Market Structure of Amazon - Essay Example

Amazon is the leading online retailer in the world; it has ventured into various global markets with its focus on improving online shopping for its customers. The company has diversified its operations into multiple aspects to do shopping, listen to music, read, and watch, and make health services more convenient and efficiently available for customers (Yang, 2018). The company is an example of an oligopoly because it has the value of a brand. It has created its value proposition through an expanded online platform, and it can set prices of commodities and services other brands supplied through its channel. This paper explains the influence of barriers in the industry on long-run profitability and the price elasticity of demand in Amazon’s market structure.

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Influence of High Barriers to Entry into the Industry on Long-Run Profitability at Amazon

Despite amazon’s business success, several barriers have influenced long-run probability in the market. They include stiff completion; the company is facing high competition from other retailers such as eBay Walmart and Alibaba. This has influenced the financial performance of the company because it has been forced to spend much gaining competitiveness to outcompete rivals and losses. As a result of high competition, the company has changed its focus to growth than profitability (Roy & Charaborti, 2017). Insufficient IT infrastructure has also influenced the company’s financial performance, especially when venturing in global markets in the industry, developing countries experience poor infrastructure affecting e-commerce, thus influencing long-run profitability of the company. Some of the strategies used by the company to venture into the new markets are expensive; these include delivery services and other aspects of the business; this is challenging and influences the negative impacts of profitability.

Besides, the risk of international operations influences the profitability of the company adversely; this is because some government and regulations, such as business licensing across borders, currency exchange restrictions, and international rules of e-commerce, affect smooth operations of a business. The company has experienced a series of losses as a result of global risk factors following the implementation of some international business strategies (Roy & Charaborti, 2017). Also, language and cultural differences influence amazon’s expansion into new markets; it makes it difficult to navigate and carry out some of the critical business operations rendering some of the strategies ineffective in the long-run, thus lower the rate of profitability.

Price Elasticity of Demand in Your Amazon’s Market Structure

Amazon’s pricing strategy has always been focused on offering goods and services at affordable prices; this has helped the company to attain its competitive advantage and a considerate market share. The way amazon decides on pricing is focused on attracting more demand for goods and services. Amazon frequently changes the price of goods and services concerning the change for products. Research shows that a small change in price at amazon influences demand (Singh & Dutta,2015). For instance, a product or service that is highly elastic will impact the quantity demanded more significantly. As a result, the company has used this as a pricing strategy. It influences demand and increases sales. On the other hand, a small change in the price of highly inelastic products and services has shown no change in the quantity demanded. The purpose of the pricing strategy at the company is meant to encourage customers to spend more.

Amazon has embarked on making its products and services to be inelastic to maintain the wiliness of its customers (Singh & Dutta,2015). In this scenario, the company can differentiate its products and services based on competing items and the value of these items to consumers. Fluctuation in price, therefore, has shown less impact on the quantity demanded because the change in price does not influence customer’s wellness to buy. Price elasticity of demand at amazon is controlled by some things; these include, target audiences, the health of the economy, the product or service, and competition in the market.

References

Roy, S. K., & Charaborti, R. (2017). Case Study 5: Amazon. In: Surviving in a Jungle. In Services Marketing Cases in Emerging Markets (pp. 45-59). Springer, Cham.

Singh, V. K., & Dutta, K. (2015, January). Dynamic price prediction for amazon spot instances. In 2015 48th Hawaii International Conference on System Sciences (pp. 1513-1520). IEEE.

Yang, D. (2018). Has the arrival of Amazon altered the market structure for consumer electronic goods in Australia?.