In the ubiquitous, and increasingly annoying, coverage of the Amazon–Hachette dispute, it’s common for those who side with Hachette to assert that Amazon is a “monopoly” without really understanding what that word means.* One example is Steve Wasserman’s chicken-little-esque op-ed that appeared in The Nation (online) earlier this month. He claims, “the Obama Justice Department, seemingly mesmerized by visions of a digital utopia, is oddly blind to the threat to publishing posed by Amazon’s growing monopoly.”
In response to Wasserman’s op-ed, which calls for the U.S. Department of Justice to investigate Amazon, Max at Litigation and Trial* explores what a monopoly is:
A “monopoly” is when one supplier of a particular product or service is able to control the market. That does not remotely describe Amazon: the vast majority of books sold by Amazon are supplied by someone else, i.e., the publisher, and those same books are available elsewhere…
A “monopsony” is when one buyer of a particular product or service is able to control the market. (Consider, for example, if there were several commercial airplane manufacturers, but only one commercial airline.) “Monopsony” is potentially a better fit for Amazon than “monopoly,” because Amazon’s real pricing power is that it can push a hard bargain with publishers when it buys the ebooks, whereas with consumers Amazon sells the books at or below the prevailing market prices. …
In a monopsony, the monopsonist refrains from buying to force the suppliers to start discounting against one another (because there are no other buyers), until they are no longer making a profit. That simply isn’t the case here. First, the publishers have total control over where they sell their ebooks, and they exercise that power: the “Big Five” chose to not participate in Amazon Unlimited. Second, the ebooks are available all over the place, like Walmart and Target.
So, Amazon is not a monopolist or a monopsonist, nor did it engage in predatory pricing. As Max reminds us, the U.S. Department of Justice responded to complaints (from Barnes & Noble, the Authors Guild, and others) about Amazon in 2012, finding that “[s]ome of the criticism directed at Amazon may be attributed to a misunderstanding of the legal standard for predatory pricing.” Meanwhile, Hachette was one of the five publishers sued by the Justice Department that year for antitrust violations.
Most of the criticism about Amazon is fueled by misunderstandings and emotion, not common-sense, facts, or information about the legal or economic context of the Amazon-Hachette dispute. These are two big for-profit companies. Amazon is under no obligation to sell books from all publishers, and Hachette is under no obligation to sell its books through Amazon. In fact, those who are wary of Amazon’s growth should actually side with Amazon in this dispute and stop buying Hachette books through Amazon, thereby encouraging Hachette to continue to sell its books elsewhere and to increase Amazon’s competition. That’s how the market should work.
*The details of the dispute remain vague, but it’s presumably a fight about e-book prices. Hachette and Amazon haven’t agreed on the terms, so Amazon hasn’t been loading its inventory of Hachette books as fully and hasn’t been offering pre-orders. Hachette books are still available through numerous other retailers because Amazon isn’t actually a monopoly.
**Max’s full post, which contains greater detail on these issues, is available here.
***See also, What’s Troubling About Amazon?