They are a bigger fish than the mom and pop stores but that just means that it will take a little longer for the Amazon Prime monopoly cash flow to devour it.
The idea of paying a subscription for the privilege of being scammed sounds ridiculous. The cost of deliveries doesn't magically go down because you're paying a subscription. You're paying for it either way. Either you're overpaying on the subscription because you're not ordering enough or you're overpaying in the form of higher prices that contain the remaining delivery fee.
I’ve been buying on Amazon for 20 years, and I just avoid high value items. It’s great as an AliExpress with an easy return policy. If I get a fake or whatever, I return it or I toss it.
For higher value items, I go to other retailers, such as Costco.
The prices on amazon are comparable to what I see elsewhere for everything I've ordered. The thing that sets amazon apart is that their delivery is blazing fast compared to everyone else. Yes, the reviews are always a little suspect, if I see tons of empty 5 star reviews, I suspect the product, but in general, I've been satisfied with my purchases.
Predictable delivery, easy/generous customer service, best/tied-for-best price, excellent selection. I'm not sure which part of that is uncompetitive...
(If you know a better price on Airpods 3 Pro or a base M4 Air, do let me know as I'm always happy to save money.)
Sure, if you do a full accounting of costs you may win or lose, but fundamentally people are paying for simplicity. Because almost everyone is lazy, or too busy, or too afraid of random scammers, or whatever, and they played their cards right to become the Sears Catalog from the 19th century in the 21st century.
edit - and one thing that helped them get there is the return policy, so if you get one of those scam sellers, or they sent you wrong crap, opened crap, or just plain everyday crap, you press a couple buttons, maybe drop something off at a UPS store, and problem solved. That definitely shields them from the fallout from their endless listings from sellers like QWERTY123 and ZXCVBN789, and provides an advantage over any other online ordering that doesn't have the same massive advantage of scale.
1) When I really need it within a couple of days and can't quickly find it locally
2) When it isn't carried locally (the local retail stock is a lot thinner than 20 years ago)
3) If there is a BIG price difference -- used to be common but now much rarer. As you say, Amazon's prices are often worse than buying locally.
4) When I need it shipped somewhere else. I usually spend Christmas, for example in another city, and it is impractical to bring a bunch of presents. Amazon is good for situations like that.