Amazon: ‘Prime’ Price Hike Unlikely to Drive Away Subs, May Boost Profit, Say RBC, JP Morgan

Amazon.com which is headquartered in Seattle, Washington is the worlds largest online retailer.  In recent months there has been hints that amazon.com will increase its subscription service, amazon prime, $20 to $99 dollars a year.  Views on the increase have been divided, some experts believe that the increase will decrease subscriptions, while some believe that the increase of subscription price will have unchanging effects.  In the article Mark Mahaney suggest that the increase in subscription fees will actually the profits for the firm.  He has monitored the stock prices for amazon and has notice no signs of a decreasing trend.

Since amazon is a retailer the true purpose of the firm is to trade goods and services from the seller, or producer, to the consumer.  Amazon.com is going to increase the cost of its services to the consumer and still make a profit.  This suggest that amazon.com is essential to the functioning of the network.  The importance of amazon.com to the network is indicated by the fact that is there was another trader who could replicate their function completely, amazon.com could not continue to make a profit.  Amazon.com is able to improve its payoff by undercutting is competitors and still sell the goods to the buyer.  Amazon.com in the current market is an essential trader that has and economic payoff.

Link:  http://blogs.barrons.com/techtraderdaily/2014/03/13/amazon-prime-price-hike-unlikely-to-drive-away-subs-may-boost-profit-sasy-rbc-jp-morgan/

Advertisements

2 thoughts on “Amazon: ‘Prime’ Price Hike Unlikely to Drive Away Subs, May Boost Profit, Say RBC, JP Morgan”

  1. I wonder if this act has changed the network somewhat, possibly encouraging other online retailers to more aggressively price products, invest in IT infrastructure, and reduce shipping prices. Because of this price increase, the network may now be able to sustain another competitor willing to take lower profit margins and offer similar prices to those of amazon and delivering at the same rate as with amazon prime customers without charging a fee for the service. While the network of buyers in amazon prime may have strong ties from the low price subscription in the past, this new subscription cost will change the way other competitors are viewed.

  2. It seems that Amazon’s profits would show decrease because of the new ‘Amazon Prime’ available for new and existing members, but Amazon found a way where the products it sells are no longer just an online shopping guide, rather, it’s become it’s own internet TV channel and bookstore at a very low price all while offering discounts from membership creation.

    In response to stevencosta’s reply, I do think online retailers are more encouraged to boost up prices… it makes sense when such a large competitor like Amazon is taking over the market in the internet.

Comments are closed.