By Jeonghoon Lee

Amazon’s low-price strategy benefits many consumers.

They think that Amazon stays ahead of other competitors with this approach and not through operating a monopoly. 

However, Amazon operates with a subtle monopoly, which has even been criticized by President Donald Trump, who tweeted that it's "putting many thousands of retailers out of business". 

In fact, Amazon's market share in the U.S. online commerce market was 49.1 percent in 2018.

It's arguable that the huge market power of Amazon has a negative impact not only on other competitors and suppliers, but also on consumers.

Offline distribution companies collapse

At first, Amazon started out as an online bookstore. There was already a large offline bookstore called Barnes & Noble, which also has more than 600 retail locations in the United States.

However, to adapt to changing technologies, Amazon began to build a separate logistics system to handle tens of thousands of books to sell online, while Barnes & Noble kept its old ways.

This new paradigm resulted in Amazon growing into a huge online retailer in the U.S. whereas Barnes & Noble lost more than $1 billion in the last few years.

Annual revenue at Barnes & Noble fell from US$6.8 billion in 2013 to US$3.66 billion in 2018.

Meanwhile, Toys R Us, a U.S. toy company, went bankrupt in 2017, unable to handle its accumulated deficit. Due to much cheaper prices offered by Amazon, many customers stopped purchasing toys at Toys R Us and bought them from the online giant.

After filing for bankruptcy, nearly 7,000 Toys R Us stores closed by 2018, resulting in substantial unemployment.

In addition to Toys R Us, many offline U.S. retailers are going bankrupt or shrinking their businesses. They were unable to withstand the low-cost strategy of Amazon.

Currently, Amazon's dominance is emerging across many industries. It is expanding its business in a multitude of ways, including offline distribution and logistics, and is not only limited to the online distribution of goods and content.

Abusing market power

Amazon has been criticized for not only expanding its market share, but also for other aspects of its business. Paul Krugman, a New York City University professor who won the Nobel Prize in economics, has written: "Amazon has too much power, and is abusing that power” to squeeze suppliers and publishers.

A prime example is the case with e-books.

Amazon requested that French publisher Hachette cut e-book prices to $9.99 and change its profit distribution. However, the negotiations did not go as planned, and Amazon intentionally delayed delivery of Hachette-published books from two days to four to five weeks.

This act impacted customers as they could no longer pre-order books published by Hachette in due time.

Monopolistic practices distort markets

The dictionary definition of monopoly is "the exclusive possession or control of something". It means that a particular company can control the price of products in the market, the amount of supply, and the timing of supply.

When a company is in an exclusive position with respect to a product, at any time when the market is booming, the price of the product can be raised to a price consumers are willing to buy.

Even when the economy is in a recession, companies with an exclusive position can keep their prices high by cutting production and labour.

Antitrust experts say that it is hard to define whether Amazon is violating antitrust laws due to its market power because consumers benefit from its low-price strategy. Antitrust laws aim to prevent a company from abusing its market-dominated power and to promote fair and free competition.

The low-price strategy is not always beneficial to the whole economy, and Amazon is infringing on fair competition in the market. To achieve remediation, antitrust laws could be revised to focus more on fair competition than just prices. Fair competition allows a company to develop technology and allows consumers to enjoy a wide range of products, services, and price benefits.