When Amazon officials announced the e-commerce juggernaut would be acquiring Whole Foods, analysts were skeptical and curious at the same time.
While major mergers of this type can often result in new business models succeeding where they would’ve otherwise failed, they also present several concerns. One of these is the question of monopolization.
Both aspects of the discussion got fuel thrown on the fire as sweeping price cuts were announced for Whole Foods’ inventory. Amazon had announced price reductions in advance. However, those who surveyed Whole Foods’ inventory in person found that there were more cuts than previously announced.
After buying the company for $13.7 billion, Amazon slashed prices by up to 43% in some cases. These are only the early numbers, and future price reductions may follow.
Amazon’s original reason for purchasing Whole Foods dealt largely with their desire to enter into a new market. While their dominance of online shopping has helped them achieve success in many areas, the idea of delivering perishables has always presented some technical and logistical problems.
Now, with Whole Foods’ resources to back them, Amazon is launching an experimental grocery delivery model. The result could see people being able to handle their grocery shopping in a new and improved manner.
Amazon’s retail rival, Walmart, has yet to catch up with the online juggernaut’s digital sales. Still, their strong presence in the brick-and-mortar retail industry has put them in a position to experiment with a similar mode. Walmart is currently using Uber drivers to handle their test phase.
One of the main concerns about the model was monopolization. The idea of one company handling so many transactions from different industries raises concerns about smaller companies being pushed out of the market.
While these smaller operations may have experimented with the grocery delivery option themselves, not all of them have the resources. Now with Amazon slashing prices and making Whole Foods’ inventory more affordable than ever, it is easy to believe these suspicions have been confirmed.
Undercutting is a practice that many people believe leads to industry monopolies. Price drops, however, are a natural occurrence in the market. It benefits both consumers and producers, while providing data to smaller companies about how they could upgrade or change their organization to succeed.
Regulatory controls are a much more burdensome problem, and much more toxic to smaller businesses. Campaigning for stringent controls in an industry is a much more effective way to make things tougher on smaller businesses with lesser earnings.
The problem with the “price cuts promote monopolies” narrative is that it lacks a factual basis. There haven’t been any real cases of undercutting leading to the rise of monopolies in modern markets. The closest case ever was Henry Ford’s company when it began to gain steam with the automobile’s rise to prominence.
The lower prices will be a welcome change for consumers, and Amazon will likely continue to focus on affordability as they march forward with their new grocery delivery experiment. Their success may even lead other competitors to enter the market if sales numbers indicate it’s a wise move.