July 27, 2015

July 27, 2015 | Commentary on Regulation, Economy

Amazon and antitrust: Should Washington sue to make books more expensive?

As Americans set out to the beach this summer with their favorite novels in hand, federal officials are being asked to sue the nation's largest bookseller, Amazon.com. Why? For not having higher prices.

A group of authors and competing booksellers recently petitioned the Department of Justice to open an antitrust investigation into the activities of the online retailer. Their complaint, expressed in separate letters to DOJ from the American Booksellers Association and Authors United, is not that the firm charges too much for books, but too little.

Low book prices would hardly seem to top the list of problems facing America today. And, the lawsuit advocates admit that Amazon doesn't act like your typical monopolist. Rather than rake in profits, the firm is "barely profitable," Authors United says in 24-page document. "It excels in customer service and in providing low prices and wide selection," the document continues. "The face it presents to consumers is friendly and helpful."

That sounds more like a testimonial for Amazon, not testimony against it. Nevertheless, Amazon's critics say it is just too big. It holds a monopoly over the book business in America, they claim, which threatens both the marketplace for books and freedom of speech itself.

It's a scary assessment, but it's simply not true. With more than 40 percent of total book sales in the U.S., including 65 percent of e-books, the firm is the preeminent source of books for Americans. Still, Amazon is a far cry from a monopoly.

Amazon, which just celebrated its 20-year anniversary, rose from Silicon Valley startup to retail giant through a straightforward strategy of providing more products to consumers at lower prices than the other guys. It keeps growing only by continuing to provide more product and lower prices; its position in the market is by no means locked-in.

Once-dominant firms ranging from the Great Atlantic & Pacific Tea Company to IBM can attest to how quickly fortunes can change. In the book world itself, the demise of once mighty Borders Books serves as a constant reminder of this fact.

And market position is even more fluid in nascent markets such as that for e-books. Before Apple's entrance into that field, in fact, Amazon "controlled" 90 percent of the e-book market. A quarter of that share was lost when Apple jumped in in 2010. Apple very possibly would have taken an even bigger bite out of Amazon's market had it not itself been hamstrung by an ill-considered antitrust suit.

Critics also complain that Amazon has abused its market power in dealing with the publishers who supply their books. Exhibit A for their case is the 2014 feud between Paris-based Hachette Book Group (owner of Little-Brown and other well-known brands) over e-book pricing.

Hachette wanted to set its own prices for the books it sold on Amazon.com; Amazon wanted to cap the price at $9.99. For months the two were at odds. During this time, the Internet retailer did all it could to discourage sales of Hachette's books on its site: eliminating discounts, delaying delivery time, refusing pre-publication orders, and even telling customers to go elsewhere to buy Hachette titles.

Amazon's critics say such steps were disruptive to the marketplace, reducing Hachette's book sales, and the sales of many individual authors, significantly. And there's no doubt that Amazon has been aggressive in its dealings with Hachette and others. But this kind of "disruption" is a good thing. Amazon's goal was to lower the price of e-books, which after all are less costly to produce than printed books. American consumers have been the prime beneficiaries of such price pressure.

Moreover, while the Hachette dispute is typically cited by Amazon's critics as an example of the firm abusing market power, Amazon critics rarely mention that the supposed monopolist failed in its efforts in that case: Hachette continues to charge consumers more for e-books on Amazon that the retailer wanted.

Some Amazon critics have pooh-poohed the importance of lower prices. Douglas Preston, a techno-thriller writer who founded Authors United, has denounced "the sense of entitlement of the American consumer" calling it a "Wal-Mart" mentality.

This view is not surprising. No author wants to see his work on the discount table. But for the consumer, Amazon's strategy has been a boon, making tens of millions of titles available to the American people to read at home, at school or even at the beach. For the government to reverse this success would be the worst plot twist yet.

 - James L. Gattuso is a senior research fellow for regulatory policy in the Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Originally distributed by the Tribune Content Agency