Been saying it for years...

[Dannyalcatraz]

Now Amazon's predatory pricing tactics are in the news. Someone is finally fighting back against the Internet retail giant in a serious way:

David versus Goliath: Children’s book publisher pulls its titles from Amazon and what it means for you

This is all the more interesting in the light of the only major alternative commercial ePub business model- Apple's- currently being scrutinized by the Feds.

By any economic measure, Amazon's practices are anti-competitive and aimed towards gaining market monopoly- bad for us in the long run. Apple's model is arguably collusive, but gives the publishers a fair market value for their books, which lets them stay in business while not undercutting the publishers other retail outlets.

Things are going to get nasty.

 

[Fast Learner]

What stuns me about the current investigation into Apple and several publishers going to the agency model (where the publisher sets the price) is the only thing with any real power that was stopping Amazon's monopsony. If the agency model is killed then Amazon will have ridiculous levels of power for many years ahead, until either most of the major publishers do what this children's book publisher did or until publishers are effectively cut out altogether.

It's the DoJ fighting to put additional injustice back into the system. Bleh.

 

[Dannyalcatraz]

If Apple is as clever as the often seem to be, they should be filing an antitrust suit against Amazon...and see if they can get the cases joined into one. Let the decider of fact hear a side-by-side comparison between the 2 business models. If that happens, I predict a HOST of amicus curiae filings by publishing companies.

Not that there won't be a bunch in the Apple case if the publishers realize what is going on...

 

[Fast Learner]

That makes good sense, thanks for the insightful idea.

 

[Dannyalcatraz]

Today, 02:19 AM #11 (permalink)
blayFreezelr
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[Iku Rex]

By any economic measure, Amazon's practices are anti-competitive and aimed towards gaining market monopoly- bad for us in the long run.

This looks like the usual nonsense where companies that can't compete on price resort to anti-monopoly propaganda.

Amazon's great "crime" is having low costs, low prices and low profits. Consumers are benefiting. The next hypothetical step of driving prices up, once all competition is somehow permanently gone, is always a while into the future. At the very worst, prices could eventually go up a little to the level where they would have been all along if Amazon hadn't been working to increase their market share.

 

[Dannyalcatraz]

This looks like the usual nonsense where companies that can't compete on price resort to anti-monopoly propaganda.

Uh, no.

Amazon's agreements with publishers set a purchase price, which Amazon is then free to completely ignore. They then sell at a deep discount- a below-cost discount- which can't be matched by other retailers (due to THEIR agreements with the publishers as well as overhead costs), allowing Amazon to grab market share. They can do this by cross-subsidies with other products.

This has been documented several times, such as when Amazon did a promotion giving a $5 discount for purchases made after taking pictures of prices in other stores. This behavior was also complained about by publishers when they did the Kindle launch. It is also what is alleged by the company in the link to this case- the prices Amazon was selling their books for were so low it was costing them sales in other outlets.

Or consider this:

Last February IPG, America’s second largest independent book distributor, had its own 5,000 ebook titles pulled from Amazon after it failed to negotiate new terms more favorable to the online retail giant — those books have not yet returned to Amazon.

(from the same article)

Or from The New Yorker:

But publishers were concerned that lower prices would decimate their profits. Amazon had been buying many e-books from publishers for about thirteen dollars and selling them for $9.99, taking a loss on each book in order to gain market share and encourage sales of its electronic reading device, the Kindle. By the end of last year, Amazon accounted for an estimated eighty per cent of all electronic-book sales, and $9.99 seemed to be established as the price of an e-book.

http://www.newyorker.com/reporting/2010/04/26/100426fa_fact_auletta

Further down, that article discusses Amazon's attempts to go directly to authors- cutting out publishers entirely- on the condition that the authors accept cut rate prices as low as $2.99. And this model not only eliminates the physical book, but also the publisher's advances, professional editing and other services that help make it possible for authors to actually make a living by simply being writers.

IOW, it's not just the retailers but the publishers complaining about and being harmed by Amazon's business practices.

This potentially leads to monopoly AND monopsony- both bad for the ultimate consumer.

 

[Iku Rex]

Uh, no.

Amazon's agreements with publishers set a purchase price, which Amazon is then free to completely ignore. They then sell at a deep discount- a below-cost discount- which can't be matched by other retailers (due to THEIR agreements with the publishers as well as overhead costs), allowing Amazon to grab market share. They can do this by cross-subsidies with other products.

This has been documented several times, such as when Amazon did a promotion giving a $5 discount for purchases made after taking pictures of prices in other stores. This behavior was also complained about by publishers when they did the Kindle launch. It is also what is alleged by the company in the link to this case- the prices Amazon was selling their books for were so low it was costing them sales in other outlets.

So? Consumers are benefiting. If a corporation doesn't want Amazon to sell its products at below cost they can put that in the contract or, as in this case, not deal with Amazon at all.

You're not trying to protect the consumers, you're trying to protect corporate profit margins. Your quotes confirm that.

IOW, it's not just the retailers but the publishers complaining about and being harmed by Amazon's business practices.

It's a variation on the same theme. Publishers are complaining because they want higher prices. But there is no coercion here. If they want higher prices they are free to charge higher prices.

This potentially leads to monopoly AND monopsony- both bad for the ultimate consumer.

The "harmful monopoly (or monopsony)" bogeyman is largely mythical. (In a free market.) This is especially true for ebooks!

 

[Umbran]

Two wrongs don't make a right, so to speak.

There is a strong argument that Amazon's approach was anti-competitive.

That does not make Apple and publishers colluding on pricing legal.

Now, my understanding may be flawed, so if someone knows better please correct me. From what I have read in a few sources now, it isn't the "agency model" that's the issue, but how they moved into the agency model - with a group discussion about where prices should be. My understanding is that if Apple had simply offered the agency model, and the publishers had moved to it independently, that would have been legal. Holding a discussion of the form, "using this model, if we all price at this point, we can beat Amazon," is itself anti-competitive.

This is not necessarily a case where Amazon was a bad guy, and Apple the good-guy savior of the masses. Both Apple and Amazon can be in the wrong, here.

It seems to me that a major part of the problem is that the market is still very young - and the only ones who are willing to really push on devices are the ones trying to sell the books, so they attempt to lock the user into a proprietary marketplace.

Once devices are produced in sufficient quantity that they are affordable on their own, without the producer having to sell below cost, you can (should, even) decouple the device from the content market.

I can buy game titles for my computer form anywhere. I can buy movies for my TV from anywhere. Why must I be locked into one market for digital music or books? That's the ultimate source of the anti-competitive pricing, I think.

 

[Dannyalcatraz]

So? Consumers are benefiting. If a corporation doesn't want Amazon to sell its products at below cost they can put that in the contract or, as in this case, not deal with Amazon at all.

Not in the long run- if amazon becomes the only or nearly only outlet, they can dictate prices & policies. They can also manipulate the market token new companies from entering the market- Marvel & DC Comics have done this by periodically flooding the market with titles, making it extmely difficult for competitors to get shelf space and sucking up the $$$ of the market's main purchasers as they strive for "complete" ollections. Other companies do likewise- like Coke & Pepsi.

It's a variation on the same theme. Publishers are complaining because they want higher prices. But there is no coercion here. If they want higher prices they are free to charge higher prices.

No they can't.

As pointed out in the articles, if a publisher does not accept Amazon's price- physical or e-books- Amazon will either not sell them or will cross-subsidize the sale of their books while selling them at a loss. Consumers who are looking at price only will stop buying the products at other outlets where prices are higher, so sales at those other outlets drop (also shown in those articles). Products that don't sell get returned; those publishers don't get orders for new products, leaving Amazon as the monopsonist and able to dictate price.

The "harmful monopoly (or monopsony)" bogeyman is largely mythical.

Hardly.

Before being broken up, Ma Bell used to rent phones- a basic rented rotary phone might cost you hundreds of dollars a year before companies were allowed to start selling them for $10-20.

Among the oligopolies, there is enough economic data on Wal-Mart's negative pressure on wages that they constantly find themselves in court over it, while Marvel/DC & Coke/Pepsi routinely keep competitors from entering the market by glutting it with products...or buying smaller companies outright. Since Standard Oil's breakup, the industry has been dominated by the oligopolistic cartel known as OPEC.

Microsoft ony just dodged getting broken up itself.

The monopsonistic practices of GM and other large auto makers is very well documented.