So what does Amazon do when it has finished using loss-leader pricing to drive its competitors out of business in every retail market where it wants to play? Clearly market share at any cost is the name of the game for Amazon. It is a well-oiled, market-share-taking machine. But when it has swallowed up so much of the retail market that it becomes a monopoly? Then what?
To be honest, I'd probably continue to shop at Amazon even if their prices went up 5-10% across the board. Even though I want to support small retailers, shopping at Amazon means I get to easily see product reviews, I don't have to create a new account, I don't have to worry about my shopping cart disappearing due to shoddy programming, I can save items on my wishlist easily, and with Amazon Prime, I get free 2 day shipping on everything. Except for specialty items like certain foods, I buy almost everything via Amazon. I buy all of my hardware from Newegg for the same reasons.
I get that a lot of consumers will still shop around for prices, but I certainly wouldn't ignore the millions(?) of us who will gladly ignore small price differences if it means I get a predictable, easy shopping experience.
Once Amazon reaches their peak, it's hard to say where it will go. But considering that they're aleady nailing the hosting industry, producing a very popular ebook reader and tablet, taking a slice of NetFlix's pie, and eating up all of retail, I'm sure they'll throw inordinate amounts of cash at whatever their next best ideas are.
On Amazon, you are supporting small retailers! Anything not sold directly by Amazon has a great chance of being sold by one the hundreds of thousands of small businesses on amazon marketplace, mine included.
Hardly. Smaller stores play with even smaller margins.. Unless you're dealing with niche products, the their party sellers pricing is generally too cutthroat.
As far as business plans go, it's pretty obvious and pretty solid. It'll be implemented as a dual monopoly-monopsomy setup: consumers go to it to buy most goods, get screwed. Suppliers sell to it, get screwed.
Amazon's goal is to be a bigger version of Visa, taking a tiny slice of a ridiculous large pie.
Anyone thinking that they are going to wind up as the Standard Oil of retail is going to be hugely disappointed. First they have plenty of quality competition that isn't going to just keel over and die. Second their tax advantages are gone long term. Third, as the internet erases frictions, Amazon is just another middleman begging to be cut out of the picture if he takes too big of a cut. Fourth Amazon has to deal with real antitrust in Europe and protectionism in Asia. Fifth even US antitrust wakes up and does something from time to time.
Have you ever read about the economics of monopoly prices? E.g. in Human Action by Ludwig von Mises? It's not actually that simple and doesn't always work well.
I'm not too familiar with the Austrian take on monopolies. Care to enlighten?
Mainstream economics does argue that monopolies enable excess profit, and I've never seen reason to question that part of it. But I'm genuinely curious and open to other models, even Austrian ones.
In short, not all demand curves have a monopoly price point at which you would make more money by restricting supply (e.g. it's possible to have a demand curve where demand would fall off a cliff if price went up slightly, even if supply went to near-zero. in this case, you cannot make monopoly profits). And even if there is a monopoly price which could provide monopoly profits, it can be hard to figure out what it is and you can lose money (or even go out of business) trying to find it. Therefore, not all monopolies can lead to monopoly profits.
> The special conditions and circumstances required for the emergence of monopoly prices and their catallactic features are:
> 1. There must prevail a monopoly of supply.
> 2. Either the monopolist is not in a position to discriminate among the buyers or he voluntarily abstains from such discrimination.[12]
> 3. The reaction of the buying public to the rise in prices beyond the potential competitive price, the fall in demand, is not such as to render the proceeds resulting from total sales at any price exceeding the competitive price smaller than total proceeds resulting from total sales at the competitive price.
> 4. It is a fundamental mistake to assume that there is a third category of prices which are neither monopoly prices nor competitive prices.
> 5. [some stuff about cartels]
> 6. The concept of competition does not include the requirement that there should be a multitude of competing units. [i think you will have to read further to understand this one]
> 7. If it is possible for the seller to increase his net proceeds by restricting sales and increasing the price of the units sold, there are usually several monopoly prices that satisfy this condition.
> 8. The monopolist does not know beforehand in what way the consumers will react to a rise in prices. He must resort to trial and error in his endeavors to find out whether the monopolized good can be sold to his advantage at any price exceeding the competitive price and, if this is so, which of various possible monopoly prices is the optimum monopoly price or one of the optimum monopoly prices. This is in practice much more difficult than the economist assumes when, in drawing demand curves, he ascribes perfect foresight to the monopolist. We must therefore list as a special condition required for the appearance of monopoly prices the monopolist's ability to discover such prices.
> 9. A special case is provided by the incomplete monopoly.
> 10. Duopoly and oligopoly are not special varieties of monopoly prices, but merely a variety of the methods applied for the establishment of a monopoly price.
> 11. The monopolized good by whose partial withholding from the market the monopoly prices are made to prevail can be either a good of the lowest order or a good of a higher order, a factor of production.
> 12. [discussion relating to governments intentionally encouraging monopoly]
And it goes on.
The biggest takeaway is that monopolies sometimes but not always enable higher profits by restricting supply. It's important not to assume all monopoly will enable significantly more profits than competitive market prices. Some analysis is required in any given case.
And the issue of whether and why monopoly prices are bad, and what if anything should be done about them, is considerably more complicated than "the government should prevent all monopolies" (typically with no mention of whether they are charging monopoly prices, or even could profitably do so tomorrow).
As someone who sold around a million dollars last year on Amazon through my company, I can add something to this. Amazon's margins on me are great. Amazon collects 20% of every sale we make through them at no effort. At the same time, marketplace revenue is their fastest growing revenue source and is already enormous. We also pay them more to fulfill a certain percent of these orders for us through FBA.
so would you switch your efforts to another marketplace if it charged 5% and could bring you $1M per year in sales? Do you feel that 20% of your money to Amazon is a fair cut? if not, what % would be fair?
I have used ChannelAdvisor. I found it really lacking. It was excellent for pushing out postings, but when your employee makes an error, we had to fix everything by hand. Also we were selling in Ebay Motors, which ChannelAdvisor did not handle as well as the normal Ebay. And then Channel Advisor took another 2% cut on top of Ebay fees, paypal fees.
Too much money for not enough benefit was the reason I stopped using it.
