Amazon.com provides an excellent market to both suppliers and buyers of all sorts of goods. Individuals can go to their website to purchase just about everything from rubber ducks to high tech computer parts. What’s even more impressive is the selection Amazon gives its customers, offering competitive prices, essentially making every market a competitive market. When a customer wants to purchase a laptop, for example, they go can go to amazon to find the one that suits their fancy. However, once they have found this product, the product of their dreams, problems begin to occur. These problems do not affect the customer, but rather affect the seller.
Manufacturers who sell directly on Amazon have to compete with third party sellers selling either the same product or a knock off of their product. Often these knock offs come in the form of refurbished devices, or similar products with minor flaws. These products are offered at a discounted price, often harming the sales of the original seller. In a competitive market, if a company is able to produce at a lower marginal cost, then the company can make the same marginal profit while selling at below the average cost. This is a problem for multiple reasons: customers are purchasing items which are inherently inferior to the product which they wish to purchase; companies which manufacture the product lose out on sales which they otherwise would have made; and manufacturers lose profit when they lower prices to meet knock off competition.
Another problem Amazon’s sales algorithms foster is the lack of priority for manufacturer products over the products of competitors. Say for example, Hanz is selling sweaters on Amazon for £9.99. Amazon will have a single website for Hanz’s sweaters, stating a description and that the product is made by Hanz. Jeffrey, Hanz’s brother purchases in bulk 100 sweaters from Hanz for £8.99 and proceeds to sell them on Amazon for the price of £9.99. Amazon, seeing that the sweaters from both Hanz and from Jeffrey are the same put the same bar-code on both supplies. When a consumer purchases a Hanz sweater on Amazon, the warehouse facility picks a sweater from the stock that is most convenient for shipping to the customer. Amazon does not prioritize the manufacturer, Hanz, over the third party Jeffrey.
How does this affect the market? Many corporations, such as Johnson & Johnson have at times refused to sell to Amazon because of this very situation. By not prioritizing the manufacturer, Amazon makes a non-competitive market a competitive market. Instead of having multiple producers create the same product, a single producer creates a unique product which is then sold by many other corporations. Ultimately this leads to a more competitive market in what was a non-competitive field. This not only lowers the profits for the manufacturer, but it also harms the customer by providing false information as to where their product is coming. Many warranties and guarantees associated with products are lost when they transfer from manufacturer to middleman to consumer.
Do you think the fat that Amazon sells used goods has any effect on the market? Most of the time if someone wants to buy an apple computer, they must either go through Apple itself, or if they are lucky they might be able to purchase a used one from a friend. Amazon however, categorizes new apple laptops in the same page as used ones, and even shows the lowest price found. This lets people who do not need the laptop for much buy a used one for a lower price. Do you think this would affect Apples sales? Does it create a market for people looking to sell their old goods? How does this benefit Amazon?