South Westphalia University of Applied Sciences

Bachelor of Business Administration with Informatics

Economics a) – Microeconomics
Prof. Dr. Dina Dreisbach

Summer Semester 2021

Exercise Sheet 7

Monopoly Case Study: Amazon

Company Background
Founded in 1994 by its CEO Jeff
Bezos, Amazon.com is an American e-
commerce company originally
operating as an online retailer of
books, clothing, electronics, music
other goods. With a net sales figure of
386 billion US dollars and a net
income of 21.33 billion US dollars in
2020, Amazon is by far the largest
online retailer (Statista, 2021).
However, as seen in the Fig. 1, the
current business model of Amazon
extends far beyond the typical online
retailer business model as it represents
a well-crafted and highly
Figure 1: Amazon Ecosystem, source: https://morethandigital.info/en/what-is- a-
digital-ecosystem-understanding-the-most-profitable-business-model/ interconnected business ecosystem
consisting of logistics services,
server/hosting services, media creation, healthcare, etc. While it serves as an epitome of success,
successful utilization of digital capabilities and profitability, this business model and especially the
company’s business practices have caused concern among experts and institutions for
anticompetitive/monopolistic behaviour.

The Monopolistic Behaviour of Amazon

In the complex business ecosystem Amazon has built, three components play the key role in terms of
the company’s monopolistic position. First, and what the company is most famous for, there is Amazon
Marketplace, an online market where independent sellers and buyers interact as in a regular market. In
this same marketplace, Amazon itself acts as a seller in direct competition with the independent
retailers. The final component is the vast number of acquisitions and subsidiaries that Amazon owns
and masterfully utilizes. For instance, with its largest-to-date acquisition of Whole Foods ($13.7
billion), Amazon have provided themselves with the opportunity to further improve their
understanding of customer preferences and shopping habits, as well as to market many of their flagship
products with an in-store approach (Ang, 2021).

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As a marketplace service provider, Amazon possesses two main advantages. First, in line with e-
commerce regulations, Amazon enjoys the full freedom and right to set the rules of the marketplace.
Alongside this authority comes the right to regulate and monitor each seller individually and act
accordingly. Second, Amazon has access to non-public business data of third-party sellers such as the
number of ordered and shipped units of products, the sellers' revenues on the marketplace, the number
of visits to sellers' offers, data relating to shipping, to sellers' past performance, and other consumer
claims on products, including the activated guarantees.
The privileges and rights attributed to being the owner of the largest online marketplace in the world,
combined with the accumulated information, enable Amazon to utilize its position as a seller in order
to squeeze out its competition. As a result of this position, in recent years, Amazon has always offered
the lowest prices for the same goods among its largest competitors and more importantly, among
medium and small businesses/sellers, for which competing with such low prices is practically
impossible due to economies of scales and higher costs (Mitchell & Lavecchia, 2016). Moreover, by
being able to control product listings and merchant regulations, including their ability to collect third-
party seller data, Amazon easily imposes more of its services on sellers in order for them to have higher
exposure and consequently higher chances for sales. For instance, Amazon compels merchants to use
its fulfillment services through preferential placement in product listings.
Finally, with more than 40 subsidiaries and considerable market presence in numerous industries
ranging from entertainment to healthcare, Amazon has the ability to easily penetrate niche markets.
While these markets are not of such high importance to larger retailers, they are the fundamental source
of revenue for smaller “mom and pop” businesses. Having Amazon as their competitor in such small
niche markets inevitably leads to price undercutting that damages market efficiency and pushes out
smaller businesses out of the market. As a result of such behaviour, the liquidation of small businesses
has been especially widespread during the coronavirus crisis, whereas Amazon’s market share has
further expanded (Kolf, 2021).

The Federal Cartel Office

In Germany, the institution responsible for governing market efficiency and enforcing antitrust laws
is the Federal Cartel Office (Bundeskartellamt). With a staff of more than 300 people and situated in
Bonn, the Federal Cartel Office is the main national competition regulator. Alongside the European
Commission, the Federal Cartel Office is currently in three legal proceedings with Amazon, with the
latest proceeding being initiated on the 18th of May 2021.
The first proceeding against Amazon in 2018 was concerning the terms and conditions and behavior
towards retailers on the German marketplace amazon.de. At that time, Andreas Mundt, the president
of the Federal Cartel Office, stated:

“Amazon is itself the largest online retailer and the company operates by far the largest online
marketplace in Germany. Many retailers and manufacturers rely on the reach of the Amazon
marketplace for online sales. Amazon thus acts as a kind of “gatekeeper” towards customers. The
dual role as the largest retailer and the largest marketplace harbors the potential for obstacles for
other retailers on the platform. Due to the many complaints, we have, we will check whether Amazon
is exploiting its market position to the detriment of the dealers operating on the marketplace. The terms
and conditions and behavior of Amazon towards the retailers are thus comprehensively put to the test."
Since then, there have been significant improvements stemming from the imposed sanctions and
demands on Amazon by the Federal Ministry. Namely, Amazon is no longer allowed to terminate and
block a seller without first justifying its position with sufficient information. Furthermore, the modified
regulations contain improvements and clarifications in terms of the rights of use in the interests of the
retailer. In particular, the permitted use by Amazon is now restricted to certain purposes. The so-called
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 "parity specification" is not applicable. Additional
improvements and changes include modifications
to liability and rules, returns and refunds and place
of jurisdiction.
However, since then Amazon has continued to
further expand its business in Germany and
increase its market share. According to the EHI
Retail Institute (2020), Amazon currently holds a
market share of 36% in Germany.

Consequently, concerns regarding anticompetitive

behaviour have been increasingly prominent.
Based on recent allegations, the Federal Cartel
Figure 2: Amazon market share in Germany, source:
Office has initiated a new legal proceeding based
th
https://www.handelsblatt.com/unternehmen/handelkonsumguete on the 10 amendment to the German Competition
r/onlinehandelamazon-droht-nach-sperrungvon-haendler-konten- Act (GWB Digitalization Act) that came into
erneutaerger-mit-dembundeskartellamt/26917106.html?ticket=ST-
11030464-BOY07gNJGLs6SldIefnc-ap5 effect in January 2021. In this new proceeding, if
Amazon is to be deemed of high significance to
competition in the e-commerce market in Germany, the Federal Cartel Office will have the ability to
impose restrictions and regulations regarding business practices such as self-preferencing of a group’s
own services, the “penetration” of non-dominated markets by way of non-performance based anti-
competitive means, such as tying strategies or barriers to market entry by processing data relevant for
competition.

However, the point of argumentation can take a different side as well (Newman, 2020). Since the
pandemic began, Amazon has been the largest job creator in the US (particularly in mid2020), with
more than 175,000 added jobs in just a few months. Furthermore, through its easy to-access and easy-
to-use market platform, Amazon has also given the opportunity for smaller business that rely on
technology mostly to further expand their business operations. For instance, cloud-based start-ups
enjoy the numerous benefits of Amazon AWS to drive down their operational costs. Finally, in 2020,
Amazon represented only 1% of the $25 trillion worth global retail market. Combining these three
facts together serves a well-rested case for Amazon not being a true monopoly.

In conclusion, it can be stated that Amazon currently enjoys a position that allows them to control
competition and market prices. As such price agreements and fixed quotas are increasingly becoming
irrelevant leading to market inefficiency and anticompetitive behaviour. On the other hand, the
company’s overwhelming positive effect on employment and start-ups has raised doubts over these
allegations. Nevertheless, it cannot be denied that through legal action in recent years, the Federal
Cartel Office and the European Commission have been able to curb Amazon’s expansion and
anticompetitive practices in an effective and transparent manner.

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Questions:
1. Which characteristics describe a typical monopolistic situation?
2. In what way does the case of Amazon differ in terms of a classic monopoly?
3. Why does Amazon choose to keep prices low and how do these low prices result in anticompetitive
behaviour?
4. Describe the key elements of Amazon’s monopolistic behaviour.
5. What has the Federal Cartel Office done to combat the anticompetitive dominance of Amazon?
6. Does the behaviour of Amazon benefit consumers? Has the consumer surplus increased with
Amazon’s monopolistic business practices?

Sources

Ang, C. (2021). Amazon’s Most Notable Acquisitions to Date. Retrieved from

https://www.visualcapitalist.com/most-notable-amazon-acquisitions/
Bishop, T. (2020). The case against Amazon: Key takeaways from the U.S. House antitrust report on
digital markets. Retrieved from https://www.geekwire.com/2020/analysis-read- antitrust-case-amazon-
key-takeaways/
Bundeskartelamt. (2021). Proceedings against Amazon based on new rules for large digital companies
(Section 19a GWB). Retrieved from
https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/18_05_
2021_Amazon_19a.html
Bundeskartelamt. (2018). Initiation of abuse proceedings against Amazon. Retrieved from
https://www.bundeskartellamt.de/SharedDocs/Meldung/DE/Pressemitteilungen/2018/29_11_
2018_Verfahrenseinleitung_Amazon.html

Mitchell, S., Lavecchia, O. (2016). Report: Amazon’s Stranglehold: How the Company’s Tightening
Grip on the Economy Is Stifling Competition, Eroding Jobs, and Threatening Communities. Retrieved
from https://ilsr.org/amazon-stranglehold/

Newman, D. (2020). Opinion: Leave Amazon out of Big Tech regulation — it doesn’t have a
monopoly. Retrieved from https://www.marketwatch.com/story/leave-amazon-out-of-big-
techregulation-it-doesnt-have-a-monopoly-2020-10-10
Kolf, F. (2021). After blocking merchant accounts, Amazon threatens to run into trouble with the
Federal Cartel Office again. Retrieved from:
https://www.handelsblatt.com/unternehmen/handel-konsumgueter/onlinehandel-amazon- droht-nach-
sperrung-von-haendler-konten-erneut-aerger-mit-dem-
bundeskartellamt/26917106.html?ticket=ST-1285496-LT2QKqTwxr15TcE3x3qo-ap3
Statista. (2021). Amazon - Statistics & Facts. Retrieved from
https://www.statista.com/topics/846/amazon/#dossierSummary
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