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That's the classic economic theory. A company that tries to dump will go bankrupt, which is irrational, so no company will do this. But in this case, Amazon is

That's the classic economic theory. A company that tries to dump will go bankrupt, which is irrational, so no company will do this. But in this case, Amazon is 40% of the market. There is no upstart competitor that can outlast them in a price war. There is also likely little to no comparative advantage you can have against them, except a legal monopoly like a patented or trademarked product. Even then, if they clone your product, when you sue them it will be a rounding error in their legal budget while you have no cash flow to sue them. The classical school seems to think that there's a limitless amount of irrational entrepreneurship that will drain Amazon if they price too low. In reality, entrepreneurs are generally not that dumb. Amazon, of course, doesn't dominate everything. They aren't going to sell every product. There are marginal, low-volume, low return products that they will happily let other companies sell on their platform or elsewhere. But if your product becomes high margin and high volume on their platform, they will know, and they'll be coming for your profits.

mattmaroon 3y ago
They more or less did this against diapers.com. They simply forced them to be acquired by selling diapers at a loss. The thing is, it's easier than ever to start an e-tailer. I've been using Deliverr (which is now owned by Flexport) which does 3rd party logistics along with Shopify. If Amazon pumped their prices on diapers, it would be really easy to start an online diaper store. The threat keeps them honest to some extent. Obviously, you can't fight Amazon directly on selling everything. But 3rd party retailers to sell targeted things can be spun up quickly if Amazon lets their prices in any one category creep up too high. And Amazon competes in individual categories with a lot of people. I can buy a lot of home repair type things on Amazon, or at Wal-Mart, Home Depot, Lowe's, Menards, etc. I can buy a lot of electronics on Amazon, Wal-Mart, Best Buy, etc. There's a lot of competition in retail in general and likely always will be, there just isn't a lot of competition in everything stores and it's hard to see how that would change.

mattmaroon 3y ago

They more or less did this against diapers.com. They simply forced them to be acquired by selling diapers at a loss. The thing is, it's easier than ever to start an e-tailer. I've been using Deliverr (which is now owned by Flexport) which does 3rd party logistics along with Shopify. If Amazon pumped their prices on diapers, it would be really easy to start an online diaper store. The threat keeps them honest to some extent. Obviously, you can't fight Amazon directly on selling everything. But 3rd party retailers to sell targeted things can be spun up quickly if Amazon lets their prices in any one category creep up too high. And Amazon competes in individual categories with a lot of people. I can buy a lot of home repair type things on Amazon, or at Wal-Mart, Home Depot, Lowe's, Menards, etc. I can buy a lot of electronics on Amazon, Wal-Mart, Best Buy, etc. There's a lot of competition in retail in general and likely always will be, there just isn't a lot of competition in everything stores and it's hard to see how that would change.