Don't Throw the Book At Superstores

The next time you go into a Borders or Barnes & Noble superstore, stop to smell more than the gourmet coffee wafting out of the espresso bar. Look around: The typical Borders superstore stocks about 150,000 different book titles and 50,000 music selections, as well as videos. The magazine rack boasts about 2,500 different publications. The prices are about as good as they get: 10% off the list price of most hardcover books, 30% off New York Times hardcover bestsellers and other special selections, classroom and volume discounts, and remainder bins piled high with reduced-price books.

There is a special area where kids can run riot, manhandling stuffed animals and pawing through other merchandise, while parents shop at a more relaxed pace. Most days, the chances are good that there will be live music, an author reading or some other event going on. Every day, customers are not merely permitted to browse, but actively encouraged to lounge about in the numerous strategically placed chairs and couches.

As you soak all this in, take a long pull of your double cappuccino and a quick nibble of your chocolate biscotti. And then, amid such a scene of bookish plenty, despair--for it all proves that "American culture is in jeopardy. . . . Under the effects of the chains' buying power and economic concentration, it will suffer from a lack of diversity and choice."

That's the official position of the American Booksellers Association, a trade association that represents about 3,500 booksellers nationwide, as articulated by its chief executive officer, Avin Mark Domnitz, in Publishers

Weekly. Last month the ABA, joined by about two dozen California booksellers, filed an antitrust lawsuit against Borders and Barnes & Noble in federal court in San Francisco, claiming that the superstore retailers are getting from publishers illegal "extra discounts," "special terms" and a "whole range of various [advertising] and 'promotional' terms not provided" to "independent" bookstores.

The plaintiffs are suing Borders and Barnes & Noble under the Robinson-Patman Act, a 1936 federal antitrust statute that forbids "price discrimination" and under two similar California state statutes designed to prohibit "unearned" discounts to chain stores. If they prevail, they will gain a permanent injunction against the alleged special treatment, be eligible for triple damages on each violation, and have their legal fees covered by the defendants.

The ABA's public relations pitch about the case has focused on public-interest themes. "Independent booksellers bring diversity. . . . I fear the day when what the public reads is controlled by a few power centers," Mr. Domnitz has said. But the booksellers are really motivated by economic self-interest.

From 1991 to 1996, annual book purchases rose to $26.1 billion from $20.1 billion, an increase of about 30%. Over the same period, however, independent bookstores' share of the market dropped to 18% from 33%, while that of national chains grew to 26% from 22%, in large part due to the growth in superstores. According to preliminary ABA figures for 1995 (the most recent data available), the failure rate for bookstores (about 77 per 10,000) is for the first time higher than the average failure rate for U.S. retail businesses in general (about 73 per 10,000). Between 1993 and 1997, the ABA's own membership declined by one-third.

Such tough times make it easy to sympathize with the ABA and its "independent" allies, at least until they begin to pursue remedies that will ultimately punish consumers. The Robinson-Patman Act, which mandates that any difference in prices offered to different buyers must be "economically justified" and extended to all buyers on a proportional basis, has rarely been confused with customer-protection legislation. As economist Paul Samuelson, a Nobel laureate and a proponent of antitrust legislation, has written, "Instead of concentrating on bringing [prices] down for the consumer, it concentrates on keeping many firms in business, even though some may be inefficient."

Indeed, the ABA has mastered the doublespeak of Robinson-Patman, which seeks to preserve competition by banning it. As ABA president Barbara Bonds Thomas put it in a press release about the case, "If everyone was doing business in the same way, then there would be room for competition." Of course, if everyone were doing business in the same way, it wouldn't make much sense to talk about competition. The ABA makes another confused claim: that Borders and Barnes & Noble would do away with their vast selections of books were it not for smaller bookstores. "The big corporate store carries a wide inventory because it is competitive to do so," Mr. Domnitz told me in 1995, when I interviewed him for a story about the ABA's antitrust case against a handful of book publishers. "When there's only two chains left--or one chain, who knows how it might wash out . . . the number of times a book will sell in a given year will become the sole determinant as to whether a book will be carried."

Such an analysis completely ignores the role of consumer demand, which, one presumes, is the major reason why bookstores, whether "corporate" or "independent," sell many books aside from bestsellers. It also ignores two of the major trends in retailing over the past two decades, both of which illustrate how consumer demand creates marketplace diversity. The first is the emergence of "category killers," stores that try to stock every possible product in market segments ranging from books to toys to home furnishings. The other is the rise to ubiquity of highly specialized boutiques that cater to rarefied tastes in goods such as coffee, personal-care products and cigars.

Despite the economic and philosophical weaknesses of its case, however, the ABA's chances in court look good. In Robinson-Patman cases, the courts typically rule that any difference in price is tantamount to "discrimination" and therefore actionable. In the 1995 case, the ABA forced a settlement with publishers it claimed were giving illegal volume discounts and other advantages to chain bookstores. And in 1997, Penguin Putnam, one of those publishers, agreed to pay the ABA $25 million for failing to comply with the terms of the settlement.

If the ABA wins its current case, it will have succeeded in "leveling the playing field." Such an outcome will indeed be a victory for independent bookstore owners--but not necessarily for independent readers.

This article was published in The Wall Street Journal, April 23, 1998.