From The New York Times:
Barnes & Noble is in trouble. You hear that, in worried tones, when you talk to people in the book business. You feel it when you walk into one of the chain’s stores, a cluttered mix of gifts, games, DVDs (DVDs?) and books. And you really see the problems if you dig into the company’s financial statements.
Revenue from Nook, the company’s e-book device, has fallen more than 85 percent since 2012. Online sales of physical books have also plummeted. At the stores, where business was once holding up, it’s down about 10 percent over the past two years. Several stores — like my local one, in the Washington suburbs — have closed, and many have reduced staff.
The company’s leaders claim that they have a turnaround plan, based on smaller, more appealing stores focused on books, and I hope the plan works. It’s depressing to imagine that more than 600 Barnes & Noble stores might simply disappear — as already happened with Borders, in 2011. But the death of Barnes & Noble is now plausible.
. . . .
The full story revolves around government policy — in particular, Washington’s leniency, under both parties, toward technology giants that have come to resemble monopolies. These giants are popular, because they provide good products and service. But they have also become mighty enough to vanquish their competitors and create problems for society.
. . . .
For most of American history, the government viewed giant corporations of any kind as inherently problematic. Their size gave them too much power — to eliminate competition, raise prices, hold down wages and influence politics. So the government passed laws to restrain businesses and occasionally broke up the largest, like Standard Oil and AT&T.
In the 1970s, however, a new idea took hold: Size was not a problem so long as prices remained low. Bigness could even be good, because it promoted efficiency and thus lower prices. The legal scholar Robert Borkwas the most influential advocate for this view, and it soon guided the Supreme Court, the Reagan administration and pretty much every administration since.
But the theory has two huge flaws, as a new generation of scholars, like Lina Khan, is emphasizing. One, prices are not a broad enough measure of well-being. Wages, innovation and political power matter as well. If prices stay low but wages don’t grow — which is, roughly, what’s happened in recent decades — consumers aren’t better off. Two, regulators have focused on short-term prices, sometimes ignoring what can happen after a company drives out its rivals.
. . . .
The book business is looking like a case study. Amazon is taking over, yet has never run into antitrust scrutiny. It has reduced prices, after all. It sells many e-books for $9.99 and hardcover best sellers at a big discount. So what’s the problem?
Plenty. Amazon has been happy to lose money on books to build a loyal customer base, to which it can then sell everything else. “Amazon isn’t primarily concerned about books these days,” Oren Teicher, who runs an association of independent bookstores, told me. “They are far more focused on getting consumers into their ecosystem so they can sell them every other product under the sun.”
But the artificially low prices have created a raft of problems. Fewer books are commercially viable. Publishers are focusing on big-name writers. The number of professional authors has declined. The disappearance of Borders deprived dozens of communities of their only physical bookstore and led to a drop in book sales that looks permanent.
. . . .
“It’s in the interest of the book business,” Teicher says, “for Barnes & Noble not just to survive but to thrive.”
Link to the rest at The New York Times and thanks to Susan and others for the tip.
PG suggests the fundamental purpose of antitrust law is not to benefit the corporate losers in commercial competitions, but rather to benefit consumers by promoting competition in a variety of marketplaces.
These laws are not intended to punish successful competitors because of their size or to permit courts to choose winners and losers in the marketplace.
In an active marketplace, consumers will be benefited by the improvements in products or services and/or the lowering of prices that result when sellers are competing for the business of buyers. Each seller is focused on capturing and holding the loyalty of buyers by providing a more attractive product or service to those buyers. Buyers vote with their dollars, but no seller can assume that their customers today will be their customers tomorrow unless the sellers continue to attract and serve buyers with features the buyers desire tomorrow, whether they be price, selection, service, a better purchasing experience or whatever buyers value tomorrow.
Consumers are subject to the threat of substantial damage in a market that is not competitive because established sellers are relying on something other than the free choices of buyers to select the most attractive product or service by interfering with the competitive process.
How has Amazon beaten many of its competitors? Better prices, certainly, but also with better service (2-day delivery with Prime and real-time updates on delivery status, for example), a huge selection of goods, lots of customer reviews to provide additional information to prospective purchasers and easy returns and refunds if a product does not satisfy a customer.
As compared with physical stores like Barnes & Noble, an Amazon customer can choose from a far, far wider selection of books than any Barnes & Noble store carries. An Amazon customer can typically purchase books for lower prices than are offered at a Barnes & Noble store. An Amazon customer can purchase a book when a Barnes & Noble store is not open or not convenient to visit or staffed by sullen clerks working for little more than minimum wage.
An Amazon customer can purchase books from independent authors instead of large corporate publishers exercising monopoly power by offering authors substantially identical terms and compensation as other corporate publishers do. When an Amazon customer makes such a purchase, she can do so knowing that much more of the price she pays for the book will be received by the individual author than would be the case if a purchase was made from a corporate publisher. A savvy purchaser will know that she is not subsidizing the victimization of authors by corporate publishers as has occurred on several occasions during recent memory.