Amazon are expected to retain a dominant position in the ecommerce and earn significantly higher profits in the future, says Unlocking digital competition report by HM Treasury.
The Digital Competition Expert Panel examined the potential opportunities and challenges the emerging digital economy may pose for competition and pro-competition policy. The panel aimed to make recommendations on any changes that may be needed based on the findings.
According to the report, Amazon are dominant as an online marketplace for relatively low-value and homogenous products.
In 2017, eBay saw an $84 billion boost of the total value of sales. Over the same period, Amazon UK reported about $60 billion in sales.
Regardless of the view on dominance over a particular defined market, it is clear that for thousands of smaller independent online sellers, in particular, Amazon’s marketplace is a strategically important gateway to consumers.
The report says that Amazon’s financial performance suggests the dominance phenomenon will endure.
In January 2019, Amazon became the most valuable company in the world, based on their share price valuation. This is despite them having made losses or relatively meagre profits until 2016, and still have a higher price-to-earnings ratio than many other companies with high valuations.
This suggests investors are expecting Amazon to retain their dominant position. There are signs that Amazon have begun this process, with a profit of $10 billion in the 2018 calendar year. Although this is a small proportion of the $233 billion Amazon earned in revenue, this represented a 232% increase in profits from the previous 12 months.
The report attributes Amazon’s dominance to the fast, efficient and low-cost service that consumers value highly. It also cites a network of merchants and buyers along with a strong economy to scale with regards to their logistics operations
An important question is whether the largest incumbents of digital markets are constrained by competition ‘for the market’, and could be unseated by innovative entrants in the future.
Although the dominant players continue to innovate and compete, there is a reason to be sceptical of the notion that they face serious threats to their dominant positions in the future, unless there are changes to the current policy framework.
