When Elephants Fight, the Grass is Trampled

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The Hachette/Amazon conflagration is an interesting example of what happens when a oligopoly picks a fight with a monopsony. The oligopoly in this case is Hachette, one of the few massive publishing houses that have absorbed smaller publishers over the past decade and a half. In the wake of that acquisition binge, the publishing world has changed dramatically. Gone are the days where mid list authors were the mainstay of a publisher. Yes, there were bestsellers, but publishing focused on a broad range of offerings.

The new world of publishing is bestseller fixated. The corporate model of global corporations demands consistently high returns. It’s harder than ever to find a published and when you do, it won’t offer much in terms of services. That doesn’t matter if you are a big star since you can spring for your own publicist, editor, etc. But mid list authors and those starting out face an almost insurmountable barrier. Does this model generate bestsellers? Not necessarily. Does it generate better books? Don’t bet on it. Fortunately, there are small and independent publishers and university presses, that offer at least a modicum of what passes for competition.

The monopsony is Amazon. With its increasing share of the consumer book market, Amazon has become the dominant buyer of books. Two decades ago, it used to be Borders and Barnes & Noble that occupied that space. They did the dirty work of killing most of the independent book stores around the country. Now Amazon has driven Borders out of business and B&N isn’t doing so well. Adding the Kindle to its offerings only increased its dominant role. Monopsony power, especially for e-books, allows Amazon to demand terms from publishers that the latter find increasingly onerous, because it cuts into their profits. Amazon, like Borders and B&N before it, does that in the name of increasing consumer welfare, i.e., lower prices. But Amazon needs profits, too. It’s investors demand that. Just like Walmart, Amazon can only generate profits through volume and that means capturing more and more of the market.

Who’s benefiting? If one measures consumer welfare solely in terms of money (lower prices), there is a short term benefit, because Amazon indeed offers books at lower prices. The long term implications aren’t nearly as clear. Once Amazon acquires a critical mass—and we can debate what percentage of the book market that is—it will become a monopoly as well as a monopsony. That is, it will be the sole seller and buyer of books. At that point, all bets are off. Prices for consumers will increase as they always do with monopolies. Fees and royalties to authors will decrease as they always do with monopsonies.

What will keep that from happening? Publishers might create an alternative to Amazon, as proposed by an op ed contributor in the NY Times recently. Many small presses already do that with their books and e-books. We all could decide to stop shopping at Amazon and turn instead to alternative outlets. I, for one, try to spread my e-book shopping around. But that’s increasingly difficult, given the exclusive deals Amazon strikes with publishers. But I’m not hopeful this will happen.

Full disclosure: my publisher, Endeavour Press, has an exclusive deal with Amazon. My e-book only appears on its website. But that doesn’t mean I like it.

 

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