Here’s why the antitrust claim against Amazon by authors groups is doomed

August 21, 2015, 4:50 PM UTC
A picture shows the logo of the online retailer Amazon dispalyed on computer screens in London on December 11, 2014. Online retail giant Amazon scored its first ever Golden Globe nominations -- a breakthrough in its bid to catch up with streaming pioneer Netflix. AFP PHOTO / LEON NEAL (Photo credit should read LEON NEAL/AFP/Getty Images)
Leon Neal — AFP/Getty Images

The ongoing battle that groups representing authors have been waging against Amazon (AMZN) escalated this week, as Authors United made a formal request to the Department of Justice that it investigate the company for monopolistic practices and anti-competitive behavior. The group has been pushing this case for some time, along with a number of other groups representing authors and publishers, arguing that Amazon controls a giant chunk of the e-book market, and that it has been using this power for evil instead of good.

In a letter that Authors United sent to the DoJ recently supporting its request, which was posted at the Authors Guild website, the group lays out the core of their argument, and the key point that the case will hinge on: It says that even if Amazon’s behavior leads to lower prices for books, this shouldn’t be the department’s only concern. Instead, the regulator should look at how Amazon’s anti-competitive tactics affect society as a whole.

In its pre-amble to the letter, the Authors Guild discusses the recent decision that found Apple (AAPL) guilty of conspiring with book publishers to raise e-book prices, and warns the DoJ about “the long-term dangers of interpreting antitrust law solely to favor low book prices.” The court, it says, took a “narrow view of antitrust law, assuming that low book prices to consumers trump all, even if the low prices are artificial loss leaders intended to lure buyers into a single company’s shopping platform.” Instead, the Guild says:

“The much larger issue in our view is the dominance that Amazon—through its artificially depressed book prices—wields over the book ecosystem, and the potential repercussions on the free flow of information and free expression.”

The five major book publishers who were involved in the Apple case tried to make a somewhat similar argument. In effect, they argued that the collusion they engaged in with Apple was necessary, because it was the only way to blunt the force of Amazon’s monopoly over e-books. Unfortunately for the publishers, all of whom settled the case—and for Apple, who was forced to pay a penalty of as much as $450-million—the court disagreed.

That’s not to say the court was unmoved by the publishers’ argument. As the Guild points out, one of the appellate judges, writing a dissenting opinion, essentially agreed that Amazon’s control over the market was extreme, and that it to some extent justified what Apple did. But the majority felt that even if Amazon did have a quasi-monopoly, this didn’t excuse Apple from the requirement to obey antitrust law. In other words, the court decided two wrongs don’t make a right.

Whatever the court or the book industry might think about how it got there, one of the crucial questions for the case is whether Amazon actually has a monopoly in any real sense of the word, and whether—if it does have one—it is misusing that monopoly in anti-competitive ways.

At this point, according to the Authors United numbers, Amazon has 75% of the market for online sales of physical books, 65% of the market for e-books, 40% of the market for the sales of new books, and 85% of the market for e-book sales by self-published authors. That last number sounds high—until you remember that Amazon effectively created the market for self-published e-books when it launched the Kindle Direct Publishing system, which allows anyone to upload and sell their writing.

But the more important point is that simply having a monopoly (in the sense of having a dominant share of a discrete market) isn’t a breach of U.S. antitrust law, although most people seem to believe that it is—or that it should be. What’s illegal is using that monopoly to stifle competition. And not just to stifle competition, but to do so in a way that makes things worse for consumers.

This is where the Guild’s and Authors United argument falls apart, and it’s the reason why the groups are trying to distract the Justice Department by talking about the impact Amazon has had on free expression, etc. Whether they like it or not, one of the main benchmarks for whether an antitrust offense has taken place is whether consumers have been harmed—and all the available evidence shows that Amazon’s behavior in the e-book market in particular has helped consumers by keeping prices low.

And what about the argument that Amazon is just using prices to lure book-buyers into its ecosystem, at which point it will jack prices up and reap the benefits of its monopoly? That would be bad, if anyone could actually show that it was happening—but it isn’t, at least not in any sustained or obvious way.

As for the argument that free expression and the free flow of information are being harmed, even if the Justice Department did decide to take that into consideration as part of the case (which is unlikely at best), the evidence is overwhelming that with the Kindle platform, Amazon has done far more for the free flow of information and expression than the Guild or the Big Five publishers have. It may have delisted certain books during trade disputes with publishers, but that is a drop in the bucket. The reality is that authors have never had it so good—and neither have readers.

Authors and publishers may not like some of the output from the Kindle, and they may not like Amazon’s pay structure. They may even believe (and this is a crucial plank in the Guild’s argument) that low book prices make it harder for publishers to subsidize authors, and thus reduce the quality of content entering the book-publishing industry. But judged by almost any objective measurement, Amazon’s monopoly has been far more of a benefit for both writers and readers than it has been a hindrance, and it certainly has been for book buyers. And that’s what the Justice Department is going to focus on.

(Correction: An earlier version of this story referred to the Authors Guild as the group that sent the letter to the DoJ. It was actually sent by the group Authors United, but was posted at the Authors Guild website. The two groups have been working together on the case).

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