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News Why do a few large companies dominate internet commerce?

  1. Jul 19, 2013 #1

    Stephen Tashi

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    I have the impression that internet commerce is an "oligopoly" - i.e. it is a market dominated by a few large companies. Is there something about the nature of internet commerce that makes this a natural outcome?

    Perhaps internet commerce turned out to be a bigger job than "any guy with a computer" could handle. For example, whatever my complaints about the Amazon website, it is far superior to the websites of the old guard retailers like Sears, Lowes Hardware, Walmart. Is this because Amazon has superior resources or is it just a matter of corporate culture?

    Is the oligopoly just a result of crowds of people attracting bigger crowds? - so whoever succeeded in attracting the first crowd won?
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  3. Jul 19, 2013 #2
    When you say "internet commerce" are you asking about internet businesses like eBay or Amazon?
    It seems that these kinds of businesses are open to all who can come in with innovative ideas to compete. However, if you're talking about search engines, I agree this is a tough market to enter. Google, Yahoo and Bing do dominate this area, and the big 3 may eventually become the big 2 or the big 1. Users obviously want the biggest, most efficient search engine available. However, there are many small specialized search engines.

    Last edited by a moderator: May 6, 2017
  4. Jul 19, 2013 #3

    Stephen Tashi

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    I include eBay, Amazon, Google etc. under one heading as oligopolists. i haven't seen statistics on internet sales broken down by company, but aren't retail sales on the internet dominated by a few large companies? Perhaps that just my impression. For example, I know many retail sellers of computer parts like NewEgg, Fry's, but their website's are primitive compared to Amazon's. (Perhaps they intend them to be that way). I agree that entering the internet retail market is easy insofar as it may be easy to have a website, but having a sophisticated website isn't something that many companies are able to master.
    Last edited by a moderator: May 6, 2017
  5. Jul 19, 2013 #4
    It makes sense to me to have one spot to do one thing. I don't need 10 places to buy a Weber grill. I'm going to visit the best place and buy it and move on with my life. Amazon is the best at the moment. Just like you don't need several places to discuss Physics. All you need is PF :)
  6. Jul 19, 2013 #5
    Big companies dominate commerce on the internet for the same reason big box stores dominate retail on the streets.

    Most of the big box stores now also have internet sales. The online selection is larger than in the stores. Costco for instance, usually has free shipping. Shipping costs can be a deal breaker for online purchases.
  7. Jul 19, 2013 #6

    Ben Niehoff

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    I think it's a matter of who you trust sending your credit card info to. A well-established company? Probably ok. Some guy with a computer? Probably not.

    Luckily places like Ebay and Etsy exist to connect those small-time sellers to a well-established company that people trust buying from.
  8. Jul 19, 2013 #7


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    It's a typical power rule relationship that effects almost every large process in the universe. The how and why any one company gets to its place on the curve has many reasons but the reason there are usually only a few very large examples of anything seems to be fairly universial even when we try our best to make all thing equal.
    Last edited: Jul 19, 2013
  9. Jul 20, 2013 #8

    Stephen Tashi

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    But what are those reasons? Does it take as much of an investment to start an internet retail company as it does to build a chain of brick-and-mortar retail stores?

    It doesn't surprise me that many retail stores sell more on the internet than from brick-and-mortar stores. I may have the wrong impression about internet retail sales, but I don't think of Sears, Kmart, and many other big brick-and-mortar retailers as being dominant internet retailers. Do they do as much business as Amazon or eBay?

    That rule describes the outcome of processes, but it doesn't explain why they turn out that way.
  10. Jul 20, 2013 #9
    a company, team, or such is only as good as the person running it.
  11. Jul 21, 2013 #10
    Well, I can see some reasons:
    - A bigger online store has more reputation, and reputation brings more costumers, and more costumers bring more reputation.
    - A big store has the ability to have more products on sale, so costumers will prefer going there since they can more easily find what they want.
    - They're not innovations-driven businesses. This matters because once there's a big site like Amazon, it's hard for other company to compete with it, because everyone already uses it. Since there isn't much room to innovate in this sector, you can't really offer anything else than Amazon offers with some innovation. This isn't the case in other sectors: for example Facebook beat every other social network because of many innovations, and some were very big already (like Orkut, Hi5 and MSN).

    It is an oligopoly, but I don't see that it harms costumers. I see it as a good thing, because I can get products for low prices in a safe and fast way in one site.
    Last edited: Jul 21, 2013
  12. Jul 21, 2013 #11


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    Amazingly you can support both Amazon and PF at the same time!

  13. Jul 21, 2013 #12
  14. Jul 21, 2013 #13


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    There are very large companies with diffuse distribution networks. Most Amazon packages look pretty uniform, but they come from all over. Amazon affiliates ship from everywhere.
  15. Jul 27, 2013 #14

    The reason is because these were the ones that were able to achieve economies of scale. When you serve a bigger audience, the company is going to get bigger.

    So why doesn't just anyone get big? Well, you're right, it is a bigger job than just anyone with a computer can handle alone. But that's true of most businesses. Starting a company is hard work and there's many tasks that need attending to. It's very rare for a company to grow huge from just one person, often times big successful companies start with a founding team.
  16. Jul 29, 2013 #15
    I believe that a lot of these companies (in particular social media) try to achieve network effects, which are a very powerful force in determining the terrain of tech industries.

    For instance, consider what Google is trying to do over the last few years. No longer is Google simply a place to search. You've now got your Gmail linked to your Google searches, linked to your G+ (something which has not really been widely adopted yet, but the attempt is there). Google is trying to link their services in a way that makes it more valuable to you when other people are also using their services.

    If they can leverage their current status as the go-to search engine to accomplish this, they will have gone a long way towards protecting themselves against competitors which may arrive down the road, because strong network effects often lead to an important determinant of customer retention in these industries,which is significant switching costs.

    There are of course many other reasons, but network effects and high switching costs are particularly easy to achieve for web-based companies. These had not been explicitly mentioned here yet and they occur to me as quite important to this discussion.
    Last edited: Jul 29, 2013
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