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THE STUDENT WORD

Economics

AMAZONIAN MONOPOLY POWER MUST BE DEALT WITH

4/8/2020

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By Tom Guyton-Day
Picture
Credit: Morning Brew
During one of my first economics lectures at university, me and a friend were discussing things we possibly shouldn't have been talking about because we should have been listening to the monotonous lecturer we were supposed to be inspired by to improve the economic situation in North Africa. That conversation has never left me however - one in which we noted the low profit margins of Amazon and how she charged low prices, ran barely a profit margin, and drove less competitive businesses with smaller economies of scale out of business. 

Amazon today is a company of so many different arms it probably can't be called anything other than a conglomerate but one without separate companies - but one huge bloated whale like structure. 

These days, regulation remains a dirty word and I, of all people, am unlikely to encourage a return to any heavy regulation of business, beyond the very very necessary. 

There are exceptions to this rule of mine though and the major gap for potential regulation is that of monopoly power. This last week, Amazon finally dived into the fresh food market. A healthy leap that is not for the faint of mind or body.

Profits within the fresh food business are so low and at such a competitive rate in the UK, thanks partially to the famous price wars between the major supermarkets - often heavily knocking the profits of farmers rather than supermarkets themselves. Think the bean wars (worth a Google) - that taking out the sector should be fairly simple, especially if you can maintain a loss for extended periods (easy when you have a positive cash balance). 

Once you've knocked out the supermarkets in this country that keep prices low through cut throat competition, you are left with an open goal for Amazon to hike prices and damn society to paying £3 for a can of beans. 

My point in this article, however, is that in history there have always been major monopolies or oligopolies form but Governments have always been beefed up enough to dismantle or seriously constrain their power to force prices up. Think Standard Oil.

The problem with Amazonian power is that no one - at all - appears to be challenging its rise to the top. It has tentacles in every possible ravine and as companies get more powerful, their ability to influence politics and other arms of government get more and more powerful. Ultimately a pluralistic democracy requires power to be spread evenly across society, each in competition with each other and always at war - but a war with rules that must be maintained and protected, to protect themselves and often, as a result, the private citizen. Think, the Rule of Law.

It is not just a requirement to protect society from monopoly prices but also the integrity of democracy as a whole and eventually economic growth, which will stall if the Rule of Law falters, as could easily happen if power is too concentrated in one area of society. ​
Picture
Medici Palace, Florence. Credit: Daria Krav
Above is an image of the interior of a very special palace in Florence, built by the Medici - previously an incredibly powerful banking family, bankers to the the Pope in Rome that eventually married into the Habsburg family. It shows how easy it is for one small wool business in Northern Italy to become one of the most powerful families in Europe, kingmaker so to speak, and how important it is for society to maintain a spread of power across different groups - creating an uneasy peace of relative equality before the law. ​
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