The Doctor is OUT

Paul_Krugman-press_conference_Dec_07th,_2008-8[1]Paul Krugman is a great economist and an interesting and entertaining polemicist. Most of the time.

Krugman’s specialty is international economics, and his book (with Maurice Obstfeld and Marc Melitz) on the subject is a standard text. But he’s also good on most other economics subjects. If you invest in bonds you’ve done a great deal better over the past few years following his advice than that of the famous (and mega-rich) “Bond King” Bill Gross. As Krugman has often stated, that’s not because he has some special insight; it’s because he relies on economic models that make sense and have been tested against the real world. It’s science in action, making rigorous and efficient use of available information.

But his 20 October New York Times column, “Amazon’s Monopsony Is Not O.K.,” has no science or modeling in it; it’s pure polemics. Nobody’s entitled to his own facts, as Krugman frequently emphasizes (a point lost on many of his critics), but polemics are a matter of taste, and this one smells pretty rancid to me. No surprise, since it’s mostly a reprise of points already raised by Franklin Foer, among others, and already shot down by many.

To be sure, Krugman makes it clear that he doesn’t fall into the “Amazon-is-a-monopoly” trap with Foer, at least not literally; his meme of choice is that Amazon is a monopsony. Taken literally that would mean that Amazon is the only buyer in town, at least for books. That transparently isn’t true, so Krugman goes through a windmill act and concludes that well, after all, it is the biggest middleman for online book sales (a market it pioneered) and doesn’t that make it a monopsony?

Well, no, actually not, as Passive Guy, esq., explains, not under the legal definition. Not under the economics definition either, Professor Krugman.

But, but… Look at all the terrible things Amazon is doing with its ill-gotten market power, not giving Hachette books pride of place in its marketplace, simply because they have no contract and don’t seem to be able to negotiate a new one. It’s conclusive evidence of reckless, all-devouring market power! (You might want to look up the definition of market power and see how well it seems to fit.)

And anyway, today Hachette, tomorrow the world! Look how already they’re trampling others underfoot! Next they’ll come for you and me, any day now!

Good polemicist that he is, Krugman saves the conclusive evidence for last: Amabezos is loading the dice in favor of Paul Ryan’s latest screed, and against Daniel Schulman’s critical look at the Koch brothers. (In case you wondered, Krugman has no use whatever for the Koch brothers, and a good deal less for Ryan.) “What matters is whether it [Amazon] has too much power,” he solemnly and gravely concludes, “and is abusing that power. Well, it does, and it is.”

And can we think of anybody else who might be abusing his great power (as a hugely popular columnist and blogger), maybe just a little bit? I largely agree with Krugman on mega-rich and their political water boys, and don’t find Amazon or Jeff Bezos one bit warm or cuddly. But Krugman’s claim to a prime place in the sun rests on his command of the facts and objective argument, and he’s not living up that in this column.

It matters because Krugman has a towering and largely well-deserved reputation, and a lot of people take him at his word on topics they themselves know little of. Take a look for instance at the 1028 mostly admiring comments. It’s a public trust, and this time he blew it.

William D. O’Neil’s sloppy and unprofessional Web page is at http://www.analysis.williamdoneil.com/.

image via Wikipedia

11 Comments on The Doctor is OUT

  1. Nate, I think Krugman is right. How many authors have signed on, for example, for Amazon’s exclusive program, making their books unavailable to epubbers (and let’s not get into the argument that one can buy from Amazon and then convert because we both know that the vast majority of ebook readers do not do that) through other outlets. When you ask why they gave Amazon exclusivity, the answer invariably is that if they didn’t Amazon wouldn’t sell/feature/promote (choose 1 or more) their book and they would lose too many sales. No one says that about B&N or gives epub exclusivity. And no author would give it to Amazon except that Amazon wields extraordinary market power, which is what Krugman alleges.

    Suppose tomorrow Amazon decided to enact a policy that it will sell only books — print and digital — that are exclusively available on Amazon for not less than 1 year. The BPHs might or might not succumb to that pressure, but I’d bet every so-called indie author would. Why? Because Amazon has convinced the majority of people that it is the only real game in town.

    Amazon’s market power in digital books is tremendous. No one else comes even within a mile of that power. Did Amazon gain it lawfully? Sure. But that’s not the issue and that is not what Krugman is arguing. Should Amazon be permitted to maintain that power is a social issue, not a legal issue, and the social issue has yet to be decided by the marketplace.

    • If the best you can come up with is a what if scenario then you’ve assumed that he is wrong. In making that argument, you start with the admission that Amazon hasn’t done harm yet – but they could so they must be evil.

      And he doesn’t have the facts to back up his argument either. Amazon simply doesn’t have monopsony power in the book industry, not by any definition of the word. Amazon’s share of book markets other than trade is simply negligible, and they don’t even have a majority share of the trade market.

      “Amazon’s market power in digital books is tremendous”

      Got any data to show that Amazon’s position in the institutional, library, and academic digital book markets? No? Then you can’t make that claim.

      • Gotta love all those calls for pre-emptive punishment, huh?
        Shades of MINORITY REPORT.

        • Let’s be serious. Krugman types want the law over the free market. Microsoft survived most of the litigation against them.
          What really killed Microsoft was itself. Ultimately anti-market behaviour punishes itself.
          Between the whispering campaign against it and its 800+ PE, the days are numbered for Amazon’s current strategies. It will have to diminish its scale and raise its margins.

          • It’s a rigged market and not a “free” market and without some law over it we’re back to the jungle.

      • There’s a very simple proof of what Krugman is pointing out. Ask someone where they buy their books. If they say “Amazon” 9 times out of 10, then he’s got a point. The social culture for book buying has moved heavily in Amazon’s direction.

        The Washington Post’s opinion page has moved in a more right wing direction since Bezos took over, and discoverability is still a big problem for book buyers (there’s a reason why Amazon bought good reads). Both are points that Krugman raised.

        And I hope you note he didn’t suggest this was a solution for the law courts.

      • Nate, a great job leaving a false trail. No one, anywhere, at any time has discussed or raised the academic, library, or institutional markets for digital media as a flag for Amazon having too much or too little power. Alas, all that anyone has ever talked about is the consumer market.

        To argue that Amazon must have majority share of all possible markets is a red herring argument, and you know it. What matters is Amazon’s power over the digital consumer market and to say Amazon doesn’t wield tremendous power in that market is ludicrous.

        Except for you and a few other Amazon fans, no one disputes that Amazon is the 800-lb gorilla in digital books for the consumer market. Whether Amazon has done harm in the market is, in my view, open to debate. I disagree with Krugman on that point; I think Amazon has done harm and continues to do harm, but that the level of harm currently does not rise to a level warranting government regulation (but does warrant serious investigation, something we have not yet seen).

        Standard Oil hadn’t yet done any harm when it was broken up either. It is the potential that matters.

        • It’s not a false trail, especially not in the comments to a response to the Krugman post. He compared Amazon to SO, which had a dominant position in the entire oil industry. Amazon has a strong position in one book market, but not the entire book industry.

          Also, we have to consider the other markets when discussing monopsony power because many publishers serve multiple markets. HMH and Macmillan, for example, sell through Amazon but they also sell textbooks in markets which Amazon has barely touched. Scholastic sells through Amazon but they get most of their revenue direct sales – a market Amazon can’t touch.(And then there’s the library book market, to name one example.)

          And those are just the examples I can think of before the caffeine kicks in. There are more.

          Frankly, my point about the entire book industry isn’t a red herring so much as it is a sign that I am one of the few who looked at the big picture rather than simply at Amazon.

  2. LOL, Krugman is such a fool and so late into the debate it makes him look like a chaser rather than a forward thinker.
    Anyway the BIG POINT is Amazon’s business model is crap. It needs too large a market share to make a profit and in order to drive this share it is for the moment trying to put competitors out of business with pricing at a loss and then trying to force suppliers to lower prices by refusing to sell books of those that won’t play along.
    In the end Amazon’s stock price will collapse back to a normal PE from over 800 to 50 which is still 3x Apple’s – a company that makes real profits from a normal market share. $20/share ha ha ha. What a bath….

  3. “Paul Krugman is a great economist” Your article loses credibility when it starts with such a false statement. Luckily you have a long track record of good writing that I kept reading. You make some good points. Krugman is a shyster hypocrite that will sell his soul to make a headline.

    • I actually don’t mind it when academics veer outside of their discipline once in a while but I don’t disagree with your main point about Krugman’s point.

      Amazon’s market dominance in book selling is without question, although the used market is still flourishing under various guises – and frankly there’ s nothing stopping publishers or authors from selling ebooks or print books directly.

      I can only speak of indie ebooks, but Amazon’s most favored nation clause guarantees that publishers allow Amazon to price things lower than any source — providing little incentives to try to sell directly. And because Amazon is the biggest distributor out there, consumers end up going for the bigger-is-better platform.

      Then again, we can say that Amazon.com deserved to reach the position it has attained. Its commenting/review system is great and they are always rolling out new book promotion features (and yes, even their epub3 support has been improving steadily).

      That said, I just posted on my Facebook/G+ at how Amazon’s shipping and delivery seems to be worse than ever. Amazon messed up big time on my last 4 orders, and now I have a 6 item order made in early October which Amazon.com still hasn’t even shipped yet. (An odd grab bag of household items – including a book — all from Amazon.com directly and not from 3rd party sellers). These are signs of complacency in a seller with market dominance.

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