A new antitrust case shows that Prime inflates prices across the board, using the false promise of ‘free shipping’ that is anything but free.
To understand why, we have to start with the idea of free shipping. Free shipping is the God of online retail, so powerful that France actually banned the practice to protect its retail outlets. Free shipping is also the backbone of Prime. Amazon founder Jeff Bezos knew that the number one pain point for online buyers is shipping – one third of shoppers abandon their carts when they see shipping charges. Bezos helped invent Prime for this reason, saying the point of Prime was to use free shipping “to draw a moat around our best customers.” The goal was to get people used to buying from Amazon, knowing they wouldn’t have to worry about shipping charges. Once Amazon had control of a large chunk of online retail customers, it could then begin dictating terms of sellers who needed to reach them.
“Let’s say a product today is sold for $10 on Amazon with ‘free shipping’. If Amazon is forced to unbundle the FBA fee from the product price then it would cost $6 + $4 shipping. Prime makes no sense in this world unless Amazon again decided to subsidize Prime.” Amazon, as big as it is, doesn’t have $25-30 billion of cash flow to make that happen.