VOX messed up: Amazon.com already has enormous monopoly power

Emily Stewart at Vox.com made a mistake about monopoly power in America. She wrote that

Amazon could eventually become so big that it can control what shipping companies such as FedEx and UPS charge it, and, in areas where it becomes a dominant buyer of labor, could contribute to pushing employee wages down.

Emily should read more articles at Vox.com because then she could learn that Amazon is already big enough to control what shipping companies charge. This has been longstanding practice at all the big shippers: FedEx, USPS, and UPS as noted in this 2010 NYT article. And they don’t just give Amazon a big discount on shipping, but also Walmart an all the other big retailers. This increases their monopoly power because it puts potential startups at a big disadvantage and reduces competition from smaller retailers. Although some media reports have claimed that the USPS undercuts competitors by charging “about half what it would pay publicly traded United Parcel Service Inc. and FedEx Corp”, nobody really knows exactly how much of a sweetheart deal each retail behemoth pays for shipping anywhere, so this is pure speculation. However we do know that Amazon doesn’t just use USPS, so they must not get lower prices at USPS on every kind of delivery.  Amazon pays all the big shipping companies, so Amazon must get lower prices from FedEx and UPS on some kinds of shipments. Here is an estimate of the Amazon market share for different shippers:

One reason Amazon (and most other big retailers) gets better prices than smaller retailers is that Amazon handles much of its own shipping in house. In particular, Amazon tries to handle most of the long-distance shipping by distributing goods to its regional warehouses located around the country that reduce the distance and time of delivery that Amazon has to pay the shipping companies to do. Here is a map showing some of Amazon’s physical locations in 2017:

Amazon has been trying to vertically integrate more and more of the delivery process to increase speed and reduce costs and gain more advantage over not only the delivery companies, but smaller retailers as well.

Other than that error, the rest of Emily’s essay gives useful information about monopolization (bullet points added for emphasis):

On Monday, the Open Markets Institute, an anti-monopoly think tank based in Washington, DC, released a new report on what it calls America’s “concentration crisis.” The report details how a variety of industries, ranging from cat food and jelly to domestic airlines and cellphone providers, have come to be dominated by just a handful of actors in recent years.

  • Four companies, for example, control 97 percent of the dry cat food sector: Nestlé, J.M. Smucker, Supermarket Brand, and Mars.
  • …Nestlé has a 57 percent hold on the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies.
  • Altria, Reynolds American, and Imperial have a 92 percent market share of the cigarette and tobacco manufacturing industry.
  • Anheuser-Busch InBev, MillerCoors, and Constellation have a 75 percent share of the beer industry.
  • Hillenbrand and Matthews have a 76 percent share of the coffin and casket manufacturing industry.

She also pointed to a David Leonhardt summary of the report and this chart showing how much the market share of just the two biggest companies different industries has changed in the past 15 years or so.

Thank goodness for the Open Markets Institute’s work on this. The US government stopped caring about this when they all but stopped enforcing anti-trust policy in the 1980s. In fact, the government doesn’t even track monopoly power anymore. As Emily points out, “The Federal Trade Commission stopped collecting and publishing data on industry concentration in 1981.”

Posted in Managerial Micro, Public Finance

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