Price gouging is one of the oldest tricks various companies and stores have utilized for very long time. This happens all the time. It is not just increasing the prices based on the supply and demand in the market or increased costs. It is about increasing prices of products and service much higher than reasonable levels. They do it, just because they can. This has become even more obvious during the pandemic and post-pandemic. Using the excuse of inflation many retailers, including grocery stores increase the prices for the products just because they knew people were receiving stimulus checks, unemployments and government was printing more money. So why not profit from the situation. Although that wasn't the direct result of supply shortage or increase in the cost of the products.
It has been revealed as a result of the Amazon vs FTC lawsuit that Amazon may have been involved in sophisticated price gouging scheme that utilized pricing algorithm. Apparently this was a priority project, and named Project Nessie. For now these are just allegations, and have not be proven and not yet facts. However, considering how big Amazon is, its control over online shopping, and its monopolistic ambitions, I wouldn't be surprised if they indeed were involved in secret schemes to gain more profits by gouging prices. This is not only about Amazon increasing the prices on the products they sell. The scheme involves forcing merchants to increase their prices and not sell product below certain prices. It is not news that merchants on Amazon platform have not been treated well. There have been numerous reports and articles how controlling Amazon is and doesn't necessarily maintain fair market place.
There were times when Amazon would price its products cheaper than any other competition. At times this would be done by selling products for a loss. The strategy makes sense when a company is trying to grow and gain as much of market share as possible. Profits will follow in the future once much needed market share is obtained and maintained. It is one thing to participate in the markets and creating space in the market, and having a market share as a result of efforts. However, things become different when this market share ends up becoming the entire market, and no competition is left. Amazon is a monopoly. I have no doubt about that. FTC seems to think that as well. Hence, the anti-trust lawsuit against Amazon. At this point I am not even sure if there can be any decent competition to Amazon. I don't blame them to be successful. I congratulate Amazon on all of what they have accomplished. Not all they have done is evil.
It seemed to me Amazon was able to become successful by bringing prices down, and offering cheaper alternatives for the same products. Of course the prices for products sold online would be cheaper than the ones sold in brick-and-mortar stores due to the cost associated by keeping physical stores open. Also, allowing merchants around the world participate in global markets and creating a platform for these merchants where they could reach customers all around the world would contribute to competition and again would create better pricing of products. Win for the customers. In light of the latest revelations, I am not sure that is or was the case. Perhaps, there was a time it was the case in the past. Maybe that is not the priority anymore. Maybe priority has shifted towards making more money, instead of building something useful. Amazon's platform and services are indeed useful, convenient, and effortless to use. This convenience might just be the right reason to pay more. Knowing Amazon, they probably could afford increasing prices or create sophisticated schemes to do so, because there is no competition. If there was a competition, they probably wouldn't engage in such activities. Because they wouldn't want to lose customers. In the past, their strategy has been offering lower prices than competition. And it worked. They probably still do that. It might depend on product lines.
I think price gouging is evil and goes against free market and decency. This applies to all companies. Why go to such extend for profits, when there are better alternatives to increase profits. Here are some ideas: innovate, build, create, offer solutions, explore new opportunities, improve quality and experiences. It is disappointing to see companies like Amazon would be involved in such schemes too. Why? Why not instead focus on the success built and has been working? Amazon has done a great job building something impressive, and which would generate massive profits regardless price gouging schemes. Just the share of profits they take from merchants for using their platform is massive revenue stream. In addition to that they also earn by being a payment processor. And they also earn on ads revenue. What else you need? Oh yea, they also explore business opportunities everywhere. Amazon have built a great company, great services, awesome solutions, and loyal customer base. Taking active actions that would go against their customers' interests just doesn't make sense. That is huge gamble. And only monopolies affording taking such risks.
There is emerging competition. Walmart was able to figure out online shopping as well, and I hear they have been doing well. Other retailer have been attempting to build their online presence, and create similar platforms. I am sure there will be more who will try to compete in the space. However, this will be a very challenging endeavor for rest of the participants.
The real solution for monopolies or online marketplaces in general will be decentralized one. There is already technology available to build decentralized market places. The challenge is decentralization itself. It is not an easy task. It involve much more than entrepreneurship and technical skills. I think will eventually get there. Because the benefits are huge for all participants: merchants, consumers, businesses, governments, non-profits, etc. The biggest benefit instantly will be cutting costs on payment processing, cutting costs on paying platform owners, lowering prices, and having direct to consumer relationship. There have been those who have been exploring decentralized solutions.
According to various reports, utilizing pricing algorithm, Amazon managed to make $1 billion more in profits in two year, 2016 to 2018. This is even before pandemic. I wonder how much more they were able to extract from their customers afterwards. If true this definitely really bad for Amazon's reputation, and definitely undermines competition and displays they have never been interested in fair marketplace. I think twice if/when shopping on Amazon now. It will be interesting to see how this lawsuit will progress and what else will be revealed in the future. Let me know your thoughts in the comments.
Here is a truth I routinely teach my students: there is no such thing as “price gouging”.
Whenever two parties enter into a financial transaction, both parties are better off, as long as there is no fraud or coercion involved.
If that were not the case, the party that is not better off would simply walk away.
If Amazon prices a product at an unreasonable price, nobody will buy it.
If somebody buys the product, they did so because either it was the best price they could find, or they value the convenience or fast shipping more than the cost savings of buying it elsewhere.
Either way, Amazon cannot force someone to pay more for a product than the product is worth to the purchaser.
I agree with your explanation, and it is true in general. However, there may be situations when there is no fraud or coercion, but there is deception, collusion, manipulation and lack of transparency which may put one side in disadvantage in the transactions.
There is no issue with Amazon pricing its products as they choose. However, the allegation is that Amazon actively was involved in forcing merchants that use their platform to raise the prices or keep them above certain price points or face not favorable consequence. Maybe this too is ok for Amazon to do as the owner of the marketplace. But lack of transparency of such schemes makes it deceptive practice and not puts buyers in disadvantage. If this indeed is true, the information revealed will better equip buyers in making decisions whether to enter the transaction or not. In other words, if merchants are forced to keep prices high, it may be possible to the same product to be available for better price elsewhere, maybe merchants' websites.
I agree, in part.
Deception of any kind, as part of a financial transaction, is fraud.
Collusion is generally illegal, unless it’s collusion with the government (collusion with the government is legal, but represents the worst type of collusion, imho).
Manipulation in a financial transaction would generally be fraud or coercion.
Lack of transparency would be a gray area. If there’s a defect in my product that I know about but don’t disclose, that’s fraud. If I know that my competitor is about to release a new product that’s going to make mine obsolete, I might slash my prices to reduce my inventory, but I have no duty to disclose my reasons for doing so.
BTW, I am not defending or accusing Amazon in any way, shape, or form. I’m just trying to provide some clarity about terminology.
I always bristle when I hear the term “price gouging” (because it generally implies a falsehood about free exchange). That’s why I usually take the opportunity to explain free exchange (and the fact that both parties are better off, if the exchange is truly free of fraud or coercion).
Thank you for explaining in details! I understand better now. Makes perfect sense.
this is a great point, although when you own the entire market you get to control the price like we see with diamonds.
This also allows others to commence business but that is costly and something I am doing currently in sports nutrition supplements.
Owning the market would conceivably allow the producer to maximize producer surplus and minimize consumer surplus. In other words, charge the highest possible prices consumers are willing to pay. (As stated above, they can't charge more than consumers are willing to pay.)
However, doing so would send a strong price signal to entrepreneurs, telling them that there is an excellent opportunity at hand, namely to develop a substitute or competing product.
In other words, maximizing prices invites all sorts of competition.
This is why so-called exploitative monopolies cannot endure long term, unless they have government regulations in place to keep would-be competitors from the entering the marketplace.
That is right in general. I think why people argue against that is when you integrate "time" into the equation.
We have a monopoly media landscape here in Germany. The public media collects a coercive tax to which you cannot say "no" by law. Even though they raised the fees over time this did not produce a competition since there is only one public media organization. All others are private ones. Since there is this fee there is not much need for competition amongst the public ones themselves.
The private classic media is to be said in the hands of corporates. I tend to the side that this represents indeed monopolies. Since this is being seen broadly as such, you are right when you say that these monopolies produce competitors. They are now all over the place in the Internet. But then you are confronted with the monopoly of google. Since google (and its bought companies) manipulates what things can be found and since the average media user needs to cope with ever more shifting and changing media offers he might not be able to catch up. But catching up on important information is crucial, right?
In order to compete with a monopolist you need to be known. To be known nowadays seems a lot harder than in the past, I suppose. To become a known competitor you need media. If media is dominated by few monopolists you might only get to know a competitor by what you are provided with to find in the Internet through the will of the monopolists. ... But then this will is not omnipotent, and it cannot control everything (or so I hope and think).
I found competitors myself but I would say that in order to compete with the monopolists they need to become more broadly known themselves. ... I am leaning towards the small and medium competitors instead having another becoming huge competitor (like the one founder of the youtube channel "Triggernometry" who says they want to become a "media empire"). I support them while they are not :)
But probably I have some flaws in my thinking. I am not overall sure. I just think that my and the older generation has a hard time to catch up on good competitors since information flow seems to be too fast. Maybe, there are too many small and not enough medium competitors.
Come to Australia where Banks, Supermarkets and Media have monopolies :(
What is the regulatory situation related to those industries?
Long term, monopolies need government-induced restrictions on entry to endure.
If competitive markets exist, incumbent monopolies will eventually be dethroned.
we don't have any regulations in place like in the US. Murdoch owns most the media here unlike the US where the US takes legal action against media.
I believe that since the financial crisis in 2008, people have been afraid that companies will become too big to fail and that even one is in danger of going under, that it will be rescued by government measures and compensated for by austerity policies for individual citizens.
Another fear is that individuals who want to set up their own business will not be able to compete with a corporation and that the retail sector - with the exception of the food industry - will die out as a result. The reason, they say, is that retailers can't keep up with the prices of the big players. I think what people fear and also reject is that when it comes to competition, they only see those who have enough power and influence themselves as capable of competing, which in turn makes the individual entrepreneur with a shop, for example, a dying species. But perhaps this has always been an illusion, even when the grocery or general shop was still common when it comes to pricing.
As far as the media are concerned, for example, it is said that the public media organisations are a monopoly in our country. We pay a compulsory tax for public service media. How would you see that?
I am more concerned about actual government bailouts than fears about bailouts. Yes, fears about bailouts might hinder some otherwise productive activities, but actual bailouts reward mismanagement and prop up businesses that are not genuinely creating value for consumers.
Typically, what’s happened (with “too big to fail” business) is the government regulatory apparatus has stifled competition within the given industry, allowing mismanaged companies to grow ever bigger because would-be competitors are locked out by onerous regulations. That allows poorly managed companies to grow bigger even though they should be continually shrinking into irrelevance (and being slowly replaced by entrepreneurial firms finding better ways to satisfy consumer wants).
I think I understand. Since I'm not really well qualified in these matters, I can only fall back on what I repeatedly and increasingly perceive, across all sectors of the economy. The state regulatory apparatus does indeed seem to me to be a major problem, as even with its best intentions it excludes competitors through, as you aptly point out, strict regulations. I don't know the facts, but it seems to me that companies are all treated equally in terms of the stringency of regulation and compliance and no good distinction is made based on the size and shape of the company.
A rather trivial example, but maybe that's what you meant:
A few years ago, all retail shops were required to install electronic cash registers in their shops in order to standardise tax documentation. If it was just this one item, you could say that the small retailer needn't be upset about it. However, it is in total what makes entrepreneurship and its foundation impossible or difficult, both in terms of the procurement of technology and equipment in a company and in terms of bureaucratic and safety-related official requirements. Added to this are various compulsory memberships in associations and co-operatives. (My own solution to the problem of small companies would be to just guarantee them a separate department on the regulators side in order to meet their circumstances and treat them differently. But I would need to look that up in order to find out if my assumptions are correct).
If you add it all up, an entrepreneur who complies with all these regulations needs a considerable part of his turnover for all these regulations alone. It seems to me that treating everyone equally is not appropriate here. But perhaps small businesses are so insignificant in politics that little attention is paid to them. However, this is at odds with what I have experienced with regard to audits of small companies by the social security and tax funds. They are very meticulous here.
I agree that companies which miss manage their customers needs need not to be protected.
P.S. Since my own competence lies somewhere else and I deal with what I face as problematic on another level, I would like you to support my newest blog post, if that what I express there, meets your sets of values.
Also what a lot of people fail to understand is that over 60% of sales on Amazon are from third party sellers. They all play the supply and demand game to make more money. Sometimes Amazon will be involved as well and then it's just turns into a game of who can price it lower. There are softwares that will reprice items to make it the best price. You can also be patient and your products will sell, some people just get impatient.
Well said
I am not really surprised that they are price gouging. It just seems like something that seems natural when they are one of the most popular marketplace. I do hope that they get punished for it and that the lawsuit succeeds though. They should still get punished so they don't do price gouging so blatantly.
I am curious to see what else this lawsuit will reveal.
It will be interesting to see how this situation unfolds and what impact it might have on the e-commerce landscape.
Thank you for sharing your thoughts on this important issue.
People who engage in price gouging really I consider them in Engaging fraud which is not good
What goes around comes around 😁 !PGM
BUY AND STAKE THE PGM TO SEND A LOT OF TOKENS!
The tokens that the command sends are: 0.1 PGM-0.1 LVL-0.1 THGAMING-0.05 DEC-15 SBT-1 STARBITS-[0.00000001 BTC (SWAP.BTC) only if you have 2500 PGM in stake or more ]
5000 PGM IN STAKE = 2x rewards!
Discord
Support the curation account @ pgm-curator with a delegation 10 HP - 50 HP - 100 HP - 500 HP - 1000 HP
Get potential votes from @ pgm-curator by paying in PGM, here is a guide
I'm a bot, if you want a hand ask @ zottone444
You make a great point about Amazon trying to get more market share in good selling products. There has been many instances where Amazon will manufacturer a great selling product(copied from a Seller on the platform) and then either kick them off or just price it below theirs making them lose or go out of business. I will agree that they have built something great but during that journey they crushed so many small businesses on the way. Similar to when a Walmart gets in town, many small businesses around will fail because they just can't compete. Another great post 👏🏻.
Ultimately people decide what should succeed. It all depends where people take their business.
Amazon. Has a leg up in every possible way. Most definitely they have bots that play around with prices to put perform or put bid other online entities and take advantage of the customer. At this point everyone needs to become tech Savvy and code there way through everything if they have to get a bargain on anything.
Decentralization is an exact what most of those large store are serious working on. Seen beyond jumping onto conclusion that crypto is the future . Base on this your post write up knowledge with Amazon there you would agreed that blockchain technology plays vital key towards given decentralization. While crypto currencies seems to be more as leverage power to bring in the needed value.
You post is quite informative and knowledgeable , thank you for sharing.
I can say that the supermarkets in my country have been doing the same in recent years due to the hyperinflation. You could see a %50 price increase of a product on a day and a %25 price decrease of it the next day.
That could also be due to the exchange rates for the fiat, no?
Hyperinflation results in high exchange rates.
Price gouging is not nice. It is a way of getting more money into their pockets
It is just like fraud
I don't like it
amazon is rapidly expanding and becoming the number 1 marketplace. No wonder they are in control of prices
$WINE
I often shoping on Amazon. I like the different selection of products and their quality. You can also make good money using this platform. I also want to note that amazon customer service will always answer all your questions. If you are interested in selling on Amazon, you can check out the information online or at the link I left above.