Is Amazon a Robber Baron or a Robin Hood?

Jeff Bezos' Amazon empire has gotten too powerful, according to economist Paul Krugman, who likened it to robber barons of yore. The thing is, robber barons tended to unscrupulously accumulate wealth by doing things like creating monopolies and raising prices, while Amazon has been pushing prices down. Exactly how does leaning on a giant French corporation to keep e-book prices low hurt America?

Amazon’s tactics in its ongoing battles with content publishers, ranging from book publishers to Disney, are fast becoming a bone of contention.

The company has delayed distributing content from companies it’s tussling with over content price points or its cut of the take. It’s been steering customers to other publishers, at times overtly. Amazon’s actions have split the authors’ community and given rise to speculation that it might perhaps be getting too powerful for comfort.

Economist Paul Krugman this week penned a New York Times column likening Amazon to the robber barons of old.

“Amazon overwhelmingly dominates online book sales, with a market share comparable to Standard Oil’s share of the refined oil market when it was broken up in 1911,” Krugman wrote. “Even if you look at total book sales, Amazon is by far the largest player.”

It could be argued that this is just business, no different from what Standard Oil used to do, Krugman said, but “the robber baron ended when we as a nation decided that some business tactics were out of line. And the question is whether we want to go back on that decision.”

Amazon the Monopsonist

Amazon has kept its prices low to reinforce its dominance and instead has squeezed publishers for a bigger cut of the take, thus acting as a monopsonist — a dominant buyer with the power to push down prices, Krugman argued.

On that front, Amazon’s power is “even greater than the market share numbers indicate,” Krugman maintained. Book sales “depend crucially on buzz and word of mouth,” and Amazon possesses the power to kill the buzz.

“It’s definitely possible, with some extra effort, to buy a book you’ve heard about even if Amazon doesn’t carry it — but if Amazon doesn’t … you’re much less likely to hear about it in the first place,” Krugman contended.

By putting the squeeze on publishers, Amazon “is ultimately hurting authors and readers,” he said. “But there’s also the question of undue influence.”

Some may argue that Amazon is giving consumers want they want — low prices — or that it has earned its position, but “what matters is whether it has too much power, and is abusing that power,” Krugman said. “Well, it does, and it is.”

Amazon is using that power in ways that hurt America, he alleged.

In Support of Krugman

“Forcing someone to meet your price by restricting market access is illegal, and it appears Amazon is doing exactly that,” Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times.

“If you want to buy an oil painting, the artist can tell you his price, and unless you can cut the artist off from other buyers who might want that work, you’ll have to pay that price,” Enderle continued.

Aw, C’mon, It’s All About the Money

“When it comes to content, the cheaper the better,” said Mike Jude, a research manager at Frost & Sullivan.

Amazon “is effectively a distributor. The more content they can move, the better it is for them,” he told the E-Commerce Times, “because they take a piece of each transaction.”

As for hurting America, “in what way?” Jude asked.

Getting the lowest possible price for products is sound business, he argued, and by lowering book prices, Amazon “is acting as an agent of the consumer.”

Getting the Government Involved

“The question here is, is the market competitive?” Jude asked. “I would say yes. There are others already challenging Amazon on a number of fronts. Regulation never helps a competitive market.”

Regulators “typically don’t get interested unless damage to consumers is shown, and as long as Amazon passes through the savings, that’s going to be difficult,” Enderle said.

Nevertheless, “at this point, they likely should [intervene],” he added, but “near term, they are likely to leave this to the civil courts to work out.”

Richard Adhikari

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

1 Comment

  • Your post starts right off with a false statement that hurts your credibility throughout the rest of it.

    "The company has delayed distributing content from companies…"

    Amazon has not any such thing. Amazon is not responsible for the shipping speed of products that come from another source and can only guarantee speedy delivery for products they stock in their distribution centers. Hachette has chosen to not sign a contract with Amazon that would allow Amazon to maintain a sufficient stock level to help Hachette get their books to customers faster. It is Hachette that is responsible for any delay in distributing content to customers.

    This fact also kills Rob Enderle’s argument, and Paul Krugman’s. There are plenty of competitors that are more than happy to sell Hachette’s books at whatever price they want to charge.

    You would do your readers a real service if you were to research information before publishing it as facts on your site.

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