Stop Fretting About Amazon’s ‘Monopoly’ And Look At What Happened To Sears And Then Walmart

Posted: Aug 08, 2018 12:00 PM
Stop Fretting About Amazon’s ‘Monopoly’ And Look At What Happened To Sears And Then Walmart

A corporation does not have to control 100% of a market to be considered a monopolist. The Federal Trade Commission says that a company is not likely to be sued if its market share is 50% or less. Only those that have market power, can raise prices at will, can reduce quality, or in other ways hurt consumers can be considered monopolists. What that means is that any company with a market share greater than 50% is in a gray area. If its competitors get angry, it might have a very expensive legal defense bill. In almost all cases, antitrust suits are not brought about by consumers who are damaged. Regardless of what the FTC says, antitrust law has, in almost all instances, been used by competitors to hamper a company who is doing better than they are, and not at all because consumers are being hurt. 

What actually happens when a major market player is allowed to compete in markets unimpeded by antitrust interference? One of the first questions to ask is whether or not there has ever been a company that has eliminated all competition and was able to dictate prices and service levels. The answer is a qualified yes, but the only instances were those that were sanctioned and legally protected by governments. 

For seventy years, AT&T held the legally mandated monopoly on telephone services, ostensibly because telephone service was a “natural monopoly.” That lie was put to rest with the breakup of the company into the baby bells in the 1980s. Subsequently, telephone service thrived, prices dropped, and competition brought a multitude of communications options.

On the other side, private corporations that dominated their markets have never been able to continue such domination without continually improving products and services, caring for customers, and keeping prices low. In other words, their dominance arose from doing things better.

As a historical example, the big, bad villain of early in the last century, Standard Oil, controlled 90% of the market at its high point. It continually improved processes, products, and facilities, and continually found ways to reduce costs and customer prices. Customers rewarded them with their business. The antitrust lawsuit did not come because customers were being hurt. Standard had driven prices down and increased quality, quantity, and selection. The lawsuit came because other companies complained. They had a hard time competing because they were not as effective and efficient.

The newest monopoly bogey man is It’s founder and CEO is now the richest person in the world, and people are worried that it will put the rest of the retail suppliers out of business. It is telling to look at Amazon’s precursor, Sears, Roebuck and Company. It became a retail giant 100 years ago, using catalogs to sell every type of good, especially to remote, rural areas with little access. Sears was the competition to the local monopolies. It eventually became America’s largest retailer. Today, Sears is on the ropes, selling assets and closing stores. Its dominance was subject to its serving the customer with the best products and services for the best prices, which it did not continue to do.

Walmart is currently the largest retailer because of its low prices and efficient network, but Amazon is closing in on it. Customers use Amazon because of easy access to a tremendous variety, fast delivery, and competitive prices. In other words, they have found a better way to serve customers. In time, they will either continue to improve or will succumb to other companies who do things better. That is typically what monopolists do over time in a free market. Either way, the customer benefits.