The Effect of Amazon Prime Now on Local Businesses in Coastal Versus Inland Cities Across the United States

Abstract

This paper examines the impact of Amazon Prime Now on local businesses in cities throughout the United States with respect to payroll, employment and business survival from 2010 to 2020. Since Prime Now enables customers to be serviced within one to two hours of order placement, this paper deems each Prime Now fulfillment center as Amazon’s own retail store and examines how its entrance affects other local retailers and non-retailers. This paper not only studies Prime Now’s effect on local businesses across the country, but separates businesses in coastal cities from those in inland cities to discern any disproportionate effects the service may have on businesses based on their proximity to ports and supply chain length. This paper uses three county-level datasets from U.S. government agencies and a differences-in-differences model to analyze Prime Now’s effect on: payroll, employment, net job creation, net job creation rate, employee reallocation rate, number of establishments, establishment births, establishment entry rate, establishment exits and establishment exit rate. Results find that Prime Now is squeezing out local businesses across the country, causing them to reduce payroll and close, while discouraging new businesses from opening. Prime Now disproportionately negatively impacted businesses in inland cities by causing them to reduce payroll and close more, but employees are hurt more in coastal cities, seen through net job destruction and lower reallocation rates. Prime Now more negatively affects retailers than non-retailers, where very small businesses are hurt the most in comparison to other business sizes. This paper also analyzes Amazon’s financial investments in local businesses to decipher if these investments are effective in supporting them. The paper concludes by asking if Amazon is exercising monopoly power through Prime Now. Should policymakers continue offering Amazon generous subsidies in hopes of attracting their fulfillment centers, and should city- and state-level antitrust litigation differ based on geography?