Amazon as an example of how markets really work

A useful example of how this market economy thing really works from Amazon. No, not the standard cries about incipient monopolies, killing off Mom and Pop stores, driving up emissions with delivery vans and all the rest of it. Rather, the actual and real effects of competition in a market economy.

Amazon has received 238 proposals from cities and regions across North America vying to host the company’s second headquarters, it said on Monday.

As we know, Amazon's looking to build a second HQ. The effects of the current one on the Seattle economy are such that better to do the amoeba thing and split off the expansion into a separate unit, elsewhere. Well, OK:

Some said this month they could offer Amazon billions of dollars in tax breaks if they were chosen. New Jersey proposed $7 billion in potential credits against state and city taxes if Amazon locates in Newark and sticks to hiring commitments, for instance.

At which point we can see the effect of this market competition in an economy. Here, rather than that monolith of retail power of some nightmares, the company is the consumer. Just as much as if it is you or me going out to buy an apple (no, apple, not Apple). There are myriad suppliers of apples, myriad places to put an Amazon second HQ. So, who is it that benefits from this competition?

It's us the consumers, isn't it? Potential locations are falling over themselves to gain that business of a second office. Their margins on doing so are going to be slim, if they even exist at all, given the other 237 vying for the location. This is also why farmers don't make much profit growing apples for us.

This is also what underlies William Nordhaus' great paper on entrepreneurial, Schumpeterian, profits. Of the value created by exciting new things some 3% sticks with those doing the creating. Near all the rest flows through to us as the consumer surplus.

This is why market economies work. The very competition they involve means that near all the gains flow to us, the consumers. We get fat and rich off the efforts of others to enrich themselves. Ain't that great?