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Rising intangible capital, shrinking debt capacity, and the US corporate savings glut

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position… and correspondingly stronger returns on invested capital.… We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.2

Amazon’s business model prioritised growth over profits to achieve scale. Thus, superstar firms may not be exercising market power in ways that harm consumers in the short run, or that would be picked up by current ways to measure market power. If this is the case, the critical concern for policy is to ensure that markets remain contestable and that entrants with new technologies can challenge current market leaders. 

In particular, the danger is that incumbent firms may simply buy new technologies that have the potential challenge their future dominance. In their study of takeovers in the pharmaceutical industry, Cunningham et al. (2018) provide compelling evidence that successful incumbent pharmaceutical firms acquire potential rivals with competing drugs and terminate targets’ drug development.