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Is Amazon a robber baron? I’d say no.

I cam across an interesting article today in the Vancouver Sun. The author makes a pretty good case for calling Amazon a robber baron:

As a temporary loss leader marketing exercise, undercutting rival prices is just another form of healthy competition that’s good for markets.

But when a company such as Amazon is in a dominant or monopoly position and sells below its own costs, the market is destroyed by driving rivals out of business or keeping new entrants at bay. So the attorneys general are looking at whether Amazon’s pricing behaviour constitutes a form of market abuse under antitrust laws called "predatory pricing."

Amazon argues it has helped publishers with its cheap pricing by expanding the e-market. But the same could have been said by the robber barons of old whose predatory pricing ushered in a host of antitrust laws designed to protect markets from monopolism.

I have to disagree. You see, there’s one detail that everyone seems to have forgotten about digital content. You can’t monopolize the market for digital content because there will always be one supplier that can’t be defeated: piracy. Raise prices too much and people simply won’t buy.

And the other detail everyone seems to have forgotten is that ebook prices have a natural upper limit: the price of a paper book. Ebooks aren’t being sold in a vacuum; they are just one segment of the market. If one f0rm costs to much more people will get the their books another way.

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Mike Cane August 6, 2010 um 12:11 pm

Well, you cite piracy. I haven’t looked — because I’ve been Kindle-avoidant — so is K book piracy big out there?

Nate the great August 6, 2010 um 12:40 pm

Do you know the fastest and easiest way to get an ebook? Google a book’s title and the word torrent.

That’s how prevalent piracy is. It’s not just a Kindle issue; it’s a digital content issue.

kurt August 6, 2010 um 1:26 pm

and thank goodness there is still that choice (at least until net neutrality bites the dust)

stubborn pigheaded publishers are pushing ebook readers in that direction

Alexander Inglis August 7, 2010 um 8:16 am

Diane Francis has been a business writer in Canada for at least three decades I’d guess. She is not a know-it-all instant analyst that some so-called journalists are. However, she is writing an opinion as a columnist and it’s her job to stir up some controversy and have a point-of-view; to do that, she has given her readers only part of the story to support the notion that anti-trust is "finally" coming to the US in the e-book biz. Bad, bad, Amazon! Heel!

Amazon is/was — at its option — discounting a *handful* of select titles at any given time to drive store traffic. This is not "predatory pricing" ($9.99 vs. $12.99 is predatory?). Selling books below cost is common practice in the industry. Barnes & Noble does it all the time on stock it can’t sell at full price and can’t return. And since the rise of the era of big box bookstore chains, new content is routinely sold at 30% to 50% off *everywhere*. Why is it that Amazon’s use of the tactic is suddenly viewed as "robber baron"?

We are constantly told competition is good because it creates efficient markets and drives prices lower. Isn’t that precisely what is happening here? Amazon legitimized the e-book industry by entering it with a consumer friendly merchandising scheme. This encouraged many other players to enter the market, and innovate with devices and e-book distribution schemes. Baen is a good example: heck, everything is free, or can be had all-you-can-eat with a monthly subscription. Fictionwise is another — and is being put out of business by the actions of several key players in the industry with the exception of Amazon.

More players entered with more new ideas: Barnes & Noble came along and built-a better mouse-trap: Nook. Apple tried to muscle in with iPad, positioning the device as an e-reader even though it was designed for an entirely different purpose: multimedia. Apple’s intent was to discourage any other e-book retailers from selling on iPad. Kobo came along with a cheaper, slimmed down mouse-trap. Amazon answered this past week with a re-tooled mousetrap: Kindle 3, which takes the best elements of the current models and makes a better one. That is precisely what competition is supposed to encourage.

On the content side, Amazon offers 600,000 commercial titles of e-books that are always in stock, always ready for immediate purchase, and at a store that never closes. This library of content is not being sold at "predatory pricing" even if a handful of titles may be temporarily below the best prices Amazon has managed to negotiate with its suppliers. Nor does Amazon have a "we’ll beat any price" policy which could be interpreted as leveraging strength against a weaker competitor.

Ms Francis, as I say, is an accomplished, seasoned business writer but in this instance she has either not understood or deliberately avoided the context on the ground. While there may be merit in an anti-trust investigation, it is those who were colluding to force prices up — five publishers who control a large portion of the content and one vendor attempting to buy its way into that market with the goal of preventing anyone else from playing at all. In that battle, Amazon was clearly on the side of the consumer, not against it.

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