Should Amazon Be Broken Up?
It is a known fact that monopolies and oligopolies create a greater deadweight loss than markets that are closer to perfect competition, and in America, many non-regulated, highly influential companies showcase this effect (CFI 2022). These companies, such as Facebook, Microsoft, and Amazon, hold an unhealthy amount of market share and with almost no regulation, are making their markets inefficient. For example, Facebook has 180.1 million active users in the US alone and was reported to have around 2.4 billion across the world as of April 2022 (Datareportal 2022). The sheer number of people that have a Facebook account clearly shows that Facebook has an enormous grip on the social media industry. This monopoly-like environment has created an atmosphere in which only a few huge social media companies (the biggest being Facebook) are widely seen in the social media industry. As for Microsoft, its windows operating systems have been widely considered a problematic monopoly since the late 1990s. As of 2020, Microsoft has been stated to have 77 percent of the market share in the OS market (Lewis 2020). The primary focus of this paper is on Amazon, which reportedly ships about 1.6 million packages a day, had an annual revenue of 469.822 billion dollars in 2021, and has 157.4 million prime subscribers as of 2022. (Szescei 2022). Small businesses should be given a better chance to succeed without immediately being crushed by the industry's giants. If such a chance is given, it will be beneficial for consumers, workers, and many producers. Huge companies that hold an extreme amount of the market share should be broken down or regulated in some form due to their presence preventing other smaller businesses from having a chance in their industry.
Amazon holds a high market share which oftentimes enables it to charge greater prices than smaller businesses would be willing to offer to consumers (Greene 2021). According to Elizabeth Warren’s campaign to break up big tech, nearly 50% of e-commerce goes through Amazon, showing how little of a chance smaller businesses have of surviving while competing with Amazon. To accompany this fact, a study done by Matt Stoller (the Director of Research for the American Economic Liberties Project), has found that there has been a 40% drop in independent retail businesses in the last 15 years largely due to Amazon. More critically, this 40 percent drop includes over 100 thousand local retailers who went out of business. An argument that is often brought up claims that smaller businesses benefit from Amazon due to the possibility of this massive corporation serving the role of a broker, but an “American Dream Survey” conducted by Lendio included the participation of more than 2,000 small business owners and found that “ two out of three small business owners said they view large corporations, such as Amazon and Google, as having a negative impact on growth opportunities.” (Blake 2019). This observation can be made through statistics as well as direct accounts from small business owners. One such statistic reports that Amazon’s cut of seller revenue jumped from 19 percent in 2014 to 30 percent in 2019. (Mitchell 2021) which illustrates the massive power they have on the individual sellers. These people would be making more money if they did not need to sell on Amazon to access consumers. There is evidence that, when selling on Amazon, many American merchants have reported issues making a viable amount of money. According to a report by Amazon, 87% of American sellers enjoy annual sales of less than $100,000 (Day 2021). Importantly, the amount stated above is revenue and does not account for the costs of maintaining their business, so many merchants on Amazon are most likely to use the platform as a secondary source of income rather than their main job. Another figure points to the fact that sales figures portray a very top-heavy skewed distribution, as all US merchants’ sales averaged 200,000 dollars in the 12 months before September 2021(Palmer 2021). Since most sellers are making half of this revenue, Amazon is evidently more beneficial to larger businesses than the many smaller ones. This is very detrimental for businesses that want to innovate and start from scratch. There are many studies that show that Amazon’s consumer base has been growing drastically for the last few years, while independent and local businesses are inversely proportionally going out of business (Stoller 2021). A more simple analysis of Amazon’s dominance over the eCommerce market can be done by comparing the amount of online American consumers to the amount of Amazon Prime members. Anyone can understand the sheer numbers. According to Statista figures, around 263 million consumers shop online (Statista 2021), while there are 157.4 million Amazon Prime members (Anderson 2022). Amazon Prime is a subscription service that offers perks such as free delivery, meaning that not everyone who shops on Amazon is a Prime member. This means that the percentage of online consumers who use Amazon in total is even higher than the (roughly) 60% of online American consumers who are Prime members. Amazon having a high number of Prime members exhibits dominance because it shows that all these people (having paid for the subscription) would have a high degree of loyalty to Amazon when shopping online. Amazon Prime offers perks that simply cannot be offered by other smaller companies, so they will “more often than not” be shopping Amazon for anything eCommerce. This dominance of the e-commerce market makes Amazon a price setter and is detrimental to any opportunities for smaller e-commerce businesses to grow.
Amazon is aware of its market dominance and is intentionally striving to keep this trend going. Amazon is able to appeal to consumers in a way that other companies can’t, due to their very fast and convenient shipping process. However, according to GeekWire’s analysis of “the e-commerce giant’s financial results, Amazon incurred 7.2 billion dollars in losses due to shipping in 2016.” This number is derived by subtracting the amount amazon spends on getting packages to consumers, by the amount that consumers pay for this shipping service. This data shows that Amazon is consciously incurring a loss, but continues to do so, perhaps to eliminate the market share held by competitors. Amazon’s cheap shipping forces competitors to either lower prices to an unsustainable level which causes losses or to give up their complete market share to Amazon. Another form of strategic losses Amazon is incurring is in Prime video, where they lost up to 700 million dollars in one year (Mitchell 2021). The company is essentially outlasting its competition by intentionally incurring losses until competitive companies drop out of the market. What is even more concerning: Amazon continues to spread its influence into new markets. Founded in 2020, Amazon launched its own pharmaceutical service with PillPack, causing CVS Health Corporation, Rite-Aid Corporation, and Walgreens Boots Alliance to lose a combined market share value of 12.8 billion dollars. This information can be found in an article named “A Dozen or so Companies Amazon is slaying this year” (Hankin 2019). In his article, Hankin details the market shares that Amazon had stolen from many other companies around the same year. The losses incurred by these companies would be limited if regulations were put in place on Amazon. If the massive company is regulated, then smaller businesses will be allowed to grow while needing to compete with each other to be successful. This competition will cause producers to lower their prices in order to appeal to consumers, subsequently creating a more efficient market with lower prices for consumers.(the idea of perfect competition)
When striving for an efficient market and economy, there is one thing that should take precedence over the profit a company can make: the safety of workers. In an efficient and developed economy, workers should be provided with fair pay and safe working conditions. However, a union-backed study that found Amazon workers had 5.9 serious injuries per 100 people (Palmer 2021). This rate is almost 80% higher than the rest of the industry, proving that Amazon offers a work environment with below average safety conditions. A moment in which the public was notified about Amazon’s poor treatment of workers was when the company was revealed that they falsely denied that employee drivers were forced to urinate in plastic bottles, and an apology for the incorrect denial was subsequently issued. The SOC (Strategic Organizing Center) found that “workers at Amazon warehouses are not only injured more frequently than in non-Amazon warehouses, they are also injured more severely.”(BBC 2021) Workers are a crucial aspect of a successful economy, so they should be given better conditions than the ones offered at Amazon. If Amazon is regulated and given stricter work-condition requirements, its rates of worker injuries will decrease. A reasonable way to do this is to break up Amazon, perhaps into subgroups. These subgroups could be micromanaged individually, and therefore, would each get more attention. The findings of below-average worker safety highlight yet another reason that Amazon needs to be regulated or broken up.
On top of Amazon creating a deadweight loss in its market, the company also has a massive social cost other than injuring workers: Amazon creates an incredible amount of pollution and harm to the environment. The future of the environment should always be given attention alongside the health of the economy, but Amazon is harming both of these with its unregulated control of the e-commerce market share. According to a study released on CNBC, Amazon’s emissions rates grew by 19 percent in 2020 (a year in which total global emissions rates fell due to Covid 19). Amazon also announced in 2021 that they would implement jets in their attempts to transport packages to consumers at a faster rate. These jets, along with the trucks that Amazon has been using for years, heavily pollute the air by burning fossil fuels. Causing further concern, the trucks use Diesel instead of petrol, which according to an article by the Guardian: “produce[s] 15% less CO2 than petrol, but emit four times more nitrogen dioxide pollution (NO2) and 22 times more particulates - the tiny particles that penetrate the lungs, brain, and heart.” Amazon clearly has little intention to balance its effort in quickly transporting packages to consumers with the costs of putting extensive greenhouse gasses into the atmosphere. The emission of these gases is not the only way that Amazon is polluting our environment. A report from Oceana found that Amazon generated 465 million pounds of plastic waste in 2019 (Baxter 2020). This is a massive amount of harmful excess that Amazon created for the environment. If more companies had the burden of deciding how to cut down on plastic and fossil fuel pollution, it would be easier for these goals to be reached. Instead, Amazon has most of the responsibility of cutting down on pollution while shipping goods to consumers around the US. They are the company that decides what to do with all the packaging that they use for shipments. Amazon should be regulated or broken up in order to contain and control the amount of pollution and social cost it throws on the people of America.
Amazon is a company that is responsible for heightening prices for consumers, poor treatment of workers, and a huge amount of pollution. In our society, Amazon has become the case of a nearly monopolistic industry due to its massive market share. Competing businesses are crushed when trying to co-exist with the giant company, and this essentially leaves Amazon as the price-setter. Being such a huge corporation, Amazon has a huge workforce. This workforce is perhaps too difficult for them to properly provide safe working conditions to, which results in frequent injuries and mistreatment. While these negative effects stack together to make Amazon an inefficient company, Amazon also pollutes the environment with enough plastic to “circle the earth over a hundred times in the form of air pillows.” according to a study from Oceana. The negative effects of leaving Amazon unregulated outweigh any positives that the company creates. There are already several in-depth ideas and plans to regulate amazon, including one that is being “actively discussed by the UK and European Union” (Davis 2021). I believe America should start taking an interest in and contributing to the development of this plan. The plan proposes what is called a “digital platform regulator,” which will use the recommendations of a market study published by the CMA (Competitions and Market Authority.” The plan, in basic terms, will create and have the DMU (decision-making unit) assess companies to determine if they have SMS (Strategic Market Status). It is expected that very few companies will have this status, and action will be taken on these companies accordingly. The DMU is suggested to have powers that may include: “The imposition of interoperability requirements, data-related interventions, and separation remedies”). These powers ensure that the DMU will have no limits on their software being able to exchange and use information while allowing consumers to maintain control over their own data (Lovells 2020). The United States can use a plan like this as a general anti-trust law that would not only target Amazon. Alternatively, The US can simply break up Amazon into subgroups/sub-companies, as mentioned before. The US has ample reason to break up Amazon, whether it be through a process similar to the ones mentioned in this paper or not. America must put a greater effort into preventing Amazon from continuing to create a massive social cost in the market of e-commerce.
Note: Anyone can leave an upvote or emoji response. To leave a comment you can sign in and do so using any of the platforms shown (Including Google)
Bibliography
CantrellGreen. “Amazon Workers Comp Claims for Warehouse Injuries.” Cantrell Green - Workers Comp & Social Security Attorneys - Los Angeles - Long Beach - Workers Comp, CantrellGreen
Https://Workercomplaw.com/Wp-Content/Uploads/2018/07/Workers-Comp-Attorney.png, 13 July 2021, https://workercomplaw.com/amazon-workers-comp-attorneys-warehouse-
injury/.
“Deadweight Loss.” Corporate Finance Institute, 26 Apr. 2022, https://corporatefinanceinstitute.com/resources/knowledge/economics/deadweight-loss/.
Greene, Jay. “Why Higher Prices on Amazon Cause a Retail Ripple Effect.” The Washington Post, WP Company, 29 Nov. 2021,
https://www.washingtonpost.com/technology/2021/11/26/amazon-prices-inflation/.
Hankin, Aaron. “A Dozen or so Companies Amazon Is Slaying This Year.” Investopedia, Investopedia, 19 May 2021, https://www.investopedia.com/news/5-companies-amazon-killing/.
How Amazon Exploits and Undermines Small Businesses, and Why Breaking ... https://cdn.ilsr.org/wp-content/uploads/2021/06/ILSRAmazonSmallBusinessFactSheet.pdf.
King, Melanie. “Small Business Owners Feel Cut off from the American Dream.” Lendio, 12 Sept. 2019, https://www.lendio.com/blog/small-business-tools/small-business-cut-off-american-
dream/.
“Perfect Competition.” Corporate Finance Institute, 10 Feb. 2021, https://corporatefinanceinstitute.com/resources/knowledge/economics/perfect-competition/.
“Primed for Pain: Amazon's Epidemic of Workplace Injuries.” Strategic Organizing Center, 2 June 2021, https://thesoc.org/amazon-primed-for-pain/.
“The Rise of Diesel in Europe: The Impact on Health and Pollution.” The Guardian, Guardian News and Media, 22 Sept. 2015,
https://www.theguardian.com/environment/2015/sep/22/the-rise-diesel-in-europe-impact-on-health-pollution.
Stoller, Matt. “Amazon Prime Is an Economy-Distorting Lie.” Amazon Prime Is an Economy-Distorting Lie, BIG by Matt Stoller, 30 May 2021, https://mattstoller.substack.com/p/amazon-
primes-free-shipping-promise.
“Will New Perks Add to Amazon's Prime Numbers?” RetailWire, 6 July 2022, https://retailwire.com/discussion/will-new-perks-add-to-amazons-prime-numbers/.
“The Latest Facebook Statistics: Everything You Need to Know - Datareportal – Global Digital Insights.” DataReportal, https://datareportal.com/essential-facebook- stats#:~:text=Facebook%20is%20one%20of%20the,)%3A%202.936%20billion%20(April%202022)&text=Number%20of%20people%20who%20use,)%3A%201.960%20billion%20(April%202022).
