Amazon has competed in the past on both price and convenience. It did so by favoring market share over profitability and constantly upgrading its logistics network. With a significant head start in online retailing, Amazon had the benefit of strong network effects and little direct competition from brick-and-mortar retailers. This is beginning to change as companies such as Walmart develop an increasingly sophisticated online presence.
Some advantages that third party sellers give Amazon are low...
Amazon has competed in the past on both price and convenience. It did so by favoring market share over profitability and constantly upgrading its logistics network. With a significant head start in online retailing, Amazon had the benefit of strong network effects and little direct competition from brick-and-mortar retailers. This is beginning to change as companies such as Walmart develop an increasingly sophisticated online presence.
Some advantages that third party sellers give Amazon are low overhead costs and increased product selection. However, this particular move by Amazon suggests that Amazon's strategy of focusing on market share risks being jeopardized if its third party sellers cannot compete on price. Increasingly sophisticated consumers may check prices at both Walmart and Amazon as well as other platforms online and buy from whichever offers the best deal. If one searches, for example, for a 12-sheet crosscut shredder online, one will get results from Amazon, Walmart, Office Depot, and other retailers. The shredders are similar, and the convenience of ordering is similar. Thus, Amazon must offer something beyond simply being a place where one can order office supplies online in order to compete effectively.
What this story suggests is that Amazon is concerned about competing on price over a full range of offerings, including third-party offerings. This is not a radical departure for Amazon, as it has historically emphasized market share over short-term profits in order to leverage the power of network effects. Its Prime features and increasing investment in Echo suggest that it continues to develop both convenience and pricing features, although this article is focused exclusively on the new pricing strategy.
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