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In 2017, Amazon declared that it joins Whole Foods, the company owning a network of supermarkets of healthy food products. The total value of the deal was estimated at $13.7 billion, and Amazon was to pay off its debts.1 Currently, there are antitrust debates in the US between those who express their concerns regarding monopolization initiated by Amazon and those who emphasize the value of the mentioned agreement in terms of diversification and customer satisfaction. The author of the article “Market Concentration Can Benefit Consumers, but Needs Scrutiny” argues that such decision of Amazon may damage the interests of customers, while it seems that they will only benefit due to the increased convenience and larger assortment of high-quality products.
One of the benefits presented by the acquisition of Whole Foods is the implementation of innovations to meet customers’ needs and anticipate their expectations. Jeff Bezos, the founder and chief executive officer of Amazon, would most likely, target optimization of Whole Foods by introducing modern technologies and reducing transportation costs through Amazon Freight. It should be stressed that Whole Foods is the largest supermarket chain in the United States, specializing in the provision of organic foods. Its sales in 2016 reached $16 billion, while the company manages more than 460 stores in Canada, the US,
and the UK.2 Millions of people prefer Whole Foods since it offers the best natural products of organic origin. Thus, Jeff Bezos considerably improves his position in the market of sales and delivery of food and groceries as he understands the potential of more than $800 billion of the market, the share of online trade which is about two percent.3 The mentioned Internet retailer has been experimenting for several years in this segment. In 2007, the company launched an online supermarket of AmazonFresh grocery products.
It is to be expected that Amazon would strive to offer the best price conditions to consumers, both on the Internet and offline that would be rather beneficial for customers. The latter often complained about the high prices of this network. Due to its huge purchasing power and a well-developed delivery system, Amazon would be able to use its supply chain and delivery, which would reduce costs, and, therefore, prices, thus regulating demand and supply. At the same time, Amazon would try to preserve the reputation of Whole Foods as a network of fresh organic products, improving production and cost. It is also expected that Amazon will put pressure on the market, forcing sellers to cut prices.
More to the point, Amazon expects to reduce the number of staff in Whole Foods and make this network competitive with WalMart and other large retailers through lower prices. The program to reduce costs also includes the use of technology customer service without cashiers, as Bloomberg writes.4 This is about AmazonGo technology, which allows people to pay for purchases from a smartphone without seeing the cashier. In addition, it is possible to anticipate that Amazon would expand the range of Whole Foods, thus attracting younger customers to the network, who would like the possibility of online orders and delivery. In strategic terms, Whole Foods can provide Amazon with a ready infrastructure that would ensure an organic pooling of channels and services, while reducing financial risks. For clarity, one may note a scheme, in which Amazon bookstores are located in Whole Foods, and the Whole Foods button appears in the Amazon Dash panel.
Discussing the concept of monopoly as a market structure in which one company is a supplier of a product that does not have close substitutes on the market, it should be stated that the situation with Amazon is different. The market dominated by monopoly is in sharp contrast to the free market, in which many rival sellers and buyers offer a standardized product for sale in a lack of perfect competition. On the contrary, Amazon provides positive indicators such as low long-term average costs, better quality of goods, and variety of assortment; advantage in using the achievements of technological innovations due to sufficient financial resources and strong incentives for research and development (R&D); and preservation along with strengthening of competitiveness in world markets. The products of monopolistic companies are of a high quality, which allows them to gain a dominant position in the market.5 Monopolization affects the efficiency of production since only a large firm in a protected market has sufficient funds for the successful conduct of research and development.
To conclude, Amazon’s purchase of Whole Foods seems to be quite advantageous for customers. They would receive the opportunity to have more convenient and pleasant shopping both online and offline. Considering that Whole Foods offers organic foods, Amazon would preserve this vision and enhance it by means of technology in logistics, product presentation, and shopping decisions. Even though some debaters consider that this is monopolization, it is evident that the accession of the mentioned company would provide customers with diverse products as well as new experience of convenient purchasing. At the same time, such a solution is likely to stimulate market potential on a larger scale. Thus, the combination of two successful companies with their products and infrastructure would lead to more effective shopping and economy in general.
Bass, Dina. “Amazon Primes Whole Foods for More Visitors.” Bloomberg, 2017. Web.
Bhattarai, Abha. “Amazon Adds a New Prime Benefit: Free Whole Foods Delivery in Two Hours.” The Washington Post, 2018. Web.
“Market Concentration Can Benefit Consumers, but Needs Scrutiny.” The Economist, 31, 2017. Web.
- “Market Concentration Can Benefit Consumers, but Needs Scrutiny,” The Economist, Web.
- Abha Bhattarai, “Amazon Adds a New Prime Benefit: Free Whole Foods Delivery in Two Hours,” The Washington Post, Web.
- Bhattarai, “Amazon Adds a New Prime Benefit”.
- Dina Bass, “Amazon Primes Whole Foods for More Visitors,” Bloomberg, Web.
- Bhattarai, “Amazon Adds a New Prime Benefit”.