Market Structures and Pricing Strategies: The Case of Amazon in Monopolistic Competition

The concept of market structures analyzes the level of competition between sellers in a market. That includes the number of firms, product differentiation, and barriers to entry.

Typically, market structures are broken down into four categories:

Perfect competition: Sellers offer identical products with no barriers to entry.
Monopolistic competition: Sellers offer differentiated products with low barriers to entry.
Oligopoly: A few sellers hold significant market power and have the potential for strategic interactions.
Monopoly: One seller has complete control over market entry, price, and output.

There have been growing concerns over Amazon’s market power in recent years, with some fearing it could become a full-blown Monopoly. The Federal Trade Commission (FTC) even filed a lawsuit against Amazon in 2023, claiming the company was taking unlawful approaches to gain market share.

From an economic standpoint, Amazon isn’t a true monopoly. The market is closer to monopolistic competition. That said, it’s good to have organizations like the FTC keep close tabs to ensure businesses don’t gain too much power by breaking laws or violating consumer rights.

Based on the definition of monopolistic competition, Amazon is continuously under market pressure. However, the company has managed to rise to the top and stay there. Let’s explore how Amazon has operated and strategized to gain market share and keep its brand name at the top of consumers’ minds.

Understanding Monopolistic Competition

As mentioned, the online retail space is considered a monopolistic competitive market. That’s because it consists of:

Numerous sellers: The online retail and e-commerce market is huge. Current statistics in 2025 from analysis of popular e-commerce website builders suggest that over 27 million e-commerce stores are operating globally. Nearly 50% of those are in the U.S. (trends.builtwith.com, 2025)
Product differentiation: When shopping for products from different sellers, you’ll typically see slight differences between them. This is because companies are trying to find a competitive edge or position in the market.
Low barrier to entry: There are some barriers to entry in the online retail space since there are startup costs and the need for a slightly differentiated product. However, it can be done. Although, significant planning is required to remain successful year to year.

In 2023, Amazon accounted for about 37.6% of the sales in the online retail space, so they hold a significant market share. (statista.com, 2023) That said, it’s still monopolistic competition since they don’t have full market control.

Even though there are millions of online retailers globally, Amazon still managed to grow into a powerhouse and maintain a huge market share. How have they done it?

Pricing Strategies

One of Amazon's key strengths is its dynamic pricing strategy. The company has fine-tuned this over the years using real-time data and machine learning algorithms to analyze demand and competitors' prices. This allows automatic adjustments to the prices of the thousands of products on the website as needed.

When people find a cheaper price on Amazon while shopping, they’re more likely to buy again and tell others about it. This further grows the brand’s name and reputation.

Branding

Amazon’s branding has been another key focus. Everything from the simple and memorable logo with the arrow under the brand’s name that looks like a smile to their prompt customer service is continuously optimized.

Plus, the company didn’t just stop with the main brand name. They’ve also used sub-brands and private labels to gain a larger market share.

For instance, Amazon Prime has become well-known in its own right. It made two-day shipping much more accessible and even more mainstream. Now, consumers almost expect brands to offer fast shipping because of it.

Even Amazon Prime Video was estimated to hold a 22% market share in streaming services in the U.S. in 2024.

In addition, Amazon has developed private labels like Amazon Basics to offer its own products on the platform at affordable prices. Again, this helps the brand stand out and offer something that consumers want.

Economies of Scale

Now that Amazon has grown into a full-scale enterprise, it has many advantages. The company can produce, package, and ship products much faster than most online retailers, providing a significant competitive advantage. Plus, doing so at scale allows them to get materials much cheaper, lowering margins.

The advantages of economies at scale make it hard for other retailers, especially those just entering the market, to compete on elements like price or speed. They simply can’t keep up.

Conclusion

With several elements and continuous innovation elevating Amazon’s brand and performance, you can certainly see how they’ve gained such a big market share even in monopolistic competition.

Given Amazon’s power and influence, it’s important for government organizations and policymakers to continuously keep tabs on them. We don’t want large corporations breaking laws to control the market, which is why we should continue watching the FTC’s investigation and lawsuit against Amazon to see if anything comes out of it.

Where will the market shift next, how will Amazon innovate, and will another company someday rise above them? It’s a continuous case study that we can watch and evaluate.