1-What does Amazon sell in general and why did it buy Whole-Food?
Amazon is one of the largest US companies, which primarily exists online. In the beginning, it sold books; however, with the time it started to sell various kinds of products, primarily electronically. Amazon is considered the pioneer of e-commerce/business in the United States, which has perfected its e-commerce/business model. The company operates in various economies; however, it operates from Seattle, United States. As e-commerce industry and the segment of the industry in which Amazon operates, offered high returns, many conventional companies, such as Walmart, emphasized on and entered e-commerce industry, which reduced the margins of profit. It has resulted in Amazon to enter the turf of its competitors and slightly change or make its business model more flexible. The rationale, behind buying Whole-Food, is to establish a physical presence and diversify the business. Walmart, which has emerged as a rival, primarily depends on its sales of groceries to generate profit, which is why Amazon has bought Whole-Food to compete it. It has done by slashing prices and attracted clients and customers of Walmart.
2-What is Amazon’s long and short-term strategy?
It is apparent that e-commerce/business has become a potent instrument for corporations and they facilitate clients in doing shopping, in the manner which is more convenient. For many well-known companies, the online business supplements the sales; therefore, not the entire business strategy is based on it. However, the growing online presence of large corporations is a threat for companies like Amazon, which depend almost entirely on e-commerce. Therefore, in the short-run, Amazon aims to diversify and deepen its business strategy, so that it might compete with rivals and address the concern of the swelling number of online firms. In the long-run, it intends to generate higher profits and reduce the risk associated with the previous business model. Also, studies suggest that the physical presence of a company increases the confidence, of clients and customers, in a firm or corporation.
3-How would you describe Market Structure for Amazon?
There are various kinds of market structures, which firms of particular organizational structure operate. For instance, the organizational structure, of companies which operate in the competitive market, is different from those companies that operate incontestable markets. The market structure, in which Amazon now operates, can be classified as Oligopoly. It is because the economies of scale are very high, which suggests that both entry and exit from the market is demanding. Also, these companies sell both homogenous and differentiated products, which is the characteristic of both perfect competition and oligopoly. Also, Amazon and its rivals, such as Walmart, are price makers; however, the behavior is interdependent. We learn from the article that Amazon slashed prices of Whole-Food products after the $14 billion acquisition. Furthermore, the price competition is crucial as it impacts sales, revenue, and profit.
4-Amazon slashed food prices immediately after acquisition. Describe price elasticity of demand in the food industry?
Food products have an inelastic demand curve, which means that considerable fluctuation in price does not change the quantity demand as much as the change in price. However, in an oligarchic market, the downward slope, of demand, is highly elastic. We learn that when Amazon slashed prices, most of the clients and customers, Walmart, switched to Amazon. It reveals that change in prices has a direct and tremendous impact on the quantity demanded. Also, it can be used as a utensil to expand consumer base. We also learn that in the oligarchic market; behavior is interdependent, which suggests that slashing of prices, by Amazon, will induce a response from Walmart.
5-Why does each company react to its competitor’s strategy in above case?
The reason for the interdependence behavior is the market structure. We have already discussed that in an oligarchic market structure, rivals have interdependent behavior. It is also true for Walmart and Amazon, which are now operating in each other’s turf. However, had it been a competitive market (perfect competition), strategies would not have affected revenue/profit and therefore, rivals had not reacted to a particular strategy of a company.
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