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.