Case Study Amazon: Amazon Doesn’t Just Want to Dominate the Market—It Wants to Become the

Market

By the fall of 2016, the share of online shoppers bypassing search engines and heading straight to
Amazon has grown to 55 percent. Faced with Amazon’s overwhelming gravitational pull on the Internet’s shopping
traffic, thousands of Amazon’s competitors—from small independent retailers to major chains and manufacturing
brands—have felt compelled to join its orbit.
Amazon began as an online seller of books, selling the books at a deep discount. Critics claim it essentially
disrupted the business model in publishing. Publishers used to be able to take risks with heavier books that might
not be as popular, and they used to be able to subsidize them with best sellers. But Amazon’s demand for discounts
has made it harder to cross-subsidize this way, leading to consolidation among book publishers and reduced
diversity.
Amazon, which did not respond to an interview request, touts its platform as a place where entrepreneurs
can “pursue their dreams.” Yet studies indicate that the relationship is often predatory. Harvard Business School
researchers found that when third-party sellers post new products, Amazon tracks the transactions and then starts
selling many of their most popular items itself. And when it’s not using the information that it gleans from sellers to
compete against them, Amazon uses it to extract an ever larger cut of their [Link] succeed, sellers need to “win
the buy-box”—that is, be chosen by Amazon’s algorithms as the default seller for a product. But according to
ProPublica, “about three-quarters of the time, Amazon placed its own products and those of companies that pay for
its [warehousing and shipping] services in that position even when there were substantially cheaper offers available
from others.” As more third-party sellers have agreed to sign up for these services, Amazon has repeatedly raised its
fees, with fulfillment fees rising this year by as much as 14 percent for standard-size items (and more for oversize
goods), on top of similar increases in [Link] even premiere brands have insulation from Amazon’s predatory
tactics. In 2016, Amazon backed Birkenstock into a corner, threatening to allow a deluge of counterfeit Birkenstocks
onto its site—many from overseas sellers—unless the shoe company agreed to sell directly to Amazon the niche
products it had previously reserved for specialty retailers. Birkenstock pushed back, but other companies, including
Nike, appear to have caved to a similar demand.
It’s easy to mistake Amazon for a retailer. After all, the company, which was founded in 1995, sells more
books and toys than any other retailer, and is projected soon to become the top seller of clothing and electronics. It
now captures nearly $1 of every $2 that Americans spend [Link] think of Amazon as a retailer, though, is to
profoundly misjudge the scope of what its founder and chief executive, Jeff Bezos, has set out to do. It’s not simply
that Amazon does so much more than sell stuff—that it also produces hit television shows and movies; publishes
books; designs digital devices; underwrites loans; delivers restaurant orders; sells a growing share of the Web’s
advertising; manages the data of US intelligence agencies; operates the world’s largest streaming video-game
platform; manufactures a growing array of products, from blouses to batteries; and is even venturing into health
care.
Bezos has designed his company for a far more radical goal than merely dominating markets; he’s built
Amazon to replace them. His vision is for Amazon to become the underlying infrastructure that commerce runs on.
Already, Amazon’s website is the dominant platform for online retail sales, attracting half of all online US shopping
traffic and hosting thousands of third-party sellers. Its Amazon Web Services division provides 34 percent of the
world’s cloud-computing capacity, handling the data of a long list of entities, from Netflix to Nordstrom, Comcast to
Condé Nast to the CIA. Now, in a challenge to UPS and FedEx, Amazon is building out a vast shipping and delivery
operation with the aim of handling both its own packages and those of other [Link] controlling these
essential pieces of infrastructure, Amazon can privilege its own products and services as they move through these
pipelines, siphoning off the most lucrative currents of consumer demand for itself. And it can set the terms by which
other companies have access to these pipelines, while also levying, through the fees it charges, a tax on their trade.
In other words, it’s moving us away from a democratic political economy, in which commerce takes place in open
markets governed by public rules, and toward a future in which the exchange of goods occurs in a private arena
governed by Amazon. It’s a setup that inevitably transfers wealth to the few—and with it, the power over such
crucial questions as which books and ideas get published and promoted, who may ply a trade and on what terms, and
whether given communities will succeed or fail.
…By the time Bezos set up his bookselling operation on the Internet, antitrust laws were no longer being
enforced in accordance with their original purpose. In the 1970s, an ideological revolution swept through the fields
of law and economics. Led by the conservative legal scholar Robert Bork, among others, this new school of thought
dismissed concerns about the impact of monopolies on the rights of citizens and even on competition. Its proponents
argued that antitrust law should be reduced to a single, narrow goal: maximizing efficiency. And efficiency, they
insisted, was something that big, consolidated corporations could deliver better. These ideas won support from an
ascendant faction of liberals, who made efficiency more appealing by recasting it as the source of lower prices for
consumers.“Antitrust laws have been largely reduced to a technical tool to keep prices low,” notes Lina Khan. As a
consequence, so long as Amazon has appeared to benefit consumers, it’s been allowed to grow using tactics that
would once have drawn antitrust scrutiny. Amazon has an extensive history, for example, of selling goods at a loss
in order to wrest market share from competitors that lack the financial backing to sustain similar losses. Bezos, a
former hedge-fund executive who has an unparalleled gift for selling his vision to Wall Street, has always been
candid with investors about this strategy. In a letter to shareholders after the company went public in 1997, he wrote
that he would prioritize “long-term market leadership considerations rather than short-term profitability.” Over the
next six years, investors barely winced as Amazon lost $3 billion selling books and other items below cost. The
investment paid off: Bookstores shut down in droves, and today nearly half of all books, both print and digital, are
sold by Amazon.
Amazon has also used below-cost selling to crush and absorb upstart competitors. In 2009, it acquired the
popular shoe retailer Zappos after reportedly losing $150 million selling shoes below cost in order to force the rival
company to the altar. Likewise, when Quidsi, the firm behind [Link], emerged as a vigorous
competitor, Amazon offered to buy it; when Quidsi’s founders refused, Amazon slashed its diaper prices below cost.
Bleeding red ink, Quidsi eventually agreed to Amazon’s offer. Over time, this behavior has had a restraining
effect:Start-ups intent on challenging Amazon are unlikely to find investors and so never get off the ground. “When
you are small, someone else that is bigger can always come along and take away what you have,” Bezos has
[Link]’s many tentacles provide it with novel ways to strong-arm suppliers. By leveraging the interplay
between the different parts of its business—retail, e-commerce, manufacturing—it can amplify its market power
over them. For instance, when Amazon began producing its own apparel two years ago, one aim was to erase the
only real bargaining chip that fashion brands have: their ability to decline to sell to Amazon. Speaking at a fashion-
industry event, Jeff Yurcisin, a vice president of Amazon Fashion, explained that uncooperative designers would
now face knockoffs: “When we see gaps, when certain brands have actually decided for their own reasons not to sell
with us, our customer still wants a product like that.”
Amazon’s dominance has been aided by Bezos’s prescient grasp of how the seemingly wide-open Web
could be turned into a winner-take-all environment. In 2005, Amazon launched Prime, a membership program that
provides free two-day shipping and other perks for $99 a year. As a stand-alone service, Prime is a money-loser;
Forrester Research estimates that Amazon loses $1 billion a year on the shipping alone. The point of getting people
to fork over $99 has never been about the money, though—it’s about the psychology. When people pay for Prime,
they naturally want to maximize the value in free shipping they derive from it by doing more of their shopping on
Amazon. Already, some 80 million Americans, accounting for more than half of the country’s households, are Prime
members. Studies show they are less likely to comparison-shop, and they spend almost twice as much with Amazon
as non-Prime customers.
With Alexa, Bezos has found a way to lure people even deeper into Amazon’s ecosystem. Alexa is the
voice assistant that powers the company’s Echo speaker, and it makes buying from Amazon as effortless as a
passing thought. “The fact that it’s always on, you never have to charge it, and it’s there ready in your kitchen or
your bedroom or wherever you put it, the fact that you can talk to it in a natural way—removes a lot of barriers, a lot
of friction,” Bezos has said of the speaker. One such friction is choice: If you ask Alexa for batteries, you won’t get
to choose Duracell or Energizer; Amazon’s brand is the only option. With Alexa, Amazon will “slowly but surely
take control of your preferences,” predicts Scott Galloway, a professor of marketing at New York University. The
digital giant has already sold at least 20 million of these devices.
Although Amazon continues to earn relatively meager profits compared with rivals like Walmart and
Apple, its stock price has soared, almost doubling in value over the past 18 months and making Bezos the wealthiest
person in the world. Investors see where this is heading. In 2016, Chamath Palihapitiya, a venture capitalist and
owner of the Golden State Warriors, put a name to it: Amazon, he told an audience of fellow investors, “is a
multitrillion-dollar monopoly hiding in plain sight.”
What Amazon’s giddy investors already understand, however, regulators have so far failed to grasp. Last
June, Amazon announced its intention to buy Whole Foods. The deal gives Amazon a prominent foothold in the
pivotal grocery industry and much else besides. Imagine walking into a Whole Foods store and seeing different
prices depending on whether you are a member of Amazon Prime — or seeing different prices depending on any
other way that you interact with Amazon. Differential pricing isn’t implausible. It is what the company does when it
opens up stores. For instance, Amazon is creating a chain of physical book stores to take the place of the book stores
the company destroyed. In these stores, there are no price tags at all: You scan the items with your phone and have a
price delivered to you, personalized by Amazon. Why wouldn’t Amazon extend this to Whole Foods, especially
since Amazon Go stores do precisely that?
“Our goal with Amazon Prime, make no mistake,” says Amazon CEO Jeff Bezos, “is to make sure that if
you are not a Prime member, you are being irresponsible." Let's take another example. Amazon is excluding
Amazon Prime video from Apple TV so that Prime members will buy its streaming device instead of Apple’s. As
the smartphone market commodifies and transforms, Bezos could simply use his combined physical and online
footprint to keep you from even seeing prices at his stores unless you are using Amazon-approved electronic
devices. If Amazon were just one of many stores that would be one thing. But Amazon is quickly becoming the
dominant way to buy and sell. Ultimately, with Whole Foods, Amazon gains new ways to cement its dominance
online, including by extending its package-delivery infrastructure to 470 stores nestled among millions of urban
consumers. And it allows the company to blur the distinction between online and offline retail, accelerating the
spread of digitally driven commerce and, with it, Amazon’s power. Yet, just two months after the deal was
announced, the Federal Trade Commission gave it the green light, concluding that the merger did not warrant an in-
depth review.
As it grows, Amazon is exposing the deficiencies of how we think about corporate concentration. By
collapsing antitrust enforcement to consider only prices, we have lost sight of what earlier generations knew about
monopolies: that they can harm us as producers of value, not merely as consumers of it. And their control over our
livelihoods and the fate of our communities is inherently political: It’s a threat to liberty and democracy. Economists
have recently begun to document a link between corporate concentration and rising inequality. Dominant
companies, they’re finding, are funneling the spoils to a small number of people at the top. And by reducing the
number of their competitors, these companies are also making it harder for workers to get a fair wage and for
producers to get a fair price. A particularly troubling data point in this research is the loss of a long-standing
pathway to a middle-class life: starting a business. The number of new firms launched each year has fallen by nearly
two-thirds since 1980, and many economists believe that corporate power is to blame. This lack of start-ups is
fueling a broader decline in the ranks of small business: Between 2005 and 2015, the number of small retailers fell
by 85,000, a drop of 21 percent relative to population.
In this story of concentrated power and wealth, Amazon is a central character. In a 2016 survey,
independent retailers ranked competition from Internet retailers like Amazon as the biggest threat to their
businesses, more worrisome than big-box stores or rising health-insurance costs. And their decline is having ripple
effects up the supply chain. As more of the market shifts to a single gatekeeper, manufacturers say they are having a
harder time introducing new products. Local businesses “are in a much better position as small retailers to do that
boot-strapping,” says Michael Levins, the founder of Innovative Kids, a book and puzzle producer that’s been in
business for 29 [Link] the same time that many communities are seeing local businesses disappear, they’re also
losing retail jobs. This past year, more people lost jobs in general-merchandise stores than the total number of
workers in the coal industry. Even as Amazon expands its network of warehouses, it isn’t creating enough jobs to
make up for the losses it’s causing. The basic math of what’s under way is startling: Retail accounts for about one in
10 American jobs, and Amazon needs only half as many workers to distribute the same volume of goods as
traditional stores require. Plus it’s likely to need even fewer workers in the future: Since 2015, Amazon has invited
elite engineering teams to compete in an annual robotics challenge. Their mission is to design a robot that can select
and grasp assorted items, a task that, for now, only humans can do.
This kind of wholesale upending of an industry happens periodically, and, as a rule, we don’t run out of
jobs. But today, in the absence of a flush of new businesses creating new opportunities, work for many people has
become increasingly precarious—and, in the case of Amazon workers, punishing. People who work inside the
company’s warehouses describe the pace as grueling, with “unit-per-hour” rates set so high that failure and
exhaustion are routine. Amazon’s approach to work is at once futuristic and a throwback to labor’s distant past.
Robots zip around, laden with products, while many of the people they interface with are temporary employees.
Amazon calls these workers “seasonal,” but, in fact, it relies on them [Link] it moves into package delivery,
Amazon is bringing its labor model along, relying in part on Amazon Flex drivers, who use their own vehicles, take
directions from an app, and are paid a piece rate for each batch of boxes they deliver. The impacts are already being
felt at the US Postal Service and UPS, whose hundreds of thousands of unionized employees constitute one of the
last surviving corners of the working middle class. A few months ago, over the objections of the Teamsters union,
UPS began placing ads for drivers who will use their own vehicles.
As a result of the economic shifts that Amazon is helping to propel, the country is being divided into a
starkly unequal geography. Only a handful of metro areas are gaining significant numbers of good jobs from Big
Tech. And as the formation of new businesses declines, they’re also being consolidated into fewer places: In contrast
with previous recoveries, when new firms were widely dispersed, half of all businesses started between 2010 and
2014 were located in just five metro areas. Even winning cities are marked by disparity: In Seattle, where Amazon is
headquartered, the median home value now exceeds $700,000, while the unsheltered homeless population doubled
over 10 years. It’s not hard to imagine a future in which Amazon’s cashier-less supermarkets and nondescript
bookstores populate better-off neighborhoods, while other communities become increasingly barren of commercial
[Link] the left-behind towns and neighborhoods, the despair that has set in stems from more than just economic
hardship. There is a pervasive sense of powerlessness that is toxic to democracy. In 1946, the sociologist C. Wright
Mills and the economist Melville J. Ulmer published a detailed study of several matched pairs of cities. The cities in
each pair were similar in all respects except for one main difference: One city’s economy was composed of many
locally owned firms, while the other’s was largely controlled by absentee corporations. The cities that possessed a
degree of local economic power had a bigger middle class and a greater variety of jobs, Mills and Ulmer found. But
their most important findings had to do with civic health. The cities with a robust local economy invested more in
public infrastructure and services, and their residents were involved in community affairs in greater [Link],
using large-scale statistical techniques, sociologists have confirmed Mills and Ulmer’s broad conclusions, finding,
for example, that communities that possess more local economic power are better able to solve problems. But these
ideas are no longer reflected in policy. Now, instead of actively seeking to disperse economic power, policy-makers
encourage its concentration. Many elected officials are as enthralled with Bezos as his investors are, and they’ve
been equally willing to fund Amazon’s growth. Congress has repeatedly declined to pass legislation that would
allow states to require out-of-state retailers to collect sales taxes. This allowed Amazon to largely avoid paying sales
taxes for nearly two decades, giving it a price advantage that research shows helped drive shoppers to its site. Then,
as Amazon’s warehouse expansion began to compel its compliance with sales taxes, the company started angling for
local development incentives. It’s raked in more than $1.1 billion through these deals, according to Good Jobs First,
and more than half of the warehouses that Amazon built between 2005 and 2015 received public subsidies.
Then, last fall, Amazon set off a frenzied bidding war to land its second headquarters. In the ensuing
months, as the leaders of more than 200 cities groveled to attract the company’s eye, they sent a clear message to
their constituents: Amazon’s widening reach is something to be wished for fervently. For Amazon, this public-
relations windfall—coming at the very moment when some are beginning to question its power, and propelled, in
many cases, by leading progressive mayors—may prove even more valuable than the subsidies that elected officials
are offering. And those offers have been astonishingly large: Maryland is dangling $5 billion, along with close
proximity to Congress. In New Jersey, meanwhile, Senators put together an offer worth $7 billion. That’s $2 billion
more than Amazon says its new headquarters will cost.

Make a list of all the harms resulting from Amazon’s business model. Then make a list of all the advantages
ensuing from it. Make a case for or against the Amazon model based on your lists.