Monopoly Defined: Amazon Can Pass Go

Puja Valera

Associate Editor

Loyola University Chicago School of Law, JD 2023

With the recent antitrust lawsuit filed against Amazon and the new antitrust bills being debated in Congress, the online retail giant is at the forefront of everyone’s mind. The behemoth of a company has entered numerous markets including apparel, technology, and even grocery. The size and scope of the company begs the question, is Amazon a monopoly? As the law stands right now, Amazon is decidedly not.

What is a monopoly and what is antitrust law?

According to the Federal Trade Commission, a monopoly occurs when a single firm unreasonably restrains competition by creating or maintaining monopoly power. The courts tend to look at market share and whether they exclude other competitors to determine if the firm under investigation has monopoly power. If the firm does not have more than fifty percent of the sales of a particular product or service within a certain geographic area, then the courts do not usually find monopoly power. Additionally, that monopoly power must be sustainable. In other words, the firm must have a lasting monopoly power that is not overly affected by the entry of new firms or other competitive forces.

Most antitrust law stems from the Sherman Act of 1890. Its goal was to preserve free and unfettered competition as a rule of trade. The Supreme Court decided that the Sherman Act does not prohibit all restraints of trade, rather, only those that are unreasonable. However, certain acts like arrangements where competing firms or individuals agree to fix prices, divide markets, or rig bids are always considered per se illegal, with no defense or justification allowed. Overall, the basic goal of antitrust laws is to ensure that there are strong incentives for businesses to operate efficiently, keep prices low, and keep quality up.

Why is Amazon not a monopoly?

Amazon does not quite meet the Federal Trade Commission’s (FTC) definition of a monopoly. It does not have the requisite market share of over fifty percent of a particular product or service in a certain geographic area even though it has economic power in multiple industries including retail, web services, grocery, and entertainment. Currently, its largest market share of nearly fifty percent is in the e-Commerce industry, however, that is not large enough yet for the FTC to classify the giant company as a monopoly. At this time, the FTC’s definition of a monopoly is not dependent on the size of a company. Rather, it is dependent on consumer welfare, pricing, and stifling competition. Unless the law changes, Amazon can continue to acquire companies and enter into different industries.

Regarding consumer welfare, Amazon’s ability to eliminate customer pain points has made it a household name and increased its brand value tremendously. Amazon is hugely popular with customers all around the globe, especially in the United States. Almost twenty-five percent of U.S. adults are Amazon Prime members due to the online retailer’s low prices and free shipping perks. The easy online ordering and convenience provided by the online retailer has created an unheard-of brand loyalty in the modern age. With the onset of the Covid-19 pandemic, more and more consumers are turning to online retailers rather than brick-and-mortar stores and caused its consumer satisfaction to skyrocket.

Additionally, monopoly pricing references price-fixing that is higher than normal with less competition. To have monopoly power, firms need to accumulate the power to have the long-term ability to raise prices. With its low prices, Amazon is contributing to deflationary forces, which cause the inflation rate to go negative. Amazon is also not restraining trade since sellers can go to the Amazon Marketplace platform to sell their products. Though Amazon may be dominant on its platform, with a steady stream of entrants into the market, it still allows competition to occur. Although its size is large, when analyzing Amazon’s actions through the lens of the current definition of a monopoly from the Federal Trade Commission, Amazon is not a monopoly.

Looking ahead

Although Amazon is not currently labeled as a monopoly, as it accumulates more market share, it could become more of a threat to its competitors and start enacting illegal anti-competitive conduct like raising prices and lowering the quality of its products to increase its profits. There are currently five bills that have passed a House committee vote and could possibly break up the behemoth company. One of the most impactful bills, the Ending Platform Monopolies Act, would make it illegal to for a business to favor its own products and services over those of a competitor or disadvantage prospective competitors that use the platform. Thus, if the antitrust laws become stricter and more aggressive, Amazon could be classified as a monopoly and face potential fines and/or a breakup of its businesses.