Antitrust

Amazon Can't Win When It Comes to Antitrust

The Department of Justice will damn you for higher prices, and for lower prices.

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Jonathan Mauer

Some people wonder why libertarians are skeptical of antitrust. For a hint, you have to look no further than the recent battle between book-selling giant Amazon and the publisher Hachette.

Amazon and Hachette are engaged in a pricing dispute. Although the details are unclear, it's been reported that Amazon wants better terms on ebooks as it renegotiates its contract with Hachette. Hachette is holding the line, and Amazon has exercised its "nuclear option" by pulling Hachette's print books off its virtual shelves.

Customers who go to Amazon looking for Hachette-published bestsellers from the likes of J.D. Salinger, or new releases from J.K. Rowling or Stephen Colbert, will find that they are not available. The situation is not very different from a blackout when a cable company like Time Warner can't come to terms with a network like CBS.

"I'm mad at Amazon and apparently I'm not the only one. Everyone seems to be a little upset," said Leo Laporte last week on his popular This Week in Tech program, reflecting a common sentiment. "We all thought that Amazon was going to change shopping, going to change the experience of book buying. Yeah, they were great until they got a monopoly and now they are just screwing with everybody."

And there it is. The "M" word.

This is no ordinary pricing dispute, the story goes, because Amazon has significant market power. It accounts for 41 percent of all new books sold, and 67 percent of all ebook sales. But what makes it a monopoly? Can't you just go to any of a hundred other bookstores online and off to get your Hachette books?

The answer is that no, Amazon is not a monopoly, but some argue that customers of its Kindle ebook platform are locked in.

"While we don't have numbers, it would appear that Kindle sales likely reflect a dominant chunk of ebook sales and, moreover, most of those customers don't really want to buy books on other eReading platforms—either they don't have the device or they don't want to switch apps on the iPad," writes Joshua Gans, a noted management professor at the University of Toronto.

For many people, once they get a Kindle e-reader and buy into the ecosystem, Gans says, if Amazon doesn't make a book available for Kindle, it might as well not exist. And Amazon established its dominant position in ebooks by selling them at a loss. Now that it has developed retail power, the theory goes, it's bullying its suppliers.

The Author's Guild, never shy to use every legal weapon to protect authors, is ready to pull out the antitrust guns to deal with the situation. Jan Constantine, the Guild's general counsel, told the New York Times last week, "Amazon clearly has substantial market power and is abusing that market power to maintain and increase its dominance, which likely violates Section 2 of the Sherman Antitrust Act."

So it is interesting to note that the dispute is happening now because Hachette agreed to renegotiate its contract with Amazon as part of an antitrust settlement with the Department of Justice. That's right. Hachette and four other big publishers were sued along with Apple in 2012 for antitrust violations.

Seeing Amazon's growing dominance of the ebook market, the big five publishers had teamed up to help Apple launch its competing iBooks platform in 2009. Apple let them set their own prices for their ebooks and just took a 30 percent cut, but Apple insisted on a "most-favored nation" clause, which meant books couldn't be cheaper anywhere else than the iBooks Store–including Amazon.

That was collusion to fix prices, the DOJ argued, and it sued. The publishers settled and Apple lost in court. iBooks has since foundered, the publishers have been scared to back any new market entrant, and Amazon's position has solidified.

So, having vanquished Apple and the publishers for trying to charge too much for books, the antitrust laws may yet be turned on Amazon for charging too little. It's eerily reminiscent of an old economists' joke related in a journal article about the Microsoft antitrust case:

Three prisoners were sitting in a U.S. jail, found guilty of "economic crimes" and were comparing stories. The first one said, "I charged higher prices than my competitors, and I was found guilty of profiteering, monopolizing and exploiting consumers." The second one said, "I charged lower prices than my competitors, and I was found guilty of predatory pricing, cutthroat competing and under-charging." The third prisoner said, "I charged the same prices as my competitors, and I was found guilty of collusion, price leadership and cartelization."

It's sad because it's true.

NEXT: Authors Guild Hates Change, Attacks the Writers It Says It Wants to Protect

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  1. Although the details are unclear

    Whenever the details – the exact, specific, every last fucking semicolon details – of a “dispute” involving Amazon aren’t reported, I automatically assume I’m getting played.

    The mainstream media is a collection of fucking whores for the major publishers. If they aren’t reporting the details of the dispute, I can safely assume it’s because they know damn well that doing so would make Hachette appear to be in the wrong.

    1. Amazon is trying to ensure that Hachette’s books are cheaper. Hachette doesn’t like that.

      Sure, people imagine that Amazon just wants cheap prices from Hachette but is going to raise the prices on consumers, but they obviously could raise prices on consumers irrespective of their prices with Hachette. Amazon has consistently fought for lower book prices, especially on e-books (to sell Kindles.)

      I can’t particularly see why consumers would side with Hachette here. If they feel that bad for Hachette (or its authors), they should donate money, not support more expensive books.

      1. I can’t particularly see why consumers would side with Hachette here.

        Because the story is being reported very sketchily, and what consumers can see is that a bunch of books they want are not buyable.

      2. If they feel that bad for Hachette (or its authors), they should donate money,

        But why should they be forced, forced I say, to give money when they’ve already made the supreme sacrifice of FEELZ?

    2. Yep, you are right on, Fluffy.

    3. Well the media would all like a fat book contract someday

      1. Right.

        Then there’s the fact that virtually every major news media company is part of a conglomerate that includes…one of the major publishers.

        As well as the fact that the NY Times (as just one example) has seen promotion of the New York publishing cartel as a fundamental part of its cultural mission for over 100 years.

  2. Also:

    AFAIK, Amazon has not pulled Hachette’s books off the shelves. They’re merely stocking fewer of them in their own warehouses.

    This is an entirely reasonable move for a distributor to make. If Hachette doesn’t renew their contract, Amazon can’t act as a distributor for their books. So Amazon is limiting their exposure to Hachette.

    The books remain available, but they just have a stock warning on the page indicating that delivery times might be extended. (To include the shipping and fulfillment time required if Amazon has to re-order the title from Hachette to be able to ship it.)

    Basically the people bitching about book availability here are saying that since Amazon made a multi-billion dollar investment in a distribution network that allows 1-click ordering with 2-day delivery for certain products, providing anything less than that delivery for any product is an antitrust violation. It’s not enough that Amazon makes Hachette’s catalog available – they have to make it available on the best delivery terms any company has ever achieved, ever. And that’s crap.

  3. This demonstrates how libertarian religion is more important than libertarians than the real world. According to libertarian economic theory, monopolies and cartels cannot happen absent government intervention. The fact of numerous real world historical examples is simple ignored. Here is my view: No matter how much sense a theory makes in theory, if the real world evidence contradicts it, it is probably false.

    1. Please try to make sense. You’re letting down the undead.

    2. Amazon doesn’t even have 50% of the US book market.

    3. ZS: To which monopolies and cartels are you referring? I am interested in particular to those that have occurred minus government intervention of ANY sort.

      Furthermore, most libertarians I know (including myself) do not believe that monopolies cannot happen in a free society. No, we just believe that such a monopoly does not represent a violation of anyone’s rights. If a company produces quality goods at a better price than their competitor in order to earn a significant market share, than so be it. They – and their monopoly – are providing a great service to society. If and when either their product (or service) or price become such that they are no longer the best option, other options will arise.

    4. Straw man much? According to libertarian economic theory, businessmen everywhere and at all times attempt to set up monopolies and cartels. However, the free market, however imperfect, deals with these more efficient than does the also imperfect attempt to use government.

      No matter how much sense a theory makes in theory, if the real world evidence contradicts it, it is probably false.

      Correct. And real world evidence demonstrates that government antitrust doesn’t work the way people imagine it does in theory. In the real world, even when government antitrust is pure and aiming for an ideal result, it’s still a really expensive way to get there. In the real world, it often ends up in outcomes worse than the free market would provide, even aside from transaction costs, such as propping up inefficient producers and cartels in the name of antitrust, never mind the harm to consumers.

    5. What about the “real world example” of the United States government, the largest and most powerful monopoly by far?

    6. Zombie Shane|6.2.14 @ 1:56PM|#
      “This demonstrates how libertarian religion is more important than libertarians than the real world. According to libertarian economic theory, monopolies and cartels cannot happen absent government intervention.”

      Unfortunately, your supposed proof of your claim does not such thing, as it (rather than your claim) is true. So your claim remains bullshit.

    7. Re: Zombie Shane,

      According to libertarian economic theory, monopolies and cartels cannot happen absent government intervention. The fact of numerous real world historical examples is simple [sic] ignored.

      And of course, no “real world” examples will be forthcoming because, well, they’re so obvious!

    8. Monopolies require at least one of these things, though there may be other things they require.

      1. A monopoly could be set up with government help either directly or indirectly. Things like government contracts are direct help, while legal barriers to entry are indirect help. Amazon in this case isn’t really getting either.

      2. Natural monopolies are something I hear about from time to time, usually when talking about cable companies or ISPs. Again, in this case, amazon isn’t a natural monopoly, anybody could set up a website and sell their books. Now, they couldn’t sell somebody else’s ebooks without permission, but they could sell hardcopies that they owned, and they could sell ebooks they have written. And they could negotiate with others to sell their books. At the end of the day, not many people will claim that amazon has a natural monopoly through things like geography as it is all web based and they use other companies to deliver physical goods, something others could do as well.

      3. If a monopoly were to rise absent of government intervention, through things like popularity, then that is a psuedo monopoly.I think while it is healthy to not quite like the idea of monopolies, as long as the market is free, monopolies will either benefit the customer or somebody else will step up and fulfill demand.

      1. I wanted to also include that the lawsuit was unneeded in Apple’s case. Higher prices don’t sound very palatable to me. I would of course prefer the lower prices. I can’t speak for everybody, but I have a feeling that the iBook platform would have failed anyway. I do not agree with using government force to assure that though.

    9. “According to libertarian economic theory, monopolies and cartels cannot happen absent government intervention.”

      You seem a bit confused. Libertarianism is not an economic theory, it’s a political ideology.

      Libertarians generally follow mainstream economic theory, which recognizes that natural monopolies exist but are rare. Most actual monopolies are the result of government action.

      Of course, most monopolies (natural or not) are also harmless. The fact that Hachette has a government-granted monopoly on Rowling and is trying to beat Amazon over the head with it doesn’t really hurt anybody.

  4. Not really sure what the big deal is. Do people with Android phones expect to buy music from iTunes on them?

    Anybody that owns a Kindle knows, or should know, that they are locking themselves into the Amazon market. If you value several options for getting books or other media, you need an all purpose tablet. Amazon can do what they will with their own digital storefront.

    1. I buy a lot of ebooks from other sources (computer books from Manning for example) and have no problem reading them on my Kindle.

      Granted it takes me almost an entire minute to load them into my Kindle instead of them being automatically loaded with whispersync, but that doesn’t seem to be too onerous of a task.

      My first Kindle was a 2nd gen and I’ve bought lots of them since (a lot of them as gifts). I am always ticked pink with them. I’ll be really urinated off if these fucks cause my Kindle experience to get screwed over because they has teh bad feelz.

  5. OK, once more.
    Paraphrasing Shermer, “The Mind of the Market”:
    1) If you charge more than your competition, you are gouging.
    2) If you charge less than your competition, you are engaging in predatory pricing.
    3) If you charge the same as your competition, you are colluding.
    4) If you have no competition, you are a monopoly.
    So if you are selling something, you are in violation of some trade regulation.

    1. Oops. I see the ‘prisoners’ tell the same tale.
      So did Shermer hear it in prison?

  6. I have a Kindle and have no problems getting ebooks from other sources onto it. Maybe some people can’t be bothered with hooking a USB cable to their computer every once in a while, but we’re hardly chained to Amazon.

    1. You don’t even need a USB cable. You can email it to Amazon and they will magically send it to your Kindle for you. You can do this with just about any textual documents, including PDFs.

  7. Start working from home with Google. I make money in my ?p?r? tim?! I have been unemployed f?r months but n?w i m??? up to $100/day on the computer. pop over to this website http://www.Fox81.com

    1. Clever bot: ? != e

      The squirrels have met their match.

    2. $100/day does not even amount to Seattle’s minimum wage.

  8. “Apple let them set their own prices for their ebooks and just took a 30 percent cut, but Apple insisted on a most-favored nation clause, which meant books couldn’t be cheaper anywhere else than the iBooks Store?including Amazon.”

    I don’t see how this is any different than Amazon’s KDP publishing program. Amazon takes a 30% cut, and publishers are not permitted, under the terms of the contract, to offer their eBooks cheaper anywhere else. Why did Apple get in trouble for this but Amazon not?

    Then there is the KDP Select program, which requires that the ebook not be offered ANYWHERE AT ALL other than Amazon.

  9. “While we don’t have numbers,”

    “We” rarely do, and if “we” do, they are usually wrong.

  10. So. Buy the book at iTunes as an ePub, download Caliber – Save As MOBI file – Save to Kindle.

    Done.

    Sorry but if the file is digital Amazon is only kidding themselves if they think they can keep the information locked down.

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