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Is Amazon an Oligopolist?
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Via Greg Mankiw, I see that the American Booksellers Association is accusing Amazon, Target, and Wal-Mart of predatory pricing. But when I actually look at what is happening, it seems that they have confused competition with cartelization:
The American Bookseller's Association represents independent bookstores, whose members cannot afford to sell top bestsellers as loss leaders. But the interest of antitrust law does not lie in protecting small, inefficient sellers for the tiny minority of Americans who prefer to shop there. They lie in making sure that there is robust competition in the bookselling market. What they're trying to do here is stop bigger, more diversified companies from competing with them, because they'll lose.
But as this makes clear, the big players are competing: with each other. Which is where the market is going to end up anyway, because outside of a few big cities, independent booksellers can't compete with the convenience of Amazon or Barnes and Nobles' economies of scale. The only way the American Booksellers Association is going to save its members is by forcing Amazon, et al to sell books at a 10% premium.
The price war began last week when Wal-Mart announced that it would offer Walmart.com customers who preordered any of 10 of the coming holiday season's biggest potential best sellers the chance to buy the books in hardcover editions for just $10. Typically new hardcovers sell for $25 to $35, although some discounting is common.
Amazon.com quickly matched Wal-Mart's preorder price on the same books, which include "Ford County" by Mr. Grisham, "Under the Dome" by Mr. King and "Going Rogue," Sarah Palin's memoir. Wal-Mart then lowered the price to $9, and Amazon followed suit. By late Friday afternoon Wal-Mart had cut another penny off the price.
On Monday, Target entered the fray by offering six of the preorder titles on Target.com for $8.99. By Tuesday Wal-Mart had lowered the price on those titles to $8.98.
The association's letter, which is signed by the group's nine board members, accused the retailers of "devaluing the very concept of the book" and effectively selling the books at a loss in an "attempt to win control of the market for hardcover best sellers." Retailers typically pay publishers a wholesale price of half the list price of a hardcover book -- so on a $35 hardcover, the retailer pays $17.50, meaning that it loses money on a $9 consumer price.
The American Bookseller's Association represents independent bookstores, whose members cannot afford to sell top bestsellers as loss leaders. But the interest of antitrust law does not lie in protecting small, inefficient sellers for the tiny minority of Americans who prefer to shop there. They lie in making sure that there is robust competition in the bookselling market. What they're trying to do here is stop bigger, more diversified companies from competing with them, because they'll lose.
But as this makes clear, the big players are competing: with each other. Which is where the market is going to end up anyway, because outside of a few big cities, independent booksellers can't compete with the convenience of Amazon or Barnes and Nobles' economies of scale. The only way the American Booksellers Association is going to save its members is by forcing Amazon, et al to sell books at a 10% premium.
More at The Atlantic
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