14 DAY TRIAL // Paul Krugman, Nobel-winning economist, is slamming ecommerce giant Amazon for abusing its power, which, in the end, will hurt America.
The issue that is bothering Krugman is the fight between Amazon and Hachette, a major publishing house. Amazon has been demanding a larger cut of the price which Hachette books are being sold at. When the publishing house said “no,” its books started having problems on Amazon’s site, which indicates the company’s desire to “throw its weight around.” While they didn’t vanish from the virtual shelves, delivery became slow, prices went up and customers were nudged towards other publishers.
Krugman compares the situation to Standard Oil, which refused to ship oil via railroads that refused to grant it special discounts. “The robber baron era 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. Does Amazon really have robber-baron-type market power? When it comes to books, definitely,” the economist states in a column published by the New York Times.
While Amazon may not dominate online commerce as a whole, it does have the upper hand when it comes to selling books. Through its dominance, it has pressured published to drive down the prices it pays for books.
Amazon – Not a monopolist, a monopsonist
Krugman says that in economics jargon, Amazon is not yet acting like a monopolist, which is a dominant seller with the power to raise prices. “Instead, it is acting as a monopsonist, a dominant buyer with the power to push prices down.”
The Nobel-winning economist points out that book sales depend on word of mouth since you mostly buy books because you’ve heard about them, because others were reading them and so on. Amazon, as Krugman puts it, possesses the power to kill the buzz.
Given the dispute with Hachette, he believes that we can’t trust Amazon not to abuse its power. It’s not even about the money, although that’s important as well, he says. Instead, it’s the fact that Amazon is ultimately hurting authors and readers.
Krugman indicates to a blog post from the New York Times from last month, when two Hachette books were receiving different treatment, making a case for the selective penalty that is being applied. For instance, “Sons of Wichita” by Daniel Schulman paints a profile for the Koch brothers, while the second, “The Way Forward” was written by Paul Ryan, Mitt Romney’s running made and chairman of the House Budget Committee.
Via Amazon Prime, for which both are eligible, the second can get at your house in the regular two days, while “Sons of Wichita” will get delivered in two to three weeks.
“Don’t tell me that Amazon is giving consumers what they want, or that it has earned its position. What matters is whether it has too much power, and is abusing that power. Well, it does, and it is,” Krugman writes in the end.