Caution: Monopolists at work.

Does Amazon's Monopoly Really Matter?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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The first thing to remember about the Amazon/Hachette Book Group dispute is that this sort of thing happens all the time in business. When two big companies negotiate, it's like Mothra and Godzilla: Each party can throw around a lot of weight, which means some collateral damage. It's not exactly unheard of for a company that doesn't like a supplier's price to stop carrying the product, or to deny the supplier valuable end-cap space, or otherwise deprioritize the sales of the contested items.

The second thing to remember about the Amazon/Hachette dispute is that writers are categorically unable to see what they do as in any way akin to, say, selling potato chips. Writing is special and sacred! The sight of our product being treated like Chef Boyardee spaghetti is more than our tender souls can bear. And unlike grocery suppliers, writers have access to column space in which to pour out our anguish. That's why so much ink has been spilled over this contretemps.

The third thing to remember is that publisher interests are not the same as author interests. Neither are Amazon's. Amazon would like to sell books as cheaply as possible because this enhances the market value of their economies of scale. Publishers would like to keep prices high not just to enhance their profits, but also to keep multiple channels open for their books; it is not in their interest for Amazon to succeed in killing off the competition.

The question, of course, is whether this is in the public interest. But getting to that question is hard, because virtually everyone who is writing about it has a dog or two in the fight. That includes me, since I have a book available on Amazon right now -- and may I mention that it's not only a terrific read, but also makes a great gift, and just the right size to stabilize any shaky table legs you may have.

We'll put that aside for the nonce, at least as much as we can. What will the outcome of this battle do to authors, and to the general public?

Well, assume that Amazon manages to bring publishers to heel, deeply discounting their books but selling more from them. Assume that publishers go away. Are authors worse off?

Matt Yglesias makes the case that publishers are useless, and authors would likely be no worse off without them. You often hear similar arguments made about the recording industry, with the implication that getting rid of recording companies would unleash a flowering of musical talent. But of course, the primary problem for musicians is not the recording companies; it is the gross oversupply of people who would like to become professional musicians. Get rid of the recording industry, and there's no one standing between the musicians and all the people who control live venues, radio play, and other scarce assets.

Publishers are middlemen. Everyone hates middlemen, so whenever a market gets disrupted by technology, people tend to assume that this means the much-reviled middleman will finally go away. Sometimes, as with travel agents, they're right. Sometimes, as with real-estate brokers, it turns out that the middleman adds some value: Selling a large, illiquid asset by yourself can lead to colossal mistakes unless your local real estate market is so hot that every property essentially ends up in a multiple-bidder auction .

If Amazon manages to kill most of the other outlets for books, it's not clear to me that authors end up with more royalties and book sales. The distribution of royalties will certainly be different; some people who would have done well under the current system will end up losing out, while others who couldn't get a major publisher interested in their product will end up making bank. But as a class, author interests might well be better aligned with those of four mega publishers than one mega retailer. Or might not; I haven't seen a convincing case made either way.

Even assuming that we establish that Amazonian dominance might be bad for authors, we still have to answer another question: Why should anyone else care? Travelocity was bad for travel agents. Toyota was bad for General Motors. To which most people respond, "Gee, that's too bad for you, isn't it?" and happily go about their days. Why should authors be any different?

This is actually a deep debate about monopoly. The standard argument you'll hear about monopoly is that it's bad for consumers. That wasn't always the case. If you look at a case like the one against Alcoa, decided in 1945, it's not clear that the target was consumers; Alcoa was holding onto its monopoly by selling final aluminum products at such a low price that new entrants found it impossible to compete. But at its inception, anti-trust policy had a much broader orientation toward producers as well as consumers. Over time, it came to focus on consumers, so that they are all you hear about today.

Often this focus requires anti-trust authorities to go after rather nebulous harms, such as the possibility that having Internet Explorer installed on every Windows desktop might keep innovators from inventing a browser that consumers would like even better. You will note that authors complaining about Amazon's war on Hachette rarely say, "This is terrible because readers will buy someone else's book instead of mine"; rather, they focus on the harm to the reader, even though having to wait a few weeks for your book, or order from Barnes & Noble, ranks pretty low on the list of terrible things that can happen to someone.

Franklin Foer wants us to return to that earlier conception of antitrust law, in which it is used to protect smaller competitors as well as consumers from the inexorable power of monopoly. He'd have made a better case, however, if he'd explored the reasons why we abandoned this model in the first place -- and no, it wasn't just because prating about poor, pitiful consumers makes for better PR.

The problem with using antitrust laws to protect producers is that smaller incumbents have a broad interest in nothing changing. Small bookstores were better off without Barnes & Noble, and Barnes & Noble is better off without Amazon. Demanding protection from a "monopolist" that has less than 50 percent of the market easily turns into a demand to protect small, inefficient producers from innovation. This is unworkable, unless you'd think we'd be better off frozen in 1935.

For all that it is unworkable, however, I suspect we're going to see more of it. When middle-class livelihoods are threatened, and there's no obvious alternative, the idea of protecting smaller businesses from bigger ones gets more purchase. It's no accident that the Great Depression saw a major uptick in this sort of antitrust action, nor that the original movement really got going during the economic convulsions of the Mauve Decade.

Writers are in particularly parlous shape because every segment of the industry seems to be hoping that they'll be able to survive by getting a subsidy from some other segment: the publishers hope to save on publicity by giving contracts to well-known writers with a good "brand," and the news outlets wanly suggest that writers getting paid pennies a word could make it back by writing books. So naturally, a war on the one segment that still, sometimes, actually makes money from consumers buying the product seems particularly frightening.

And we should be frightened, because ours is a very tough business. But we've yet to make the case that anyone else should care.

  1. Most writers and tech entrepreneurs are first-time homebuyers living in such real estate markets, which leads them to believe that the value of a real estate agent lies solely in the ability to list properties so that the auction can commence.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net