Interplay between Amazon store and logistics

September 11, 2023

In this paper, the authors examine the antitrust investigations and allegations by the European Commission (AT.40703–Amazon Buy Box) and Italian Competition Authority (A528-FBA AMAZON), and the regulatory proceeding by the Italian Authority for Communications and Postal Services (AGCom’s resolution 94/22/CONS), surrounding Amazon’s Store, and the interplay with its logistics and delivery services. While some commentators and these authorities have raised concerns about Amazon’s alleged “self-preferencing,” rapid growth, and its alleged ability to leverage its (upstream) e-commerce market power to strengthen its position in (downstream) logistics services, this paper strives to provide a more comprehensive perspective that considers a broader spectrum of factors that are often overlooked or neglected. To delve into these concerns, the authors start by analyzing Amazon’s business model, monetization strategy and underlying incentives. Then the authors evaluate the full set of constraints (both demand and supply-side) Amazon faces, concluding that:

  1. Amazon’s strategy has focused on offering low prices, a broad selection of available products and fast delivery to customers. Amazon monetizes both on its own (1P Retail) sales as well as sales by third-parties in the Store. This means Amazon does not have an obvious incentive to “self-preference,” as this would ultimately damage the platform by not offering customers the best possible choice. Instead, Amazon aims to build customer trust and encourage repeat business, which it achieves by including efficient third-parties (both sellers and carriers) in the Store, as the data show.
  2. Amazon faces significant demand-side constraints, as the majority of customers compare prices over various channels prior to making a purchase combining visits to physical stores and online. At the same time third-party sellers in the Store also constrain Amazon by multi-homing, i.e., sell through multiple, alternative channels, and can substitute away from online marketplaces, both offline and online.

The authors conclude that Amazon’s logistics services have generated significant value by bridging the gap between the online and physical worlds. Customers benefit from fast and reliable deliveries, while third-party sellers have gained another option to expand their businesses without investing in their own logistic networks. By delving deeper into the Amazon Store and its connection to logistics services, the authors argue that the theories presented by these agency investigations do not fully capture the factual and complete evidence surrounding Amazon’s practices.

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