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 their market position would seem to allow. However, recent antitrust concerns about dominant online platforms 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 premature. Using the sudden and unanticipated U.S. exit of Toys R Us as a natural experiment, we find that Amazon’s toy prices on its U.S. site increased by almost 5% in the wake of the exit, relative to similar products, and relative 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 operating.