Is Amazon.com a monopoly? (updated October 10)

In a comment on my previous post, on Amazon and what I saw as overheated rhetoric regarding censorship, BobG wrote:

Arguing over a definition of censorship is avoiding the actual issue. Amazon IS making it difficult to get certain books (that’s their announced strategy) and they are poised to become the single biggest (if not the only) source for books in the U.S. If Amazon becomes the primary supplier of books as well as the conduit through which we get books (and hence the ability to prevent us from getting books), that gives them an inordinate amount of power. The important point of the protest is the call for the government to investigate Amazon as a monopoly.

Prof. Rushton: Please tell us your thoughts about Amazon and monopoly! That I think will be very very interesting.

Well, I have written more than disproportionately about the Amazon business. But since you ask…

Let me start with a simple example, and then I will work down to the specific case of Amazon. Imagine a small town that has just one Indian restaurant, a monopoly. In general, no one will think a law or regulations of the restaurant are needed in this case; sometimes, there is only enough demand for one seller to make any kind of living from the business. What would get the authorities upset? One situation would be where the owner of the Indian restaurant secretly conspired with other restaurant owners in the town to agree to keep prices on all meals higher than would be the case if they simply went about their business in a competitive way. There are many cases of combines of firms being charged by the Dept of Justice for exactly this tactic. A second situation would be if the owner of the Indian restaurant undertook activities that were clearly designed to prevent any new Indian restaurant from opening up. In truth, the economy is full of legal means by which firms can seek to do this, for example: lobbying the government to require that new firms meet very onerous licensing and safety requirements (chosen to be ones that the existing firm finds easy to meet); or investing in excess capacity, building such a huge restaurant (more than really makes sense) that any potential entrepreneur knows that the existing firm will be willing to engage in a long, protracted battle to protect market share and the major investment, should a new firm arrive on the scene. But there are also illegal means; most of the ‘business-side’ story of The Sopranos followed exactly this question of protecting market share.

The cases above have something in common: the yardstick by which the damage of the monopoly is measured will be how it harms consumers. Conspiring to keep prices above competitive levels has an obvious, adverse impact on consumers. So do policies that prevent entrepreneurs from establishing new businesses. That there is just one Indian restaurant in town is not enough to establish a monopoly problem. It has to be shown that the firm is doing something preventing what would be a better outcome for consumers from occurring (like lower prices, or new entrants into the field).

There are examples from the cultural industries. Publishers were recently pursued for trying to conspire to maintain high prices for e-books, which is clearly harmful to consumers. For the second type of example I turn to cinema: the Supreme Court Paramount decision of 1947 held that movie studios had to divest themselves of the theatres they owned, and a significant part of the reasoning was that such an arrangement of the makers of films also owning the first-run cinemas made it very difficult for other distributors of films, or owners of theatres, to gain a foothold, to the detriment of the consumer (not everyone agrees with that economic reasoning, but that was the ruling).

So why has there not been any federal action against Amazon? I’m not a lawyer, so take this as a layperson’s opinion.

First, in its dispute with publishers, Amazon is on the side of lower prices. Some people might think this is just a very sneaky strategy to gain complete control over the entire publishing industry and then raise prices at some future date, but there just isn’t a lot of evidence to back that up right now. Given that Amazon has very consistently given consumers lower prices for books than they used to face, and is in disputes trying to keep it that way, I don’t think there is much cause for action on monopoly grounds of conspiring to raise prices.

Second, is Amazon undertaking questionable practices to prevent competition? Not that I can see. Consider the book chosen in the New York Times story on Amazon blocking sales of certain books, Daniel Schulman’s Sons of Wichita. At Barnes and Noble I can get a discounted hardcover, I can pre-order the paperback,  or I can get it on their Nook reader for $14.99. I can buy a hardcopy through Powell’s, or get an electronic copy through iTunes for $11.99. At Amazon.com, I can get the Kindle edition immediately for $14.99, or can buy a new hardcover – with delayed shipping of one to three weeks, a sticking point, yes –  or I can on Amazon’s site buy discounted hardcovers from 70 (!) different third parties, all offering fast shipping. There just isn’t much evidence here that consumers are being prevented from accessing the book through other sellers.

Finally, let’s put aside this one book and look at the big picture – does Amazon make it impossible for a rival firm to displace them? Not through any means that harm consumers; quite the opposite. Amazon’s success comes through its web design, customer service, amazing logistics, inventory and prices. Simply put: they are the biggest book seller in the world not because there are not alternatives – there are alternative internet sellers, ebook sellers, and bricks-and-mortar stores. They are the biggest because consumers like to shop there. I repeat what I have written more than once on this blog: I think Amazon’s strategy against Hachette, of delaying shipments of hard copies of books, is unwise, as it will lose much customer support it has taken so long to build. But it doesn’t amount to monopoly, or censorship, or the death of literature in America.

And so, very long answer for you BobG; I hope you find this helpful.

UPDATE: Franklin Foer at The New Republic thinks Amazon is very much a monopoly. Not much new here that I can see, and my response to him would simply be what I have written above. I don’t buy everything that comes from the ‘Chicago School’ of Law & Economics, but that said, I don’t get this recent criticism, at the heart of Foer’s piece, that judging the harm of a firm’s market power by how it impacts consumers is some radical Reaganite idea. It isn’t. Amazon is great for consumers, Foer admits, and he really doesn’t know where to go from there to get to his ‘there oughtta be a law’ conclusion. Matt Yglesias responds to Foer here.