From The Nation:
It’s a common trope in movies: A mob enforcer walks into a shop, looks around, and then says to the owner, “Nice place you got here. It’d be a shame if something happened to it.” Every viewer understands that a shakedown is in the works. The shop owner can either pay up immediately, or else his livelihood will burn to the ground.
But what do we call it when a large firm makes a similar, although not quite so blatant, threat to a smaller firm that is reliant on its business? What’s the laissez-faire euphemism for an arrangement that coerces the smaller firm into acquiescing to the larger firm’s unreasonable demands because if it refuses, it will lose substantial business and face financial ruin?
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In the book market, this is Amazon’s position in relation to publishing houses. The antitrust lawsuit brought by the Federal Trade Commission (FTC) and 17 states last fall hardly addresses the book industry—the first market that Jeff Bezos and his now trillion-dollar corporation targeted and took over. But that doesn’t mean Amazon is, or should be, off the hook.
Amazon is the largest bookseller in the world. Consequently, the publishing industry relies on it to get its product to market. Amazon earns an estimated $28 billion a year from selling books. In 2020, the House Judiciary Committee found that Amazon controlled more than 50 percent of the overall (online and offline) print book market and more than 80 percent of the e-book market. In other words, if a publisher’s titles aren’t available on Amazon, it might as well close shop and find a new line of business. Even the biggest publishers are no match for Amazon’s death grip on the book market.
That’s why all publishers, including those in the “Big Five” such as Hachette and Penguin Random House, are afraid of doing anything that might upset the company. Amazon has proven time and again that it won’t hesitate to retaliate against publishers that step out of line. These retaliatory games include removing the “buy” button beneath a title’s listing on the site, delaying shipping books to customers, claiming that titles are out of stock when Amazon is actually just refusing to restock the titles, and rejecting pre-sales for new books. In 2014, when Amazon and Hachette were embroiled in a distribution dispute, Amazon marginalized the publisher on the site for eight months. This had a major impact on the publisher’s sales. According to Hachette, it suffered an 18 percent drop in US sales during the third quarter of 2014, mostly due to “the difficult situation with Amazon.” Hachette authors likewise lost income and perceived influence in the publishing world when Amazon suppressed their titles.
Amazon’s power over books not only dampens revenue and reputation for publishers and authors; the online behemoth also exerts its market-shaping clout to create a profit-fixated monoculture in a publishing industry pushed to maximize short-term returns under successive waves of consolidation. This kind of pressure represents a little-noted civic injury to us all, since a vibrant publishing market is critical for the free exchange of ideas, vigorous public debate, and cultural diversity.
Amazon will surely insist that it has achieved its dominance over the book market by competing in entirely legitimate ways. But that argument represents a drastically foreshortened and distorted account of recent publishing history. In its early years, Amazon enjoyed a critical competitive advantage over brick-and-mortar bookstores by exploiting court-created loopholes to avoid collecting sales taxes in many states. By evading these taxes, Amazon deprived state and local governments of revenue and gave itself an important competitive edge over rivals. Readers quickly realized that they could avoid paying a 5 percent sales tax on a title they might purchase at a local independent bookstore by buying it on Amazon.
What’s more, Amazon frequently used its size and broad scope of business to sell certain titles for less than what it paid. More than a decade ago, it was accused of selling some e-books at a loss—for instance, buying titles at $14.99 wholesale and reselling them at $9.99 retail. Because of its enormous scale of operation, Amazon could bear these losses, while most rivals couldn’t. The clear aim of such tactics was to lure long-term customers away from competitors in the market, in order to secure their eventual demise. The vast influence Amazon enjoys today in the publishing supply chain shows just how effective that strategy has been.
As Amazon consolidated its hold over book publishing, it pivoted to new measures aimed at permanently securing its market dominance. Amazon now commonly leans on publishers to demand deep discounts. As business journalist Brad Stone has explained, Jeff Bezos dubbed this campaign of coercion “gazelle.” In this market parable, Amazon is a cheetah who started by targeting the most vulnerable publishers—the gazelles—for special discounts and moved on to the stronger ones from there. Wielding its enormous power to squeeze suppliers, Amazon undercut the competition on price while still making profits.
Link to the rest at The Nation
PG disagrees.
What should the price of a book be? What the publisher thinks it should be?
Everyone knows that liberal arts majors who graduated with not-great but respectable grades from expensive private colleges, AKA Big Publishing executives, are perfectly prepared to determine what the proper sales price for each of their books should be in Des Moines or Fresno or Pascagoula or Tucson or Little Rock or Missoula or Tucson.
(PG suggests most publishing executives couldn’t put a pin within 200 miles of the location of any of these cities on a map of the United States that only showed the outline of each state.)
If selling a product at a loss were against the law, the manager of every grocery store, auto dealer and Walmart location in the United States would be a criminal. Loss leaders have been standard retailing practice for centuries.
If we save physical bookstores, are we saving Meg Ryan’s Shop Around The Corner or Barnes & Noble?
By saving Barnes & Noble, are we saving good jobs with fair wages? In most locations, Barnes & Noble pays minimum wage as the starting salary in its stores. Fringe benefits are similarly skimpy.
Amazon pays its warehouse workers an average of $19 per hour plus full medical and dental insurance.
Additionally, Amazon funds full college tuition, as well as tuition to obtain high school diplomas, GEDs, and English as a Second Language (ESL) proficiency certifications for its front-line employees —including those who have been at the company for as little as three months. Amazon also offers three free education programs to provide employees with the opportunity to learn skills within data center maintenance and technology, IT, and user experience and research design. This includes warehouse workers.
Worker well-being aside, PG suggests that Amazon is the best thing that has ever happened for people who enjoy reading books.
And the Amazon sales-tax avoidance item (now ancient history) mentioned in the OP?
Every online vendor in the United States did exactly what Amazon did – paid the sales taxes they were legally obligated to pay and didn’t pay sales taxes if they weren’t obligated to collect and pay.
Millions of consumers did the same thing with sales taxes. If they lived in a state with a sales tax, they purchased online from a vendor in a state that didn’t have a sales tax and thought nothing about it.
Each state that collected a sales tax also had what was called a “Use Tax.” Everybody who purchased an item outside their state of residence from a vendor located in a state that had no sales tax was supposed to file a Use Tax return in their state of residence and pay the use tax on out-of-state purchases in locations that didn’t collect a sales tax. (Sound complicated? It was/is.)
Who paid Use Taxes? Large companies that purchased millions of dollars worth of goods from states with no sales tax – 50 tractor-trailer semi trucks.
How many individuals who were not millionaires filed use tax returns for out-of-state purchases in locations that had no sales tax? 0%
Figuring out who had traveled across the state line to purchase a Big Mac and a milkshake without paying a sales tax was effectively impossible and definitely not worth the time of a state employee. Most individuals had no knowledge use taxes even existed.
What zillions of Amazon customers did about filing Use Tax returns on their Amazon purchases was not Amazon’s responsibility legally or morally. The charge that courts had created “loopholes” was simply the courts applying well-established legal doctrine under the Constitution. One state cannot force another state to enforce the laws of the first state.
The guy in the OP who saw Amazon dirty dealing for not collecting sales taxes that Amazon was not obligated to collect or pay has an advanced case of Amazon Derangement Syndrome.
As PG mentioned, the whole not collecting sales taxes is ancient history. Amazon now collects and pays sales taxe everywhere.
With regard to the FTC antitrust suit against Amazon, PG and more than a few people who know a lot more about antitrust law than PG does have serious doubts about the validity of the theory behind the charges.
The current chair of the FTC, appointed by Pres. Biden, has been riding an anti-Amazon hobbyhorse since she was in law school. More than a few prominent antitrust experts have criticized the basis for the FTC suit.
PG has been remiss in not posting about the Amazon antitrust suit. He’ll do a deeper dive into the Amazon antitrust litigation and likely post about interesting items he finds.
Amazon earns an estimated $28 billion a year from selling books.
Interesting. So what is book revenue?
For extra credit, what is the estimated unpaid student loan debt of the two authors?
Thanks, PG – I get so tired of the anti-Amazon rants that even someone who doesn’t know very much about retail or the company knows are put together from every possible misinterpretation.
Amazon gave me my purchasing power back (not to mention that it’s also the printer and distributor or my books, e- and print). Being disabled means going to stores is exhausting and inconvenient (those merchants haven’t made the experience easy) – but I can order an enormous number of things I need online, and get them delivered efficiently, even occasionally returning something. I still remember how they improved the customer experience over so many other companies who do not put customers first, and which used to be endlessly frustrating, especially for someone with limited mobility and energy.
They’re not perfect as an employer – who is? – but, as you’ve pointed out before, they have many benefits for their employees in education and other areas that are among the best in the business.
MY life has been vastly improved by Amazon existing. I wouldn’t want to go back to the way it was before. Nor try to publish without them. Nothing even faintly equivalent has come MY way from anyone else, from Walmart through Barnes& Noble and on to traditional publishers.
Thanks for your comment, A. I agree about Amazon improving the lives of countless people who had no reasonable access decent retail stores. Walmart did something similar for millions of people living in small towns.
For shame, PG! I’m sure they could guess that Fresno is away from the coast and somewhere between SF and LA, so they’ll be within 200 miles! (You also neglected the trust funds that support a substantial proportion of those executives, especially earlier in their careers.) Why yes, that is slightly and obviously tongue in cheek, isn’t it?
More seriously, we’ll leave for another time whether the entire sales tax/use tax issue is itself a distraction being used to mask Noerr-Pennington problems that would leave the Guardians of Culture™ clutching their pearls in dismay. (Antitrust doctrine that says that even a monopolist is allowed to lobby the government for favorable legislation, and just ask yourself how much it benefits a profitable corporation to “reallocate” a state’s tax burden from “income” to “per-item purchase excise fees.” Naturally, it’s more complicated than that, too — and it often doesn’t excuse lobbying for measures that would tend to raise additional entry barriers to potential competitors.) So there’s plenty of potential antitrust scrutiny to go around, eh? And shouldn’t we also be asking about whether being one of the “Big Five” itself implicates even the old antitrust merger guidelines… all the way back to the Reagan Administration?
If the publishers want to complain about pricing, they should get some very intense scrutiny about how they set their list-price tiers, generally without regard to the advance offered for otherwise-comparable books; with little regard for the author’s preexisting platform size or total anticipated sales; and with a surprisingly low correlation (since the late 1980s anyway) between actual fully-extended unit production costs and the list price. You know, those economic factors that would tend to go into a company’s consideration of what price it should set in just about any other industry…
Agreed, C. Smart business people don’t go to work in publishing and most publishers are poorly-managed. Additionally, as I have mentioned before on TPV, most of the large New York publishers are ultimately owned and controlled by extremely wealthy European family dynasties.