly, he had to change his statement and had to make good comments instead. This definition explains why Wall Street investors raised the value of Amazon’s shares to a level not consistent with the company’s current profit. As a matter of fact, these investors were looking to a future of fantastic returns, of which only an immense monopoly guarantees.

The Big Move Toward the Monopoly

In 2017 investors could see that future will take shape after Amazon’s announcement of buying Whole Foods which Amazon eventually took over. In the hours that followed the news, Amazon shares went through the opposite of what usually happens in purchases of this type. Their value soared, almost reaching the advertised purchase value (US $ 13.4 billion), which means that the announcement of Whole Foods’ acquisition practically guaranteed its purchase.

Regulators responsible for preventing the creation of monopolies did not see what investors said they saw on Amazon. The acquisition of Whole Foods, which required federal approval, would, therefore, have been a new test. If regulators analyzed the acquisition from a traditional perspective, they could approve the transaction based on the idea that physical stores and digital sales are two markets. They are even different and claims that the purchase would give Amazon only a modest share of the food industry.

However, this idea of ​​trade is outdated. We live in a world where the limits between digital and physical sales are blurred every day, where a lot of commerce depends, on the internet today.

The purchase of Whole Foods further increased Amazon’s control over trade. In addition, by allowing Amazon to analyze its customers both online and offline, the acquisition has provided the company with a new stream of monetizable data. Corroborating this theory, the company even holds patents on technologies that track its customers’ digital movements and prevent customers’ phones from accessing competitor’s websites while they are in its stores.

The purchase has also given Amazon access to fresh food stores, which guaranteed its lead in the digital supermarket’s race. Whole Foods currently have 507 units across North America and the UK and they also serve as delivery centers for Amazon products. This detail should not be ignored. Since the control of the infrastructure necessary for the fast delivery of products is an essential factor in maintaining the monopoly of digital commerce. If Amazon managed to weaken delivery companies like UPS and FedEx, other digital merchants, now forced to delegate the delivery of their products to their biggest competitor, would also have been hurt.

Jeff Bezos’ plan is to naturalize Amazon’s presence to the point that we don’t notice the company’s crawling monopoly on commerce and its entire distribution infrastructure.

The Exploitation of Consumer Choice

Let alone, how this hegemony affects us? Amazon has the unmatched power to control all of our choices. When you ask Alexa for a battery box, you are not asked to choose between Duracell and Energizer. You will receive, without fail, a box of batteries produced by Amazon. Browse the Kindle bestseller list and you will see several books published by Amazon itself. If you have doubts about this fact, you should take a look at the list of “customers who bought this item also bought …” you will get something like this. It is the signal to know that Amazon’s algorithm favors its own products, even if they are not the best option.

On the other hand, Amazon’s attempt to buy Whole Foods was a wake-up call. The antimonopoly policies have fallen out of favor and the big technological monopolies have taken advantage of this opening to rise to power. US Senator John Sherman rightly quoted “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessities of life.” And ironically Senator Sherman’s thought is in reality with the already established Amazon’s monopoly.