Amazon

Amazon’s pricing power is good, though it varies by segment. In retail, Amazon long kept prices low to win market share, resulting in thin margins historically. Now, with a dominant platform, it has shown ability to raise prices and fees modestly without losing customers.

For example, Amazon increased the annual Prime subscription fee by 17% (from $119 to $139) in 2022, and customer retention remained high due to the value Prime offers.

The company also leverages its marketplace dominance by raising seller fees and advertising rates – recently imposing a 2% surcharge on sellers who fulfill orders themselves – which merchants largely accept because access to Amazon’s customer base is indispensable. These moves indicate Amazon can incrementally increase monetization.

Importantly, Amazon’s business mix is shifting toward higher-margin lines (cloud, ads, subscriptions), which has allowed it to expand operating margins significantly. Over the last year, operating margin surged into the high single digits from low single digits, reflecting both cost discipline and pricing leverage.

While Amazon still faces competitive pressures that limit arbitrary price hikes (especially in e-commerce, where customers are price-sensitive), its ecosystem and scale give it the latitude to improve profitability over time.

We expect further margin expansion through efficiencies and selective pricing power, although not to the extreme of a pure monopoly like a credit-rating agency. Overall, Amazon has decent pricing power – particularly in AWS and Prime – and untapped potential to optimize profits as it matures.