The Law, Amazon, and Monopsony…

Recently, the Nobel Prize-winning economist Paul Krugman published a column critical of Amazon, further fanning the flames over Amazon’s tactics in dealing with its suppliers, including the furor over the current Hachette-Amazon conflict.

Amazon’s actions, however, don’t appear to be confined to just the United States. More than 1,000 authors from Germany, Austria and Switzerland have signed a similar open letter to Amazon which accuses Amazon of improper tactics in setting e‐book prices with Bonnier AB, a German publishing trade group. Last June, Bonnier filed a complaint with German authorities stating Amazon delayed delivery of its books to force Bonnier to accept lower prices for ebooks.

The issue of buyer control of suppliers, i.e., monopsony, isn’t all that new, although the height of the controversy is and there are legal texts on the subject dating back more than twenty years. In a more recent 2008 article in the Utah Law Review [“Predatory Buying and the Antitrust Laws”], Roger D. Blair and John E. Lopatka summarized the issue just raised again by Amazon’s efforts to force Hachette to lower ebook prices below ten dollars:

“The fact that an increase in monopsony power may have little impact on consumers does not mitigate the antitrust concern, because the negative impact on sellers by itself warrants equal antitrust concern, a point oddly unacknowledged by the Supreme Court in its Weyerhauser decision. Just as monopsony and monopoly are economically symmetrical, predatory buying and predatory pricing are legally symmetrical…”

Or as several other legal scholars have pointed out, an illegally obtained monopsony might well violate U.S. antitrust law, but, to date, no U.S. court has ever found a single company guilty of an illegal monopsony. Or put more bluntly, so far, the U.S. legal system and the Department of Justice seem to believe that any action resulting in lower prices for consumers is socially beneficial, regardless of how those prices are obtained, and what economic damage is wreaked on the suppliers and producers.

The problem with the “lower prices are always better” argument is that it focuses solely on one aspect of economic social good. Both Walmart and Amazon exert monopsony power, and both arguably keep total compensation for employees low, while also forcing supplier prices lower. Both do so in markets where profit margins are narrow. This requires cuts in expenses by suppliers, and that means, in turn, that the suppliers can pay their employees and suppliers less.

Overall, despite stories of individual writers and suppliers who benefit from Amazon and/or Walmart, the emphasis on low prices regardless of the consequences translates into lower incomes for millions of people, ranging from minimum wage workers through struggling writers all the way to best-selling authors. Best-selling authors can obviously take a hit in earnings, even if they don’t much care for it, but for every best-selling author there are tens of thousands if not hundreds of thousands of lower-compensated individuals whose earnings are reduced by this sort of illegal market manipulation. And monopsonies that depress supplier earnings below a free-market level are in fact illegal under U.S. law.

So… what’s the ethical difference between Amazon and Walmart, who use monopoly/monopsony market power to keep prices down, and thus wages and payments to suppliers artificially low, and all those companies who outsource manufacturing to low-paid workers in third world countries?

After all, aren’t low prices and high profits the great American dream?

3 thoughts on “The Law, Amazon, and Monopsony…”

  1. Wine Guy says:

    “Lower prices are always better” is a common misperception…. as is “Better quality is more expensive.”

    Whatever the arguments for or against, the bottom line (for me) is that if I have need of a good quality item that I must rely upon, I am willing to spend extra money to know that what I am getting is good. Do I try out new things? Absolutely. The enemy of good is better… but I try not to be a slave to either chasing the endless low price, the next newest thing, or clinging like a limpet to the “oldies but goodies.”

    Unfortunately, walking that line is hard. Like everything, it takes effort.

  2. Plovdiv says:

    This blog post is brilliant. Well said sir.

  3. Alison Hamway says:

    A very interesting article. But I do not think that the publishers are faultless in the current situation. Both Amazon and the publishing industry are motivated by maximizing their profits; they have a right to decide what they will carry and sell. You have previously blogged that many excellent midlist writers with steady sales have been dropped by their publishers who search for the next superstar bestsellers (more of the Twilight and Shades of Gray for our reading public??). This has happened to writers that I enjoyed who disappeared after being dropped. At least Amazon provides these writers with an option to self publish, and for us readers to continue reading their works. Amazon could drop the publishers (such as Hatchette) who are in a dispute with Amazon; instead Amazon is continuing to sell their products albeit with delays and higher prices. Publishers who drop their midlist authors are simply dropping them.

    For me the primary benefit of Amazon is not low price guarantees, but the huge variety of books, and the opportunity to read new writers. LOVE the opportunity to read samples, sample readings and reader reviews great increase the likelihood that I will buy books from new or unknown authors.

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