Monopolies and Megacorps
By Arhon Strauss ’23
Amazon and Google are two of the largest corporations in the world. Each one of these companies dominate—perhaps own—their respective markets. They are what I like to call megacorporations.
A term first popularized by William Gibson, megacorporations is a term typically used in sci-fi novels to represent enormous companies that have impossible monopolistic power. However, the issue is that this power does not seem nearly as impossible as the novels the term was originally used in suggest.
Little by little, certain companies have clandestinely taken control over huge portions of multiple business sectors. Amazon’s growth is—forgive the pun—a prime example of these takeovers. Amazon’s dominance in the online shopping market is well known. After all, most people shop on their website. Unbeknownst to most, however, is Amazon’s near complete control of the server market. In fact, 52% of their total income comes from their server business, Amazon Web Services (AWS).
So, why is this bad? There are the obvious issues that monopolies present, like price fixing, quality concern and job alterations. For Amazon, specifically, I will focus on something entirely different. In their specific case, the primary issue is that having dominance in multiple markets allows them to participate in predatory practices to gain market share—one of which is to simply buy out any company that could be competition.
Amazon has been able to do this by sacrificing profit in their online shopping division. By doing so, they have attracted customers and thus market share. They have only been able to do this because their AWS division has covered any monetary loss. As such, they are able to outcompete any and all competition. A great example of them doing so happened a few years ago, with Diapers.com. Amazon wanted to buy them, but unsurprisingly, they wanted to stay independent. In response, Amazon priced most of their diapers at nearly fifty percent off and advertised extensively. Of course, they lost money, but they gained Diapers.com’s clientele. A few months later, Diapers.com sold itself to Amazon. These methods can only really be made possible when a company has another source of revenue, which, in this case, was AWS.
Now, you may be wondering what is wrong with companies doing this. After all, it appears that the customer benefits. They get lower prices and possibly better products. Capitalism at work, right?
Short term, the customer does benefit. However, they will suffer in the long term. Right now, Amazon still prices their products reasonably because there are other companies to compete with. Yet, they have also grown so large that no other business could stand a chance against them. They could very easily start pricing their products ridiculously, without real concern of losing any client base. Then, if there is a small company that does start to threaten them, they do what they did with Diapers.com.
The situation has deteriorated so much that the very idea behind a startup is changing. In the past, startups were supposed to eventually mature into full companies. Conversely, the current mindset is to grow a startup till a megacorporation like Amazon and Google buys it. In fact, this is the exact idea that some colleges teach their students.
The situation is further exacerbated by the multimarket and online nature of many of these companies. As mentioned previously, the multimarket nature of certain companies makes them the megacorporations that they are. Their online nature makes them hard to regulate—they exist in entirely new fields, with different dynamics and possibilities. Our society is inching closer to having true monopolies everyday, due to the existence and growth of existing megacorporations.
Restrictions must be placed on massive corporations that limit multimarket participation, large mergers and buyouts. Without such constraints, they may truly become the uncontrollable megacorporations imagined by William Gibson.