Krugman: Amazon’s Bookselling “Monopsony Is Not O.K.”

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This week, Amazon’s business practices came under fire once again. Following on the heels of Franklin Foer’s article in The New Republic likening Amazon to a new-version monopoly, in a New York Times op-ed dated October 19, economist Paul Krugman contends that the online retailing giant is not so much a monopolist, but a “monopsonist, a dominant buyer with the power to push prices down.”

Noting that discussions of Amazon tend to digress into what he characterized as side issues, such as its effective use of technology, Krugman stresses that Amazon “has too much power, and it uses that power in ways that hurt America.” He continues, “John D. Rockefeller and his associates were pretty good at the oil business, too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential.”

Krugman observes that the dispute between Amazon and Hachette, in which Amazon is reportedly demanding a larger percentage of profits from its Hachette book sales, has resulted in the online retailer “disrupting the publisher’s sales. Hachette books weren’t banned outright from Amazon’s site, but Amazon began delaying their delivery, raising their prices, and/or steering customers to other publishers,” says Krugman.

As to whether Amazon is similar to the robber barons, Krugman writes that “when it comes to books” he believes they most definitely are. “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 says. “Even if you look at total book sales, Amazon is by far the largest player.”

But, he contends, rather than acting like a monopolist and driving prices up, Amazon is a monopsonist, and its business practices are driving prices down. This merely serves to reinforce its dominance. “Book sales depend crucially on buzz and word of mouth,” Krugman points out, and Amazon has the power to “kill the buzz…. If Amazon doesn’t carry that book, you’re much less likely to hear about it in the first place.”