Amazon Is Not a Monopoly or a Monopsony

So, yet another op-ed has come forth reviling Amazon and its selling practices, which means that yet another op-ed has come forth using economic terms incorrectly to describe Amazon in ways that are factually untrue.

Hate Amazon if you must, opponents, but please, do not misuse terms that we all learned in high school economics.

The most common word thrown at Amazon is “monopoly.” People believe it when they hear that Amazon is a monopoly because Amazon is huge and monopolies are huge, and don’t most people buy ebooks through Amazon anyway? Being large is one condition that can lead to a monopoly, but frankly, I don’t think Amazon is enough of a behemoth to be THE monopolistic power in the ebook market.

Have I mentioned that Apple is a much larger company than Amazon and they also sell ebooks? Apple is worth between $300 and $600 billion (depending on what site you look at; I got the low number by adding up assets on Wikipedia). Amazon is worth maybe $50 billion, having brought in only 44% of Apple’s revenues in 2013 and .7% of their net income. Apple could eat Amazon for breakfast if they threw their weight behind iBooks.

In the regular book market, Walmart also sells books, both in-store and online, at both Walmart and Sam’s Club. They sell hundreds of books on their site and give deep discounts to customers (Hachette books at Walmart are 40% off right now). Walmart can easily out-punch Amazon in the treebook arena, yet somehow this isn’t as much of an issue. Maybe Walmart is too big to cross?

To be a true monopoly, Amazon would have to be the only seller in the market or the only huge seller in a market of small sellers (and would then wipe out its competition permanently to become a monopoly), not just a large company among large(r) companies. Amazon is a popular seller, but by no means the only place to buy books or ebooks.

The market would also have to have overwhelmingly high barriers to entry to be a monopoly, which isn’t the case with the book industry. Barriers to entry include patents, limited availability of supply, and limited access to resources and technology; these barriers aren’t really an issue here outside of DRM, which is optional even on Amazon. If you have enough (but not a never-attainable, astronomical amount of) money, you can have a bookshop.

The third condition for a monopoly is that there are no close substitutes for the good in question. Except that, you know, there are tons out there. You can get the titles you want in ebook form, various treebook forms, in audiobooks; you can get used books or join one of those book club things where you get cheap books. If you don’t like Amazon, you can get the same title ebook at Apple, B&N, Kobo Books, and sometimes small press publishers sell them directly to you. A close substitute can also be a similar book that is not the same title.

A monopsony works similarly to a monopoly, except that instead of being an extreme seller’s market, it’s an extreme buyer’s market. Amazon is not, again, the only buyer of ebooks or books from the publishers. They can’t strong-arm publishers by being the only buyer because they’re not.

Whatever one thinks about Amazon vs. publishing, it’s clear that Amazon is not a monopsony or a monopoly. As soon as the op-eds brush up on Econ 101, I can stop yelling at my computer.

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