A week or so ago, a U.S. District Court approved the e-book settlement between Hachette, Simon & Schuster, and HarperCollins and the Department of Justice, a settlement that opens the way for Amazon to sell ebooks from those publishers at any price Amazon chooses. The Justice Department, of course, hails the settlement as a groundbreaking and anti-monopolistic agreement that will provide cheaper books to consumers. In thinking this all over, I realized that the entire structure and operation of monopoly has changed in the last twenty years, while the definition has not, so much so that the Sherman Anti-Trust Act, designed to prevent the harmful effects of monopoly has, in the case of the publishing settlement, become an instrument to support monopoly – and no one seems to realize this. How did this happen?
A century ago, the operation of a monopoly was clearly defined. A company, such as Standard Oil, bought up all the competition, or the majority of it, sometimes used low prices as a temporary measure to bankrupt competitors or drive them out, then took control of the market and raised prices to make a greater profit. Today, companies like WalMart and Amazon have developed a very different monopolistic approach. They begin with selectively low prices and equally low wages for employees. The low prices of highly visible selected goods attract more customers, and few people notice that other goods aren’t any cheaper, and in some cases, are even more expensive. WalMart gets around this by allowing customers to show competitors’ prices and then matching those prices… but most customers can’t and won’t do that for the majority of goods. In the case of Amazon, Jeff Bezos lost money for years building that bookselling customer base.
Then, once the new monopolists have that customer base, they exert pressure on suppliers to provide goods for lower and lower prices. Both WalMart and Amazon are excellent at this. Amazon provides its marketplace for online retailers, then scans their sales, discovers what items are selling well and in large quantities, and either pressures the supplier to sell to Amazon directly for less, thus undercutting the Amazon affiliate, or finds another supplier to do so more cheaply. Recently, reports have surfaced that Amazon is using similar tactics with small and independent publishers, who don’t have the clout or the nerve that some of the larger publishers have. Thus, in the end, the new monopolists aren’t gouging the consumer, but using excessive market power to gouge the suppliers and their own employees. All the while they can claim that they’re not monopolists because people are getting goods for lower prices.
What the Department of Justice and the legal scholars seem to be overlooking is that such behavior is still restraint of trade – it’s just restraint of trade from the suppliers and through low employee wages rather than price-fixing from the retailer… and it has a definite negative impact on both local economies and the national economy, most obviously in the outcome that lower paid employees can’t live as well, don’t buy as much of other goods, and pay less in taxes.
In fact, Jeff Bezos even declared that his goal was to destroy the traditional paper-based publishing industry and take over the information marketplace. If that isn’t a declared intent to monopolize an industry, I don’t know what is. The new monopoly structure also may well be a far more deadly form of monopoly than the old one because it impacts the entire supply chain and effectively reduces incomes and the standard of living of tens of millions of Americans, both directly and indirectly. As I’ve noted before, already the publishing marketplace has changed, in that there’s less diversity in what’s published by major publishers, and more and more former midlist authors are having trouble getting published… or have already been dropped.
While Borders Books had its management problems, the final straw that pushed the company out of business was likely Amazon’s predatory pricing. In the years before its final collapse, Borders annual sales were around $4 billion, and it operated close to 400 brick and mortar stores with approximately 11,000 employees. Those sales, and payrolls, not to mention the store rental costs, likely generated a positive economic impact of anywhere from $40 to $70 billion. While some of those sales have gone to Barnes & Noble or Amazon, most have not, and the operating expenses and payrolls paid by Borders are almost entirely an economic loss, since Amazon and Barnes & Noble didn’t add many new employees or, in the case of B&N, open new stores. Books-A-Million did open some new stores, but only a handful.
Amazon’s policies have also resulted in lost revenue for independent bookstores, as well as closure of a number of stores of smaller regional bookstore chains, just as WalMart’s policies have adversely affected local and regional retailers. Yet the Department of Justice claims a victory in a settlement that reinforces the practices of the new monopolists where, apparently, the only determining factor is how cheaply consumers can obtain a carefully selected range of ebooks.
All hail the monopolists of “cheap” and “cheaper.”




