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Comment by nsnick | Hacker News Reader

The mistake you are making is that you are only looking at the harm that monopolies do to their competitors. You should also look at the harm that monopolies do to consumers. If you are a monopoly you can effectively set the price of whatever you are selling. Just operating is using your monopoly.

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Amazon has been consistently losing money on retail since its inception. If they raised prices, they would lose their dominant position. The main reason you don't see more competition is that retail (online or offline) simply isn't very profitable to begin with.

Such selling at a loss is really weird from an anti-trust perspective. As a worst case, it allows a company to 'invest' in market share by selling at a loss to strangle the competition. Once this is done, they can entrench themselves and raise prices. If you only look at anti-trust as consumer protection, the above scenario only becomes problematic when its to late.

That said, lines are hard to draw. When is a company lowering prices to strangle the competition and when is the competition being strangled a side-effect of efficiency? Is it okay if amazon intends to always stay cheap, and use retail as a loss-leader? What should happen when supermarkets dampen price fluctuation, taking a loss when prices spike to appease their customers.

It's a hard problem, but we should be careful about companies operating at a loss just to strangle their competition. However, should this come at the cost of companies that strangle their competition by just being more efficient?

"Once this is done, they can entrench themselves and raise prices"

If that strategy really worked in the long run, you would see countless examples of it. So called "price dumping" can actually be illegal, but it rarely needs to be enforced.

Entrenchment is an issue in markets with a high barrier to entry, or one where the barrier can be shifted arbitrarily by the dominant player.

Retail isn't really that high, if you count anyone who chooses to open up online, and value additions other than price- shipping policies, returns, service and so forth- are important.

If Amazon drops prices to a significant loss on a single product to specifically undercut a new competitor, that might be an issue. Running one side of a business at a loss and propping it up with another is quite common, though perhaps not at this scale. Either way, splitting it now could only harm customers.

They are using the Starbucks method and playing the long game. Move into an area, lower prices till the incumbents go out of business then raise prices.

https://phelanomics.wordpress.com/2016/11/01/economics-and-c...

People have been saying, "Amazon's gonna destroy their competition and then screw their customers with high prices any day now, just you wait!" for like a decade. We're still waiting for it to happen.

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