Does Amazon Pose a Danger of “Monopoly” to the Book Business?

 

Joe Konrath, the bad-boy guru of self-publishing, utterly demolishes another piece of nonsense written against Amazon.com by author Scott Turow, president of the Authors Guild.

Turow trots out every tired liberal cliche about the alleged evils and “threats” posed by “monopolies” in the marketplace — in this case, the book marketplace. But Konrath skewers each of them in turn, with example after example, demonstrating that — far from “screwing consumers” — so-called “monopolies” offer lower prices and better customer service.

Whether you are an author, a reader, or just someone interested in political-economic arguments about the “evils of unregulated capitalism,” you’ll want to read this. It’s a feisty, thought-provoking delight.

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  • http://profiles.google.com/lexidick Lexi Dick

    The Scott Turow piece is very silly, but Joe didn’t totally carry me with him.

    In the UK, companies that had/have a monopoly tend to be slow, inefficient and expensive. In the past, when you could only get a phone from the Post Office, it took up to two years in my part of London (yes, really). British Gas was just unbelievable. Six visits by different operatives to install a bit of gas piping in my workshop. And today, Royal Mail is expensive and can’t seem to put post through the right letterboxes.

    Lexi Revellian

    • http://www.bidinotto.com bidinotto

      Hi, Lexi, and thanks for weighing in. Let me answer at length, for you and any others who share your concerns.

      The difference between the examples you describe, and the ones that Konrath mentioned, is considerable. It’s the distinction between what are called “public monopolies” and “private monopolies.”

      The ones you describe are (to the best of my understanding) “public monopolies” — that is, companies whose monopoly status is either established or aided and abetted by the government. The Royal Mail is a perfect example, just as our U.S. Postal Service is here: government-chartered monopolies on the delivery of types of mail, in which a legal barrier to entry prevents competition. Nobody in the States is permitted to compete with the USPS in the delivery of typical letters — First Class mail. And shielded behind the wall of law, such monopolies grow bloated, inefficient, indifferent to customer service and innovation, and thus grossly expensive. They can pass the inflated costs on to customers at will, because (a) there is no alternative for the service they provide, and (b) the government often steps in with subsidies to bail them out — subsidies sucked from the pockets of the taxpayers. Other examples in U.S. history were the early railroads in the West, which received from the U.S. government monopoly charters to operate in certain regions, plus free grants of millions of acres of land.

      A “private monopoly” is quite different. It achieves its status not through the aid of targeted government assistance and grants of monopoly charters (i.e., force of law), but through superior product innovation, customer service, and/or pricing. It simply out-competes its rivals to achieve dominance in an industry. That describes (at various times in their histories) the examples cited by Konrath, including companies like IBM, Apple, and Amazon.

      Now, what could prevent such a company from becoming the proverbial Frankenstein monster — using its dominant market share to prey on consumers, “price gouging” its customers and suppliers, and becoming fat, inefficient, and non-innovative?

      In a truly free market, the answer is two-fold: potential competition, and the existence of substitutes.

      As long as there are no legal barriers to entry, a “private monopoly” must operate with the worry that by jacking up prices, irritating customers, and becoming inefficient, they will be giving an engraved invitation to other investors to enter the market and build companies to undercut it. Potential competition exists not only over price, but also innovation: If a dominant company doesn’t stay ahead of the curve of new invention, it will become prey to new upstart companies with new, more desirable products. Just ask IBM, or the American “Big Three” automakers. Standard Oil was considered the textbook example of the Evil 19th Century Monopolist — a vertically integrated firm with a lock on over 80 percent of the marketplace in oil. But even that company couldn’t prevent new oil discoveries in the Gulf of Mexico, which led to the rise of Gulf and Texaco.

      And even if the demand for a particular product is relatively “inelastic,” like oil, a private “monopolist” (or more likely, dominant firm) still faces the problem of substitute products. As the company jacks up prices, consumers respond by looking for other options — and the high prices may make options that were once too expensive look much more attractive. If home heating oil prices go sky-high, people look to natural gas, heat pumps, even installing solar panels.

      In short, there are limits to how how a private monopolist can jack up prices, fail to innovate, or otherwise poorly serve customers before they will “vote with their dollars” for some other company or companies. That has been the history of the private business market.

      These are all reasons to get government out of the marketplace. When governments favor some companies or industries over others, they create impediments to the competitive discipline of free market. Governments should police the private use of actual coercion (threat of force) and fraud in the marketplace, but nothing else. They should neither be subsidizing companies nor giving them charters to monopolize products and services, because THAT is when “predatory pricing” and other evils are encouraged.

      Konrath is right: The nightmare specter of a gigantic Amazon rapaciously screwing customers and authors alike is a fantasy. It won’t happen, because in a truly free market, it can’t. Countless competitors and potential competitors are poised and ready to pounce the minute Jeff Bezos begins to screw anybody (even assuming he wants to).

      Let customers continue to “vote with their dollars” without interference, in effect democratically electing the products and services they want, and boosting the market shares of the companies that provide them, while simultaneously “throwing the bums out” by refusing to patronize uncompetitive companies. Customers know exactly what they want; their preferences, and not those of politicians, can and should rule and discipline the marketplace.

    • Anonymous

      Hi, Lexi, and thanks for weighing in. Let me answer at length, for you and any others who share your concerns.

      The difference between the examples you describe, and the ones that Konrath mentioned, is considerable. It’s the distinction between what are called “public monopolies” and “private monopolies.”

      The ones you describe are (to the best of my understanding) “public monopolies” — that is, companies whose monopoly status is either established or aided and abetted by the government. The Royal Mail is a perfect example, just as our U.S. Postal Service is here: government-chartered monopolies on the delivery of types of mail, in which a legal barrier to entry prevents competition. Nobody in the States is permitted to compete with the USPS in the delivery of typical letters — First Class mail. And shielded behind the wall of law, such monopolies grow bloated, inefficient, indifferent to customer service and innovation, and thus grossly expensive. They can pass the inflated costs on to customers at will, because (a) there is no alternative for the service they provide, and (b) the government often steps in with subsidies to bail them out — subsidies sucked from the pockets of the taxpayers. Other examples in U.S. history were the early railroads in the West, which received from the U.S. government monopoly charters to operate in certain regions, plus free grants of millions of acres of land.

      A “private monopoly” is quite different. It achieves its status not through the aid of targeted government assistance and grants of monopoly charters (i.e., force of law), but through superior product innovation, customer service, and/or pricing. It simply out-competes its rivals to achieve dominance in an industry. That describes (at various times in their histories) the examples cited by Konrath, including companies like IBM, Apple, and Amazon.

      Now, what could prevent such a company from becoming the proverbial Frankenstein monster — using its dominant market share to prey on consumers, “price gouging” its customers and suppliers, and becoming fat, inefficient, and non-innovative?

      In a truly free market, the answer is two-fold: potential competition, and the existence of substitutes.

      As long as there are no legal barriers to entry, a “private monopoly” must operate with the worry that by jacking up prices, irritating customers, and becoming inefficient, they will be giving an engraved invitation to other investors to enter the market and build companies to undercut it. Potential competition exists not only over price, but also innovation: If a dominant company doesn’t stay ahead of the curve of new invention, it will become prey to new upstart companies with new, more desirable products. Just ask IBM, or the American “Big Three” automakers. Standard Oil was considered the textbook example of the Evil 19th Century Monopolist — a vertically integrated firm with a lock on over 80 percent of the marketplace in oil. But even that company couldn’t prevent new oil discoveries in the Gulf of Mexico, which led to the rise of Gulf and Texaco.

      And even if the demand for a particular product is relatively “inelastic,” like oil, a private “monopolist” (or more likely, dominant firm) still faces the problem of substitute products. As the company jacks up prices, consumers respond by looking for other options — and the high prices may make options that were once too expensive look much more attractive. If home heating oil prices go sky-high, people look to natural gas, heat pumps, even installing solar panels.

      In short, there are limits to how high a private monopolist can jack up prices, fail to innovate, or otherwise poorly serve customers, before they will “vote with their dollars” for some other company or companies. That has been the history of the private business market.

      These are all reasons to get government out of the marketplace. When governments favor some companies or industries over others, they create impediments to the competitive discipline of free markets. Governments should police the private use of actual coercion (threat of force) and fraud in the marketplace, but nothing else. They should neither be subsidizing companies nor giving them charters to monopolize products and services, because that is when “predatory pricing” and other evils are encouraged.

      Konrath is right: The nightmare specter of a gigantic Amazon rapaciously screwing customers and authors alike is a fantasy. It won’t happen, because in a truly free market, it can’t. Countless competitors and potential competitors are poised and ready to pounce the minute Jeff Bezos begins to screw anybody (even assuming he wants to).

      Let customers continue to “vote with their dollars” without interference, in effect democratically electing the products and services they want, and boosting the market shares of the companies that provide them, while simultaneously “throwing the bums out” by refusing to patronize uncompetitive companies. Customers know exactly what they want; their preferences, and not those of politicians, can and should rule and discipline the marketplace.

      • http://profiles.google.com/lexidick Lexi Dick

        Thanks for explaining, Robert – I hadn’t thought of that, and you are quite right. I think governments are far too interfering, too fond of spending our money which we would spend better ourselves, and should do the bare minimum. But they never will.

  • Anonymous

    From an essay by economist D.T. Armentano (worth reading in its entirety):

    Let’s go back to the Standard Oil “monopoly.” Haven’t we been taught that Standard Oil monopolized in restraint of trade? Isn’t this the prime example that is provided in support of antitrust laws? The little-known truth is that when the government took Standard Oil to court in 1907, Standard Oil’s market share had been declining for a decade. Far from being a “monopoly,” Standard’s share of petroleum refining was approximately 64% at the time of trial. Moreover, there were at least 147 other domestic oil-refining competitors in the market — and some of these were large, vertically integrated firms such as Texaco, Gulf Oil, and Sun. Kerosene outputs had expanded enormously (contrary to usual monopolistic conduct); and prices for kerosene had fallen from more than $2 per gallon in the early 1860s to approximately six cents per gallon at the time of the trial. So much for the myth of the Standard Oil “monopoly.”

    Should people be concerned about monopolies? Of course they should. But we must understand the true source and causes of monopolies — governmental barriers to free and open competition. The solution to the monopoly problem, then, lies not in antitrust laws (which should be repealed) but in the repeal of all governmental barriers to free and open trade.