How to Fight Amazon (before you turn 29)

From The Atlantic:

Shortly after I met Lina Khan, her cellphone rang. The call was from a representative of a national organization, regarding a speech it had asked her to give. Khan was courteous on the phone, but she winced momentarily after hanging up. “That was the American Bar Association,” she confessed. “I don’t know if I’ve passed the bar yet.”

This feeling—that Khan’s ideas are in high demand slightly before her time—has characterized much of her life lately. In the past year, the 29-year-old legal scholar’s work has been cited approvingly by the lefty, rabble-rousing congressman Keith Ellison and by a Trump-appointed assistant attorney general, Makan Delrahim. She has been interviewed by NPR and written op-eds for The New York Times.

She has done it neither by focusing on a hot-button issue nor by cultivating a telegenic demeanor. She is just a young adult—one of many, I would learn—interested in an old topic: antitrust law, that musty corner of American jurisprudence aimed at curtailing monopoly power.

. . . .

For the past few decades of American life, the specter of monopoly was generally raised only regarding companies that seemed custom-designed to rip off consumers—airlines, cable providers, Big Pharma. These were businesses that pulled from the long-standing monopolist’s bag of tricks: They seemed to keep prices artificially high, or they formed an unspoken cartel with other industry titans. Typically, consumers worried most about how monopolies would pinch their wallet.
For Khan and her colleagues at the Open Markets Institute, an anti-monopoly think tank based in Washington, D.C., monopoly power includes all of that. But it goes further. Even when monopolies appear to benefit consumers by offering free services or low prices, Khan contends that they can still be deeply harmful. Among the group’s frequent targets are some of the most popular companies in America: Google, Facebook, and the one to which Khan has committed much of her published work, Amazon. She tells a comprehensive story about how these companies make Americans less free.. . . .“There’s a whole line of critique about Amazon that’s culture-based, about how they’re wrecking the experience of bookstores,” Khan told me as we surveyed Neil deGrasse Tyson’s latest tome. “I personally am less focused on that element.”

Instead, she argues that Amazon has denuded America’s book-buying landscape in other ways. “Amazon has massively—and I’m trying not to use this particular word, but I can’t not use it here—disrupted the business model in publishing,” she told me. “Publishers used to be able to take risks with heavier books that might not be as popular, and they used to be able to subsidize them with best sellers.” But Amazon’s demand for discounts has made it harder to cross-subsidize this way, leading to consolidation among book publishers and reduced diversity.

This is a typically Khanian analysis. In her telling, monopolies don’t just exploit consumers and workers in their part of the economy. Even when they offer low prices to consumers, their influence propagates through the entire system. If one part of an industry consolidates, then all the other parts of the industry will feel pressure to consolidate too.

. . . .

[I]n January 2017, she published the result of that study, “Amazon’s Antitrust Paradox,” in the Yale Law Journal. It went viral—or at least as viral as dense legal scholarship can go. Its driving question is simple: How did Amazon get so big?

The answers are nearly as straightforward. First, Khan says, Amazon has been willing “to sustain losses and invest aggressively at the expense of profits.” This isn’t a controversial assertion: Amazon has posted an annual profit for only 13 of the past 21 years, according to The New York Times. Historically, it has plowed any profits right back into cheaper prices and R&D into everything from robotics to image recognition. Second, Amazon is integrated vertically, across business lines. In addition to selling stuff online, Amazon now publishes books, extends credit, sells online ads, designs clothes, and produces movies and TV shows. It is also one of the world’s largest providers of cloud storage and computing power, renting server space to Netflix, Adobe, Airbnb, and NASA.

. . . .

[Judge Robert] Bork’s views become interesting in light of Amazon. Bork thought vertical integration was fine: Since he believed markets were perfectly efficient, he assumed that a lower-cost competitor would always butt in and fight off a would-be monopolist. And predatory pricing? It is “a phenomenon that probably does not exist,” he wrote. The Chicago school, he said, had proved that companies would always pursue short-term profits over long-term growth.

Amazon’s history seems to belie this claim. For more than a decade, Wall Street allowed the company to plow any profits into price discounts. Partly as a result, Amazon has grown so large that it can undercut other companies just by announcing that it will soon compete with them. When Amazon purchased Whole Foods, its market cap rose by $15.6 billion—some $2 billion more than it paid for the chain. Meanwhile, the rest of the grocery industry immediately lost $37 billion in market value. (Amazon protests that it has no control over how investors value its competitors.)
When a company has such power, Khan believes, it will almost inevitably wield that power far and wide, distorting not just the market itself, but the whole of American life. With sufficient power, companies can commission studies, rewrite regulations, bulldoze neighborhoods, and impoverish education and welfare systems by securing billions in sweetheart tax cuts. When a company comes to monopolize a market—when it grows so big that it can threaten other industries just by entering them—it ceases to be merely a company. It becomes an institution so powerful that it can rule over people like a government.

Link to the rest at The Atlantic

PG suggests Ms. Kahn, as an “expert” in antitrust law, is remarkably ignorant about American publishers. Publishers are a classic example of a shared monopoly, offering identical royalty rates and nearly identical contract terms to authors and attacking competitors who don’t join the cartel.

Additionally, there is the inconvenient fact that most of the largest American publishers have already plead guilty to conspiring to fix book prices, a classic antitrust violation, in order to keep Amazon from lowering book prices for consumers. Publishers are, by their own admissions, violators of antitrust laws.

It is possible for an organization to violate antitrust laws by lowering prices to drive competitors out of business, then raising prices once it obtains the monopoly power to do so.

However, lowering prices by itself is a benefit to consumers, not a detriment, and speculation that, at some time in the future, Amazon is going to use monopoly power to raise prices is just that, speculation, without any facts to back it up.

“Predatory pricing” is a characteristic of this type of monopoly activity – cutting prices to drive competitors out of business, then raising prices to capture monopoly profits.

When Amazon starts taking advantage of its market position to force unconscionable price increases on consumers, PG will be happy to condemn the company, but amateur mind-readers who claim this is Amazon’s business plan are simply speculating for purposes that likely aren’t connected to the welfare of consumers at all.

Looking into a crystal ball and perceiving an evil Amazon that will be going into the price-gouging business is a bizarre practice that is often funded by Amazon’s competitors who find Amazon’s consistent price-cutting business strategy offensive because Amazon takes sales away from them or disturbs their way of doing business in their particular fiefdoms.

If we are to speculate, let us speculate about the state of the book business had Jeff Bezos started the company selling something other than books online and stayed out of the book business because he didn’t ever want to upset people like the author of the OP. For the purposes of our speculation, we’ll assume no Bezos clone stepped in to do what Bezos has done.

Would readers be purchasing more or fewer books today? Would the price of books be higher or lower today? (remember that Steve Jobs wanted publishers to fix the retail price of ebooks so there would be no price competition) Would authors be earning more or less than they do today? Would there be a wider or a narrower selection of books offered to readers today? Would more or fewer authors be publishing their own books than do that today?

For any Amazonians who happen to stumble across this post, PG suggests that it might be a good idea for Amazon to consider publicizing how much money they pay directly to individual indie authors each year through KDP and similar programs, bypassing the Big Publishing and small publishing middlemen and middlewomen.

36 thoughts on “How to Fight Amazon (before you turn 29)”

  1. Ah, yet another piece proclaiming ‘Amazon be evil and must be stopped!’

    As PG pointed out, she hasn’t studied what she claims she going to be fighting – or, at a mere half my own age she’s already an idiot (it took me longer to reach that point, dang overachieving youngsters these days …)

    I’m guessing she at her young age has never read the news, or even watched the news, or maybe heard of news …

    Trad-pub and their sidekicks and lapdogs have been demanding the DoJ go after Amazon for years now, and the only time the DoJ looked into anything revolving around books and Amazon it was the qig5 and Apple they sunk their teeth into.

    Odds are (if she’s noticed) she’s probably not to happy with who we currently have in the white house – but she should be as he hates Amazon with a passion. He’d bury Amazon under the DoJ building if he could – but he hasn’t. I wonder if this twenty-nine year old has any clue why?

    It’s all too simple really, Amazon is doing what it does by playing by all the laws and rules currently in place. And any new law she tries to get passed will hurt other companies as much if not more than they’ll hurt Amazon.

    Having just watched AT&T by Time Warner, I don’t see the courts able to see any reason Amazon should be ‘broken up’ or otherwise bothered, she and her trad-pub backers are barking up the wrong tree.

    Maybe she should fight bad trad-pub contracts, I could cheer her on for doing that …

    • That sentence made me truly understand the meaning of the word gobsmacked. Thinking like that leads to the conclusion that we should ban personal computers because they disrupted the typewriter industry.

      And the further conclusion that it is Amazon’s fault publishers no longer take risks on literature had me shaking my head. Wasn’t it the consolidation and mergers and acquisitions into multinational media companies that forced publishing to focus on the bottom line, encouraging mammoth publishing deals with the likes of (yes, I’m going to drag that out again) Snookie?

      With thinking like this argument shows, I wonder if she will pass the bar.

  2. “Publishers used to be able to take risks with heavier books that might not be as popular, and they used to be able to subsidize them with best sellers.” But Amazon’s demand for discounts has made it harder to cross-subsidize this way, leading to consolidation among book publishers and reduced diversity.

    Wait. What? Who was doing the “subsidizing” in this scenario, ultimately? Or exactly? Or something or other. Unless the publisher themselves was writing these bestsellers, this sure smells like Rosie Romanceauthor’s book sales underwriting the MFA memoirfic coming of age story of Priscilla Pretentious. Via shekels diverted courtesy of and at the discretion of Edith Editor. Who may or may not (but probably did) attend the same Seven Sisters college as ol’ Priscilla.

    Why on earth should I consider this a good thing? At a minimum I’m gonna go out on a limb and suggest Rosie wasn’t consulted in this scenario.

    • “… Amazon’s demand for discounts …”

      Which were easily stopped by agency – wonder why they didn’t do that to hard/paper books too?

      Also missed is the bit that the publisher got paid their full asking price and Amazon lost profit when discounting it. (And how the writers and trad-pub howled when Amazon later reduced that discount! 😉 )

      This ‘child’ hasn’t been in the real world long enough to understand how anything works – or she’s really just a fifrr, writing what he/she was told to write.

    • Patrick W., you beat me to the punch with exactly the same quote and point I was going to make, only you did it funnier!

      The whole idea that trad pubs/the status quo shouldn’t be disrupted because they might be subsidizing litter-a-choor, with money ripped off from hardworking professional authors, is enough to make my blood boil.

      I’ve been publishing for thirty-five years, longer than this young know-it-all has been alive. I’d suggest she educate herself via the Authors Guild, Novelists Inc and other writers’ organizations to broaden her understanding of the publishing business before she shoots her mouth (computer?) off again.

  3. For Amazon to be a Monopoly, at least as far as books are concerned, you would have to be unable to purchase books anywhere else. That is manifestly not true. These blatherings would not stand a minute in front of an informed judge.

    • An organisation can be considered a monopoly in the eyes of the law without being the only supplier of a good or service. Microsoft was deemed to have a monopoly in operating systems for personal computers in the 1990s, even though you could buy similar products from Apple, Be Inc (BeOS), IBM (OS/2), Novell (Netware), RedHat and SuSE (Linux).

      • True, but Amazon has nowhere near the numbers MS had (or has now for that matter.)

        What monopoly do you think Amazon has? It can’t be in ‘books’ because you have to count all those that go to school students that don’t go through Amazon. (I seem to remember reading somewhere that if you throw in ‘all’ book selling Amazon doesn’t quite hit 20%, which is one reason the DoJ isn’t bothering Jeff about it.)

        • It doesn’t 20%.
          17% is closer to their share of all books sold in the US.
          We broke out the numbers here a few months back.

          Theoretically they could ignore all book categories other than the ones Amazon sells, like they did to Microsoft, but it won’t be soon because unlike with Reno and her boss, the publishing establishment has no IOUs with Sessions and his boss.

          More, the Microsoft case is not a good example because, if you actually read the Judge’s ruling, you’ll see that, unlike Apple and the BPHs in tbeir case, MS was found innocent of any antitrust violation against Netscape. “No harm done to Netscape”. Netscape got no “relief” out of the trial and was History shortly afterwards. Their problems were all from misreading the market and never developing any other revenue streams.

          The bogus “monopoly” label was a last ditch effort to pin something, anything, on MS. And all it achieved was to funnel a couple billion from the pockets of consumers to the pockets of a handful of failed software execs. Think of all the things the MS-haters dreamed of before the trial–breaking up Microsoft, stripping them of Windows, forcing them to open source windows–none of that happened. Before the trial, MS had 90% share of desktop OS and very little of any other category (mobile, workstation, real time) and after the trial MS still had the same market shares.

          It was a politically motivated show trial to make an example of them because they weren’t terribly active in the political donations game. Lesson learned: MS and Google, Facebook, Apple, and yes Amazon, are all big players in the DC campaign contributions game.

          The problem with trying to apply antitrust to MS or Amazon is that their behavior isn’t anti-competitive but rather hyper-competitive. Both are active players gifted with inept wannabe competitors. Microsoft has always engaged any challengers head-on, from Apple and Palm, to Google and even Amazon. Sometimes too early, sometimes too late; sometimes they succeed, sometimes they fail, but they compete for their business. They don’t go crying to Uncle Sugar to protect their cash cows.

          And that is the real way to fight Amazon: the way MS does in the cloud arena, WalMart and Target (belatedly) in online retail, and Google in Home Automation. By engaging them head-on and fighting for every scrap of market share with competitive products and services.

          By competing.

          Not whining that their outdated and ineffective business practices are being disrupted. Because those practices deserve to be disrupted. The legacy publishing establishment is getting exactly what they’ve earned.

          • Another big difference is that MS is a producer. Amazon is a retailer. A retail monopolist must also be a monopsonist.

            • …and Amazon is neither the sole buyer nor the sole seller…
              …except (by default) for the books boycotted by competing resellers…

              Funny how nobody notices a few thousand retailers coordinating to try to kill a publisher and the careers of their authors, huh? An anticompetitive market distortion if there ever was one.

  4. I’m waiting for the day the government is forced to privatize the court system because of its ridiculous inability to process cases within acceptable periods of time and Amazon is awarded the contract to provide an online court service that works better than the other offerings. Never say never.

    • Don’t forget the deep discount remainders, but that’s all ‘different’ from Amazon doing it.

      Like I said above, she’s clueless or just another paid trad-pub mouthpiece.

  5. This isn’t a controversial assertion: Amazon has posted an annual profit for only 13 of the past 21 years, according to The New York Times. Historically, it has plowed any profits right back into cheaper prices and R&D into everything from robotics to image recognition.

    So, Amazon only invested in 13 of the past 21 years, the years when they had financial statement profits?

    If we look at their financials, their profits were far lower than their investments.

    The author’s byline says he covers climate and technology. It doesn’t say anything about covering accounting and finance.

    And Justice Brandies? He was a leader of the Progressives in the early 1900s who said consumers should be willing to pay higher prices so there could be multiple suppliers in a market.

    The folks calling for government intervention targeted at Amazon are real progressives, loyal to the movement’s founding principles. Note Franklin Foer’s article about Amazon a few years back.

  6. I usually not my head in silent agreement at all the ADS (Amazon Derangement Syndrome) posts.

    This one is a little different, and I think PG’s (and most everyone else’s here) focusing on the publishing piece are missing the point (I think…). And, if you take the publishing part out of it (not the Jeff Bezos part) – and look at the impact of Amazon on OTHER businesses besides publishing, one needs to look at the impact on those other businesses (or markets or potential markets) and see what kind of power Amazon wields.

    Please don’t get me wrong – I was an original Prime subscriber. (Amazon Customer since 1999. Prime member since 2005.) And I agree that Amazon isn’t a monopolist in publishing, and likely in no other industry by the traditional definition.

    The thing is, much like how copyright law hasn’t changed much in 80 or whatever years, and neither has telecommunications law (and thus how Net Neutrality became the (quote unquote) law of the land by virtue of an FCC ruling instead of by an actual act passed by Congress when Pres. Obama and Obama’s FCC used an antiquated law from 1934 in order to to justify changing said Net Neutrality…)…our monopoly laws haven’t changed for the modern era either – and maybe they should.

    And I don’t mean this in regards to publishing, and I don’t think the OP did either. Amazon DOES disrupt businesses by the mere suggestion of entering the market. That kind of power is SCARY, even in the hands of a company like Amazon, that almost universally has the customer’s satisfaction in mind. It’s that POWER to change markets on a whim that scares me about Amazon, not what monopoly power they may or may not have. And, IMO, that should put at least a pause in any freedom loving American’s thinking, if not an inkling towards the idea that maybe our monopoly laws need some updating.

    Think Google, or Facebook and their dominance in search engine or social networking markets. It’s hard to fight (an argument that they too have a monopoly) on the basis of “cost of service” when said services are FREE, if that’s the nearly only criteria for determining a monopoly…are we going to pretend that those companies don’t ALSO impact the country on their ability to influence public opinion? Their power and their potential for abusing that power in the US is staggering.

    • The problem is they aren’t advocating for Congressional action but to contort existing laws in contravention of all established intent and precedent.
      US antitrust law does not exist to protect competitors or some theoretical nirvana of “competition” but rather to redress factual and *present* (or past) harm to consumers.

      Anybody wishing to pass an “anti dog-eat-dog” or an “equalization of opportunity” law needs to go through Congress, not low level courts or executive dictates or regulation because such “solutions” are ephemeral and usually counterproductive.

      And while some are scared by efficient, effective, and yes, darwinian companies, more of us are scared by over-reaching rule-by-decree IdiotPoliticians™. And now we’re seeing exactly where that leads.

      Instead of cooking up hare-brained pseudo legalistic theories, Amazon’s would-be competitors should be rolling up their sleeves and upping their game to compete instead of whining or playing money games.

      • I agree to a point. The problem is, there are so few companies big enough, at this point, to effectively play competitor with Amazon, in ANY field. It’s exactly that reason when the government must needs step in and do something. Because if you wait until someone can efficiently effect public opinion (in the cases of Facebook or Google, Twitter, etc) – or, on a whim, effect entire industries based on relatively effortless or zero-cost measures (Amazon), it becomes much more of a threat to a free society.

        Is it breaking anti-trust laws? No, not as they’re currently written. And that’s my point – perhaps the laws need to be re-written so that at a certain point, when a company becomes too influential (in this global economy), the government needs to step in.

        We are in a brave new world, here in this internet economy, and as they say, the old rules don’t always apply.

        • So your objection is they’re too successful?
          You believe success has to be reined in? Forced under an artificial ceiling to prevent theoretical mischief?

          In other words, punish them *before* they commit any crimes?

          That runs counter to not just antitrust principles but all free nation legal principals.

          All those companies started at zero.
          They did nothing that others couldn’t do.
          They built themselves up by offering goods and services that people actually want and they grew big because a *lot* of people actually want their output.

          So, let’s say you get what you want and you get to freeze their size and limit their productivity. How do you manage that reduced output? How do you decide which consumers get to receive the benefits of their output and which are forced by fiat to do without? Do you issue vouchers for access to the goods and services of the chained companies? And how do you distribute the vouchers? Alphabetically? By lottery? What do you do if a black market develops for the vouchers?
          (And it will. It happens in all totalitarian systems. People will do whatever it takes to get what they need. There is power and money in controlling access to what is limited.)
          Or, do you tax the hell out of their output so only the affluent elite have access to it and everybody else is stuck with inferior goods or services?

          How do you intend to *manage* your brave new world?
          Think it through.
          Actions breed reactions, choices produce consequences.

          It is easy to say *somebody* somewhere should do *something*.

          It is less easy to identify that something, that magic bullet that will sonehow penalize high performers *before* they do anything wrong *without* harming consumers and the whole of the economy.

          And all to what end?
          To prevent people from being too successful? To protect the lazy, incompetent, or stupid from the consequences of their own choices? B&N, to name just one, is dying out of incompetence. KMART/Sears is dying out of overexpansion. So are most of the retailers that are under stress. They forgot that the boomer consumerist party need not go on forever. That borrowing massive amounts of money to build an empire would need massive sales to pay back.

          All these magical solutions are nothing of the kind. They are wishful thinking that belong in fantasies, not the real world. The world where Amazon and its kind employ hundreds of thousands, supply products and services to millions upon millions more efficiently and effectively than the legacy businesses that shut their eyes to the world around them and kept on partying like 1999 without thinking of the bill coming due.

          Amazon and the other high performers aren’t the cause of all these “losses” you worry about, their growth is the *consequence* of the actions of others. They are the nimble survivors who looked around, saw opportunity, and chose wisely.

          *They* looked to the future and chose to build for it, instead of milking the past.
          *They* positioned themselves for today’s world and tomorrow’s.
          *They* chose wisely and effectively.

          *They* thought things through.

          And the reward for their excellence is to be preemptively punished? Penalized for being smart and clear-eyed? For trying to build something new that people need and want?

          Are those to be the new rules?

          That’s not a world I want to live in.

        • This is the Progressive approach that was proposed one hundred years ago. It presumes there is a cadre of experts who can see better into the future than anyone else, and they know what is in our best interests.

          Given their intellects, education, knowledge, experience, and self-regard, only they know what is in our best interests. The average consumer is too dim to realize paying the lowest available price lacks the sophisticated nuance necessary in today’s complex economy.

        • “The problem is, there are so few companies big enough, at this point, to effectively play competitor with Amazon, in ANY field. It’s exactly that reason when the government must needs step in and do something.”

          Let’s just talk ebooks. A large subset of the books available on Amazon are available for similar prices from Google Play books, Kobo, and if you like, B&N – and Apple, if that floats your boat. Those are all competitors with viable businesses.

          You can’t be complaining that there are no competitors, because they are. What you’re complaining about is that Amazon is successful and they are much less so.

          It’s the same for other goods. I recently purchased a micro-SD card from ‘zon (took 30 seconds.) There are plenty of other places I could have purchased this item – plenty of competitors.

          Competition is not the issue.

  7. “Publishers are a classic example of a shared monopoly, offering identical royalty rates and nearly identical contract terms to authors.”

    And this is different in what way from what Amazon, Apple, Nook and Kobo are doing with ebook retail?

    Are the ebook retailers therefore operating a shared monopoly?

    • Are the ebook retailers therefore operating a shared monopoly?

      No, because paper books are a very close economic substitute.

      Likewise, ebooks weakened the case that publishers were a shared monopoly because ebooks offered zillions of independent books through Amazon, Apple, and Kobo.

      The case for a publishers shared monopoly was strongest in the world of paper only.

    • ALDI is the sole source of ALDI-branded products. 😀
      If you eliminate all competing products and sources…

    • History has proven time and time again that in a truly free-enterprise system, monopolies don’t last long UNLESS they have governmental protection (i.e. Ma Bell.)

      • Over and over.
        The world changes and markets evolve.
        To stay on top or near it you need to be constantly investing and reinventing the company.

        Companies that stop competing and dig in might as well keep on digging…their graves.

  8. Not really.
    You neglect to consider authors selling direct, smaller niche ebook sellers, and the odd small/medium publisher selling direct.

    Also, consider that the five (now six) big ebooksellers actually compete against each other, unlike the BPHs who coordinate everything from contracts to releases.

    Think back to 2014, when the feds warned the BPHs about coordinating their negotiations with Amazon like they did in 2009, and suggested they would want to vacuum their email accounts again. deprived of coordination they ended up releasing all their fall tent poles the exact same week instead of the oh-so-coincidental staggered releases of previous (and latter) years.

    And then there is the “non-existent” blacklisting of authors who fall afoul of one publisher who somehow end up on everybody’s do-not-return-calls list. Ask G.R.R. Martin about that one.

    Ebooks are a limited market, yes, but it is because the Agency Conspiracy killed the small interoperable epub vendors in favor of the big hardware-tied walled gardens, just as it led to the foreclosing of the ereader market to small and not so small hardware-only ereader vendors. Price fixing *always* favors the bigger, entrenched players over smaller, more aggressive players. Fictionwise, Diesel, Powell’s, Booksonboard, Family Christian, and Rainbow ebooks, a LGBT specialty ebookstore, are among the dozens of US ebook channels forced to close after the big publishers moved the market to walled gardens and near-cost ereaders.

    The crimes of 2010 aren’t easy to undo.

  9. Ask G.R.R. Martin about that one.

    A new GOT book sent straight to KDP would be great fun.

Comments are closed.