Tuesday, 21 October 2014

Paul Krugman compares Amazon.com's power in USA books market to that of John D. Rockefeller's Standard Oil

Today's Hindu carries a New York Times article by Paul Krugman, Monopsony is not okay, http://www.thehindu.com/todays-paper/tp-opinion/monopsony-is-not-okay/article6521133.ece. Some notes including short extracts and comments:

"Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America."

[Ravi: That's how he starts the article! Direct charge at amazon.com!]

...

[Ravi: About Amazon having "robber-baron-type market power" in the USA books market similar to what Standard Oil of John D. Rockefeller had: I think I have been reading about online book seller(s) putting a squeeze on publishers for quite a few years now. I wonder what's new now. Maybe the squeeze has increased dramatically.]

...

"Book sales depend crucially on buzz and word of mouth (which is why authors are often sent on gruelling book tours); you buy a book because you’ve heard about it, because other people are reading it, because it’s a topic of conversation, because it’s made the best-seller list. And what Amazon possesses is the power to kill the buzz."

[Ravi: Interesting analysis of book sales. Like in other businesses the marketing part is crucial to large sales. But does Amazon have the power to kill such buzz? In India, based on my book purchases on the net it seems to me that Flipkart and Amazon are the big guys in online book sales. But, it seems to me that in India, the buzz about a book is not so dependent on Flipkart and Amazon. Reviews in leading newspapers, mention about it in news articles (printed media as well as the net), and promotional stuff by the publisher & author contribute significantly to the buzz, IMHO.]

...

[Ravi: About Krugman's view that the Hachette dispute shows that Amazon cannot be trusted not to abuse its power: Paul Krugman has delivered his judgement! I think it is quite strange for the Nobel prize winning economist to write on this specific book business issue. I mean, usually his articles are from a high perch about general economy and business stuff with some specific examples to buttress his views.]

--- end notes, short extracts and comments ----

A correspondent shared annotations on Krugman's artice by Marc Andreesen and others here: http://tech.genius.com/Paul-krugman-amazons-monopsony-is-not-ok-annotated

Here's my view of the annotations:

Most of the annotations including Andreesen's are very critical of Krugman. I did not find the criticism of Krugman to be very effective or very knowledgeable. Krugman cites the Hachette case as grounds for his indictment of Amazon, which I do not know anything about. I think effective criticism of Krugman's article should put across the Amazon side of the Hachette case and use that to refute Krugman.

But it was interesting to go through the annotations, as well as the style in which the annotations are presented.

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Another correspondent wrote the following (slightly edited and correspondent was OK with sharing his response):

There is a power struggle between Amazon and at least one publisher. I don't think it makes much sense to take sides on this as both want to control the book market. (In India, add distributors who control access to bookshops.) Publishers are not altruistic purveyors of intellectual creations: it is quite clear from their objectives and methods that they want to decide how the book market develops. For every author they give a million dollar (or Rs. Five crore, or whatever) advance to, they will squeeze other authors to accept less and book buyers to pay for it all.

Amazon was one of those (and the largest) to take on the publishers who decide what will sell and how it will be marketed. Amazon broke through that argument by offering authors an alternative route to publication; it helps also that they made it so efficient that it cuts cost enormously.

Publishing has to change with the ubiquitous availability of new technology and companies like Amazon being able to use this technology effectively. People still read printed books but they will also read the same books on tablets, e-readers and even smartphones. Availability matters greatly and publishers will find it hard to restrict the media on which their books are made available. But the choice of format (printed or electronic) changes the economics greatly: why should an e-book which costs next to nothing to copy and distribute cost almost the same as a printed book which uses paper and has to go through a press and a distribution channel before it can be put on display in a bookshop. Booksellers will return unsold copies to distributors and they back to publishers. There are no 'unsold' copies in the e-book world. Publishers are not willing to accept this argument.

--- end 2nd correspondent response ---

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