Could A Future of Amazon’s Dominance Not Be Illegal?

I post this as an open question because I don’t actually know the law well enough to answer it. Perhaps someone will have the low down and give us all a clearer picture on how this works.

The recent uproar over the DoJ’s suit against the big publishers has a lot of rhetoric about competition, predatory pricing, and monopolies. The gist of the publisher’s reasoning behind the agency model is that they did not want to let Amazon develop a monopoly over the ebook market. Their fear is that left to their own designs, Amazon could use it’s discounting ability and the resources to eat profits and make it impossible for any other retailers to compete, driving them out of business and effectively giving control of the market to Amazon.

The definition of predatory pricing is the act of setting low prices in an effort to drive out competition. The presumed result of this would be that they would then be free to set prices at whatever level they want because there would be no other competition. A monopoly exists when a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products. Again the laws here are situated against business being able to drive prices up and putting consumers at a disadvantage.

Ok, so how does this all play out with anti-trust laws when prices are driven down and stay that way? Technically, Amazon could gain a near total control of the market by using their power and resources to drive out all competition. Nobody could enter the market because they could not afford to. They couldn’t make any money. So, if a business drives out competition and gains total control over a market, but keeps prices low, are they then in violation of the anti-trust laws? Is the DoJ going to go after a company that has taken over a market and improved things for consumers? It’s kind of an odd possibility when I think about it.

Let’s face it, Amazon doesn’t need to raise prices if the gain control. They aren’t in the book business to make money. They are in the book business to drive consumers to their services which in turn make them money. At best, they want to operate the book industry as a zer0-sum game, because the lowest book prices bring in the most readers who in turn spend their money on other more profitable items. It’s in their best interest to keep the market as low as possible, where the product is kept directly in the hands of the producers (authors) and sold directly to the consumers (readers). This is the ultimate game of eliminating the middleman. It sucks for those currently involved in the industry, but in the end, is it actually illegal? I honestly don’t know.

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5 responses to “Could A Future of Amazon’s Dominance Not Be Illegal?

    • Yeah, I saw that article yesterday, Marilyn. It is actually what made me write this post, lol. I just find it kind of weird, that Amazon could effectively create a monopoly in ebooks and it would be completely legal. If the presumption of the law that a monopoly is for the purpose of being able to set higher prices against no competition and effectively hurt the consumer, and Amazon is not doing that, why would the DoJ want to take them to court? The thing is, I don’t believe Amazon has any desire or need to raise prices. Unlike publishers, they don’t actually need to make money from books. I’m sure they’d like to or at least not lose money on it, but because their profits come from other sources, profiting from books is not a requirement for them to succeed. I think one of the main reasons Amazon has achieved so much success is because they aren’t driven by profit (with books), whereas everyone else in the industry kind of needs too. It’s a great position to be in, and I find it amusing that a business could create a legal monopoly because of it.

  1. I’m not a lawyer, but my understanding is that two different laws are involved here.

    In regard to the Big Six publishing houses and Apple deciding together to set specific high eBook prices, that’s illegal because colluding together to control prices hurts consumers. The DOJ made it very clear that they were not requiring the Big Six to set low prices – they’re free to set prices high, but each company must set their own prices, not collude together to set the same prices. That’s how capitalism works. Imagine if the law wasn’t this way. Food businesses could collude to set prices high rather than compete with each other for customers, and customers who could no longer afford to pay the high food prices would starve.

    In regard to Amazon becoming too large, if and when they truly become too large, anti-trust laws would come into effect and the courts could require that Amazon be broken up into smaller companies. My understanding is that Microsoft invested money in Apple when Apple needed money, so that Apple would remain a viable competitor and therefore protect Microsoft from additional anti-trust lawsuits. Right now, Amazon has lots of competition. There are a bazillion online bookstores providing competition. Amazon has figured out to use its digital data to reach book customers and maximize sales, and it may be the best at doing this right now – it’s competing very effectively. People seem to think that Amazon’s trying to sell all books for next to nothing, but that’s not true. Amazon offered to sell eBooks from the Big Six publishers for $9.99 each AND pay the Big Six the same cut they would have received at their higher prices, but the Big Six refused to allow books to sell as “low” as $9.99 each. One estimate of the average price of eBooks for Nook vs. Kindle suggests that Nook eBooks cost approximately $8.94 each while Kindle eBooks cost approximately $6.48 each…and even this might be an exaggeration, as Barnes and Noble doesn’t include any of their books priced below $2.99 in their averages, but Amazon does: http://www.mediabistro.com/appnewser/average-price-for-kindle-book-6-48-nook-8-94_b19728?red=en . Finding innovative ways to lower prices while staying in business is competition in action. All companies are allowed to figure out effective ways to operate in an increasingly technological world.

  2. But what is to say that once Amazon has a monopoly that they won’t drive prices back up? There would be no competition for them at that point and anyone that was trying to break into the industry, would have to complete against the only known name in the industry. So after Amazon has a monopoly and everyone has a Kindle, what is to stop them from naming the price whatever they want?

    Also, now that Amazon has started in the publishing business, maybe their low-ball prices would drive other publishes out of the business since they couldn’t make money on what Amazon was offering, leaving Amazon now to pick up their writers and drive the market that way.

    See the idea that these cheap books are good for the consumer is flawed. Because in order to get those cheap books, you have to lock yourself into a very restrictive system. Amazon has NOT shown themselves to be very consumer friendly when it comes to the Kindle. They offer no support, no help to their customers at all after the product is purchased and they can and have yanked books off the Kindle that someone has purchased without refundng any money. And they can do this because in their system, you don’t OWN the book, you own the liscence for that book. So if Amazon decides there is something wrong with the book, you lose it, but they keep the money. That is NOT good for consumers at all.

    • Jan, I know that they could jack prices up, but I’m just considering the possibility that they don’t. If a monopoly doesn’t actually take advantage of consumers with their position, i.e. they keep prices down, would the DoJ actually view them as suit-worthy. With regard to locking customers in with the kindle format, I think we’re going to see a gradual change with kindle availability to other devices so that by the time a monopoly might be in a effect, that consumer entrapment won’t be an issue.