Recently, Amazon had its biggest “Prime Day” sale, a two-day event where various products will be sold at various discounts. And while I was looking at some of the offers available, I was reminded of a post from co-blogger Jon Murphy from last year.
In this post, he examines the FTC’s case against Amazon as a monopolist. One of the things he points out is that the FTC is getting the bottom line exactly backwards. What they saw as evidence of monopolistic behavior on Amazon’s part, is in fact evidence of fierce competition. Discussing Nessie, the price adjustment algorithm used by Amazon, he makes the following point:
First, Nessie’s goal was to compare Amazon’s price hikes to other vendors. Thus, the existence of the project shows that Amazon has faced a lot of competition in its ecommerce market; competition that they had to watch out for and get used to. Second, the fact that Nessie was programmed reduce prices at previous levels if other competitors have not raised theirs shows that Amazon is pricing, not the price maker. They must follow the market price; they cannot simply raise their prices as they wish. Amazon’s behavior is not for one person but of a competitive company. Nessie’s presence actually proves that Amazon is facing a very competitive ecommerce industry.
How does this relate to the recent Amazon Prime Day sales? However, one of my interests was a particular pair of wireless headphones. Amazon had them down to less than half the regular retail price. And when I saw that, I just knew, without needing to check, that both the Best Buy and the Target right around the corner from where I live would also mark those items down to the same level. Because the retail market (ecommerce and others) is a highly competitive environment, sellers are price takers, not price makers.
As Jon Murphy points out, if you’re a price taker, you can’t raise your prices when your competition keeps their prices low. And the other side of that coin is if your competition lowers the price of something, you should do the same. So I decided to get those headphones, but I got them from Best Buy rather than through Amazon, because that way I didn’t have to wait for two-day shipping to get the item. (First world problem, I know!)
I have seen this play out in other markets as well. Steam is a popular platform for the digital distribution of PC games. Every now and then, Steam will have a big sale that lasts for a few days. (In the PC gaming subculture, there’s a running joke that these sales result in people having a huge backlog of games they’ve bought but haven’t started playing – this might explain me too!) this Steam sale goes live, Microsoft will just throw out a huge auction of digital downloads for Xbox games in their digital market. Sony does the same with digital downloads for their PlayStation system. If one service lowers prices, all must lower prices. Even though gaming is dominated by just a few big companies, the market remains very competitive.
This also explains something I’ve noticed over the years, which I’m sure you’ve noticed too, dear reader. The holiday shopping season is longer than ever. I remember when “Black Friday” was a one-day event that took place on the Friday after Thanksgiving. However, some retailers are starting to do Black Friday at the weekendfrom Saturday and Sunday, and that became the norm. Now, many retailers start their “holiday shopping deals” well before Thanksgiving and continue until Christmas. As soon as one seller decides to increase his contributions, everyone else has to do it too.
I take all this as a good sign. Let’s say you enjoy video games, but you only play them on PlayStation. Once again, you can benefit from the competition and get PlayStation games at low prices whenever Steam decides to offer PC game sales for PC gamers. Even if you are not a customer in the PC gaming market, you still get the benefit of that competition. Even if you don’t like ordering products online and prefer to shop in person, you can still find products at your favorite brick-and-mortar retailer whenever Amazon lowers prices for their customers. Take a moment to enjoy this as we head into the holiday shopping season this year – and remember, gifts are great!
Source link