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On the Subject of Amazon’s Monopoly

The topic of Amazon and monopoly power is frequently on the lips of Amazon’s detractors. Unfortunately for them, Amazon doesn’t have a monopoly in the traditional sense. In fact, I wouldn’t say Amazon has a monopoly at all – not unless you used a metric other than sheer economic might.

I was reminded of that point earlier today when I was reading a recent piece in The Seattle Times. Jay Greene joined the fray, writing about the recent calls for antitrust action against Amazon:

There is little doubt Amazon is a potent force in book sales. In May, Amazon accounted for 64 percent of all electronic book sales in the United States, according to the Codex Group, a research firm that surveys book buyers monthly. In the same month, Amazon sold 62 percent of all print books online, and 40 percent of all print books sold online or in brick-and-mortar outlets.

But proving Amazon is a monopoly, let alone an abusive one, wouldn’t be easy. In legal terms, the word monopoly relates to a company’s ability to control a defined market because of a lack of competition. While there’s not a specific market-share number that defines a monopoly, the threshold is typically quite high.

I don’t think Amazon has a monopoly, not in either the legal sense nor even in terms of the dictionary definition.

But as I was reading that article, I realized that you could make an allegorical argument of sorts: that Amazon did have a monopoly on customers. Matt Blind made that kind of argument last week on his blog Rocket Bomber:

Amazon has a monopoly — but their monopoly power is not a stranglehold on books.

Amazon owns the customer base for books. Amazon owns the readers.

And now you’re about to object to my stark declaration, for obvious reasons: that’s not the way markets work. Customers are the free-est of free agents, and no one (except the government) can force you to spend money if you don’t want to. Companies don’t own customers, they are earned through competitive pricing and excellent customer service.

Amazon might have a monopoly in some metaphorical sense, but it is a most fickle one which can evaporate faster than you can say blue light special. Or at least that is true for most products; books are a special case.

Matt would argue that Amazon’s monopoly in books comes not from sales or offering great customer service but from the ecosystem which Amazon has built around books:

Amazon owns you. …

You could leave Amazon. Indeed, to prove some snarky blogger wrong, you could likely go to your shelf (or lean over and pick one off the table) and hold up a book and say, “See this? This book I bought in a store! I didn’t get it from Amazon. …"

Of course. But, he asked with a smile and a glint in his eye, did you find out about that book (or discover the author) through Amazon? Or maybe Goodreads?

In short, if Amazon does have a monopoly it comes not from sales but from their lateral expansion into related noncommercial activities like book recommendations and the like.

I’m not so sure that is true either, but then again I don’t spend much time on any of Amazon’s social networks (Kindle, Goodreads, Shelfari, LibraryThing), I can’t comment on the influence they might have on book purchases. I know word of mouth is important but do Amazon’s social networks really hold sway over that many book consumers?

I don’t know, but it does bring an interesting new argument to the calls for antitrust action. Do you suppose that Amazon’s detractors should turn their attention from crying foul over Amazon’s economic might to instead call for Amazon to be broken up a la AT&T?


AT&T is a good example of a monopoly that was tacitly allowed to continue to exist even though it was an obvious monopoly. That ended in the early 1980s, leading to AT&T fragmenting into multiple local phone companies, a long distance phone company, and research labs.

The subsequent surge in innovation in telecommunication technology could be used as an argument in favor of breaking up even a beneficial monopoly like Amazon. Wouldn’t you like to see a similar surge in the redevelopment of the book industry?

Oh, wait, that’s right; Amazon is already forcing the industry to innovate and try to keep up (it’s one of the reasons Amazon is so hated). Amazon is a classic example of a company using disruptive innovations to build their market share.

I guess we’ll need to hold this argument in reserve for 10 years down the road, when Amazon has stopped growing.

Assuming, that is, that Amazon is still on top in 10 years. I am not willing to assume that will happen.


images by Mike_flemingMark Strozier

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William D. O’Neil October 28, 2014 um 10:33 pm

You’d look a long, long way to find a company with a stronger record of innovation than AT&T had. And financial games aside, little of the innovation since the breakup has come from the Baby Bells.

So far as I can see, breaking up Amazon would be nothing more or less than government interference in the market for political purposes. What’s the track record of that?

For the record, I’d say that my discovery process for books starts with Amazon less than one time in ten. But I find Amazon search and discovery apparatus very useful for books I learn of elsewhere, even if I ultimately don’t buy from Amazon.

Amazon sells convenience above all, even more than low prices.

Nate Hoffelder October 29, 2014 um 1:30 pm

The service costs dropped and the equipment got better and cheaper. That’s more than just "financial games".

Also, I don’t see why it matters that little of the innovation came from the Baby Bells; what matters is that the breakup enabled real competition. It gave outsiders a chance to disrupt the market.

I’m not saying that this is something we need in the book industry, but I do see how the public benefited from breaking up AT&T.

Daniel Vian October 28, 2014 um 11:07 pm

The best way to destroy capitalism is to remove the incentive to build a company. Jeff Bezos started out with a degree in computer science and some experience on Wall Street and a wife who was (is) an author. So he started selling books and the rest is history and will be studied by corporations and entrepreneurs for many years to come. What Amazon has is masterful computerized retailing, a vast inventory (real and virtual), and the best customer service people have ever seen (who else gives you a refund before you return the merchandise?). As for books, any publisher can try selling direct to the public online and bypass Amazon–if they have enough smarts, which so far has not been in evidence. Amazon is neither a dangerous monopoly nor a dangerous monopsony and the people attacking Amazon for its success are either silly or shameful shills for the corporate business models being obsoleted by a smart company that understands the digital revolution. Krugman has lost points with many people for not doing his homework about Amazon.

Mike October 29, 2014 um 6:44 am

Krugman said it is irrelevent that Amazon forced the industry to innovate.
Anyway it doesn’t matter. Amazon will not be able to invest unlimited capital anymore and pursue it’s failed business model.

If as you say, Amazon is an innovator, they will have to innovate a new business strategy and they better do it quickly or shareholders will panic.

I see some faux buy patterns in the stock that indicate an attempt at an orderly retreat that could turn into Russian roulette at any moment LOL.

William Ockham October 29, 2014 um 7:49 am

The argument that Amazon has a monopoly (or monopsony) in books or even in ebooks is bullshit in the technical sense. If you have read Henry Frankfurter’s "On Bullshit", you know that a bullshitter is someone that who simply doesn’t care whether what they say is true or not, just that the statement serves their purpose. The people who use the 'M' word about Amazon either don’t know what it means or are deliberately redefining it to suit their purpose.

Ben Sobieck October 29, 2014 um 9:45 am

Even if Amazon was a true monopoly in the classic sense of the word, it can’t turn a profit. Quarter after quarter it shows how it can bring in a ton of revenue, but not the goods for shareholders. That in itself is an unsustainable model that would take care of itself without government intervention. This anti-trust talk should be focusing on ways for other outlets and models to enter the marketplace to compete with Amazon rather than push some arbitrary limit to how large a company can be.

Chris Meadows October 29, 2014 um 10:01 am

Monopoly, monopsony, they’re the guys with the e-books.

I’ve touched on this myself over on TeleRead. Amazon took the glowing coals of the nascent e-book market and, well, Kindled it into a bonfire. Much as Apple did with computers, they made e-book readers idiot-simple, so literally all someone had to do to make a book show up on their e-reader was tap on the "buy" button.

The vast majority of people who own Kindles are technologically illiterate. They buy e-books from Amazon and nowhere else because they don’t know how to buy them anywhere else, and they don’t want to spend time and frustration figuring it out. Why should then, when all they have to do is tap the "buy" button?

Even Baen, who had been selling e-books continuously since before Amazon got into the game, and had instructions on its website so all Kindle owners had to do was enter their Kindle e-mail address and get the books mailed directly onto their devices, finally had to put up a white flag and make major changes to how its e-book program worked to get its e-books in the Kindle store so more people would buy them.

There’s nothing illegal about that. It’s exactly the same strategy Apple used for the iPod’s music store, and for its iPod Touch and iPhone apps after that. It’s the strategy every manufacturer of razors with detachable blades uses. And in a market where nobody has a majority share, that works fine. If I don’t like my Gillette Sensor, I can switch over to a Schick Tracer.

The problem is, Amazon did such a good job, and got such a big head start on anybody else who had the potential economic power to do the same, that it’s got an effective lock on the e-book market. Thanks to the network effect from having lots of devices and lots of content for those devices, Kindle is the most attractive choice for any newcomer to e-books. And once you’ve got it, it’s so much easier to buy from Amazon, why would you buy from anybody else?

Leaving aside the issue of DRM keeping Amazon shoppers from taking their purchases elsewhere (since we’re talking about how to get Amazon customers to buy DRM-free content from outside of it in addition to or instead of from Amazon, not leave it), Amazon’s e-reader ecosystem isn’t really a walled garden. (Certainly not like Apple’s iTunes app store, where you have to jailbreak to install non-Apple-approved software, and Apple has the right to extract a vig from all in-app sales.) It’s more like the island of the lotus eaters from the Odyssey. You could buy e-books somewhere else and use them on the Kindle, but why would you want to?

And there’s nothing illegal about how Amazon got there. To the contrary, the publishers did something illegal to try to stop it. The problem is that sometimes it doesn’t take something illegal happening to end up in a place that could be harmful to the overall state of the market.

When you get right down to it, all the cries of "illegal mono{pol|son}y!" are really just a fig leaf for the naked fear a lot of other entities in the market feel when they look at the de facto power Amazon has. It’s a convenient shorthand, a quick way to try to get their audience to realize "Amazon bad!" because a more nuanced explanation would probably go right over their heads.

The real problem they face is that most Amazon customers don’t feel the need to buy e-books from somewhere else—and they’re happy that way. No one’s holding a gun to their head or restricting them to buying only from the Amazon store. It’s just more convenient, and doesn’t make them have to strain their brains. Which means that the publishers or anybody else could launch as many competing e-book stores as they like, but they’re going to have a real problem getting customers. When even Baen had to bow to the inevitable, what can anyone with less experience do?

Again: there’s nothing illegal in how Amazon got there. That doesn’t change that Amazon has the whip hand in the e-book market right now. While that’s good for self-publishers and such folks right now, it may not be a good thing for consumers overall in the long run. But there’s not really any easy solution; government intervention could well only make things worse for everyone.

Ben Sobieck October 29, 2014 um 10:11 am

Agreed on most of your points here. Basically, if you don’t like how things are now, you really won’t like it after Amazon is busted up.

Bob W October 29, 2014 um 10:09 am

I know that Amazon isn’t a monopoly because I’ve never purchased an ebook from them. They don’t own me as a customer and I don’t get my book recommendations from them. I deleted my Goodreads account and data when Amazon purchased them. I’ve only witnessed the major publishers abusing the antitrust laws yet all the media complaining is about Amazon. I’m not a fan of Amazon but I recognize what falls out of the backside of male bovines when I see it.

SethDove October 29, 2014 um 2:48 pm

Amazon controls the market to a degree that borders on monopoly. They are dangerous because they have that market share and can wield it however they like. Investors year after year don’t seem to care that they don’t make any money at all. But Borders and Barnes and Noble get raked over the coals for it. Sony dropped out of the ebook market. Kobo probably isn’t far behind. And BnH is on thin ice. That would leave Apple for iOS users, and Amazon for everyone else. That sounds terrible to me. To dismiss criticisms because they don’t meet some anal definition of monopoly is short-sighted. They shape the market and ecosystem without having to play by the rules that others do. It’s not right.

Daniel Vian October 29, 2014 um 4:49 pm

You say that Amazon shapes "the market and ecosystem without having to play by the rules that others do. It’s not right."

What rules, please?

DavidW October 29, 2014 um 9:35 pm

SethDove meant that they don’t seem to be beholden to make a profit to please their shareholders. Without seeming to have those rules they can do what they want.

TheSFReader November 3, 2014 um 6:57 am

Oh, if the shareholders want to the companies to compete against Amazon, they only need to let them reinvest profits in growth, rather than siphon it for themsemves…

Those rules are NOT mandatory to follow… they are merely guidelines ^^

Feda November 3, 2014 um 7:14 am

Amazon is large and influential but not even close to being a monopoly. You have options for getting everything you need elsewhere. They don’t control your access to any essential products or services.

Joseph Ratliff November 20, 2014 um 3:06 pm

Amazon is not a monopoly, or a monopoly, read the last half of this (the "attorney Paul" part):

Just like Wal-Mart is not a monopoly, TL;DR competition is still being bred, not being shut out.

Nate Hoffelder November 20, 2014 um 4:21 pm

I never really believed Amazon was a monopoly; this was just a thought exercise for me.

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