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No, Amazon is not a Monopoly

If you define a monopoly as the "ability to create barriers to entry in a given market," then Amazon is not a monopoly. In fact, they are the exact opposite.

The Sherman Antitrust Act of 1890 secured the government's ability to bring suits against corporations they charged as creating monopolies in their given industries. Since then, companies like Morton Salt, Alcoa, AT&T, and Microsoft have been charged under the law, citing improper business practices that lead to "predatory pricing," and the stifling of competition.

Opponents of the law, such as Alan Greenspan, have stated that "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible."

"The penalizing of ability for being ability, the penalizing of success for being success, and the sacrifice of productive genius to the demands of envious mediocrity." - Ayn Rand, on the "purpose and meaning" of antitrust laws.

Today's politicians have been fond of using the word "monopoly" when discussing large corporations such as Walmart and Amazon. Are those companies truly monopolies, or are they simply just pawns being used by demagogues that take advantage of the public's emotional views on big business?

Let's look at Amazon.

Many politicians including presidential hopefuls Senator Bernie Sanders, and Senator Elizabeth Warren, have asserted that Amazon is a monopoly, and must be "broken up."

Monopoly—the ultimate enemy of free-market competition—now pervades every corner of American life: every transaction we make, every product we consume, every news story we read, every piece of data we download. - Matt Stoller, The Return of Monopoly, The New Republic

By the way, Walmart was known as a monopoly, too. If Walmart was a monopoly, then how does Amazon even exist? Why then, in 2017, was Forbes writing articles detailing how Walmart might go out of businesses? How can you be called a monopoly if investors are writing about your impending downfall?

Inside the numbers of Amazon's "Monopoly"

Amazon is big, that's no doubt. In fact, they now make up 49% of all E-commerce. As big as that number may be, it must be noted that that is still less than half of the online retail market.

The number gets even more telling when you realize that the 49% of e-commerce still only constitutes 5% of the total retail market. That's right, Amazon is being called a monopoly, and they only make up 5% of all retail sales.

Let's look at the 49% though, since that's the number those screaming monopoly are likely to use.

What is Amazon? Is it a website? A retail store? They are most certainly both. What makes this different than say Walmart or Target is the fact that Amazon is not only selling Amazon-owned goods.

Amazon does sell it's own products, but it also works as a sales platform for over 2 million third-party sellers. In that way, Amazon is just a popular website that you or I could use to sell products for our own businesses.

Of the 49% e-commerce market share held by Amazon, 68% of those sales are by third party businesses using the website as their own store front. Yes, that means that only 32% of Amazon's sales are actually made by Amazon. The rest are by small or large businesses that use Amazon's website to sell their products. This deserves to be stated again. Two-thirds of Amazon's sales are actually other businesses that use Amazon as their store front.

This means that when you speak of Amazon's market share, the appropriate figures for sales of products owned by would be 16% of the E-commerce market, and 1.6% of the total retail market. Yes, total monopoly, right?

So What Is a Monopoly?

A monopoly would be properly defined as your ability to stop others from entering the market, not simply as having a large share of any given market.

In a free market, a business can only stop another business from entering the market by providing a superior product or service, or a comparable product or service at a cheaper price. If this is the reason for lack of competition, is the public really at a disservice?

If a business does raise their prices above an appropriate market price, this action would actually incentivize new businesses to enter the market. For example, if I'm the only seller of computers and I raise my price up to $10,000 per computer, new businesses will say "hey, I think we need to enter the computer market." The only thing that stops this new competitor from entering in a free market? The government.

A monopoly can only be gained by the use of force in some way, shape, or form. Say you can only get two cable providers at your house. Do you know why? Because the government is only allowing those two providers to lay the lines, or to use the lines already in place. Sure, there is an element of cronyism to this equation, but how does the cronyism exist without the government and their ability to use force against others in the market?

The Solution

The fix for this problem is simply stated, but complicated in action: Less regulation, and more competition. Less regulation can take the shape of lowering or abolishing many business licensing fees. The famous "license to braid hair" comes to mind, but that's not the only business that requires a license to operate from the government. That license by the way, is simply a shakedown for money. It says nothing about the licensed business owners talent or skill.

When looking for a solution to the Amazon "monopoly" you first have to answer the question, "is Amazon actually a monopoly?" The answer is a resounding "No."