Is Amazon a Bully for Charging Lower Prices?

July 2, 2014

The online giant Amazon is being compared to a "bully" who is "waging war" because it wants to sell books for less than what publishers and popular authors want customers to pay for them, writes Nick Gillespie, editor at Reason Magazine.

French conglomerate Hachette and Amazon are engaged in negotiations regarding the future price of e-books, with Amazon wanting to offer discounts beyond what the publishing company would like to see. In fact, a 2010 lawsuit claimed that publishers and Apple conspired to fix e-book prices at higher prices when the iPad first came to market due to many publishers' belief that Amazon was selling new e-books too inexpensively.

Although Amazon is the single largest book seller, it is not considered a monopoly by most economists.

  • Accounting for 41 percent of all new books sold and about two-thirds of new e-books, Amazon is hugely influential in setting industry-wide prices and practices.
  • When Amazon was selling at a price publishers thought was too low, it was losing money on each sale. But the beneficiary of Amazon's low prices was the reader, who was buying the product they wanted for a price they were willing to pay.
  • However, publishers and independent bookstores opposed Amazon's low prices and worked with Steve Jobs of Apple to raise consumer prices by imposing an "agency" model whereby the seller gets a commission on each unit sold.

Because both publishers and Amazon are ultimately constrained by the willingness of readers to buy their products, the market is the best avenue for sorting out the best prices for books, says Gillespie.

Source: Nick Gillespie, "Amazon is Not the 'Putin' of Books!" Reason, June 18, 2014.

 

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