Does Amazon Exercise Its Market Power? Evidence from Toys“R”Us

Abstract

Since its founding, Amazon has established a reputation for being consumer friendly by consistently offering lower prices than its market position would seem to allow. However, recent antitrust concerns about dominant online plat-forms have revived questions about whether Amazon’s growing market share threatens consumer welfare. Given its reputation, regulators have proposed a new focus on conduct unrelated to prices. We ask whether such a move is pre-mature. Using the sudden and unanticipated US exit of Toys“R”Us as a natural experiment, we find that Amazon’s toy prices on its US site increased by almost 5 percent in the wake of the exit relative to similar products and to toys on its Canadian site. Thus, despite Amazon’s long-standing reputation, it may exploit increases in market power in traditional ways as competing retailers cease oper-ating.