Mgmt 320 - Amazon’s Growth
Amazon
Rupinderjit Kaur
Professor Ruth Huwe
MGMT 320
July 3, 2018
Introduction: Amazon, also known as “tech-giant,” one of America’s largest e-commerce retailer was founded in 1994 by Jeff Bezos in his garage in Bellevue, Washington. Bezos started Amazon as an online bookstore with the idea of how a database has the capacity to hold more books compared to a physical bookstore. It started as a bookstore company but now people can buy and sell a variety of goods and services through Amazon. Amazon did not make any net profits for 14 years and today Jeff Bezos is the richest person in the world with a net worth of $140.2 billion[1]. Amazon was a one-man company, and today it has around 540,000 employees across the world, and 140 warehouses in the United States.[2] Amazon is successfully famous worldwide for its innovation, lower prices and quality products, customer service, and the convenience of getting goods at your doorstep. Amazon is growing and expanding along with offering growth opportunities to the economy but it also has been held responsible for taking away jobs, not paying taxes, and causing losses to local businesses and government services.
Arguments for Amazon: In September 2017, Amazon announced that they are looking for a city to build its second headquarters which would create 50,000 high-paying tech jobs in the economy (2). Amazon publicized that they anticipate investing approximately $5 billion into this project. In addition, compared to the boost in the economy of Seattle resulting from Amazon headquarters, Amazon is assuring an additional contribution of $38 billion to the local economy where its second headquarters would be located and there has been an estimate that it will create 53,000 non-Amazon jobs and an increase of $17 billion in the income of non-Amazon employees.[3]
Following this announcement, Amazon received 238 proposals from different cities across North America to build their second headquarters[4]. On January 18, 2018, out of 238 proposals, Amazon narrowed down its list to 1 Canadian, and 19 American cities, namely Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Indianapolis, Los Angeles, Miami, Montgomery County, Nashville, Newark, New York City, Northern Virginia, Philadelphia, Pittsburgh, Raleigh, Toronto, and Washington D.C. (4).
Local governments of the interested cities have offered grants to encourage Amazon to build their headquarters in their region. In the proposal the City of Newark offered $7 billion tax cut, Philadelphia mentioned that they would provide $1 billion in tax exemptions, Houston is offering $268 in incentives and $75 million to help with affordable housing in the city, Chicago proposed that the taxes paid by Amazon employees would be incentivized back to Amazon totaling approximately $1.7 billion which can be used for infrastructure at Amazon, Columbus, Ohio’s offer include subsidizing 100% property taxes for the 15 years, and a tax refund of 35% for income-tax withholdings.[5] While these six cities government proposed competitive incentives to win the proposal, other fourteen cities stated that they are keeping their proposals confidential.
Another benefit that Amazon has offered to the U.S. economy is that despite offering significantly lower prices, it has been able to keep its overhead costs lower leading to no or low inflation. Another argument that Amazon is not beneficial for small business also partially incorrect as Amazon is a mode for selling goods for a lot of small businesses. During 2018, third-party sales exceeded the actual Amazon sales[6]. Many small businesses have declared that they appreciate Amazon as if it were not Amazon, they would not have been able to sell their products. A smart pressure cooker company acknowledged that, “90% of our sales came through Amazon and without Amazon, we wouldn’t be here (6).”
Arguments against Amazon: Experts claimed that Amazon does not comply with anti-trust laws and hence strict actions must be taken by the government. Amazon affirmed that it did not break anti-trust laws as it offers quality products at low prices to its customers. “The anti-trust law prohibits businesses from depriving competition and charging high prices from customers for the goods and services,[7]” Amazon argued that Antitrust laws apply to the companies which are presiding the market or harming customers, and experts have analyzed that these do not apply towards Amazon supported by the argument that even though Amazon holds 43% of the e-commerce market, it only holds about 4% of total retail in the United States[8]. Lina M. Khan in a Yale Law Journal disputed this issue and mentioned that we need to analyze “the underlying structure and dynamics of markets” and “the competitive process itself.[9]” Khan argues that we are only considering low prices offered to customers by Amazon but not the marker structure due to which antitrust laws do not apply to Amazon. Khan Suggests that in order to examine Amazon’s real power, one should focus on effects of Amazon across the markets instead of prices and products offered to customers (9).