Economist Paul Krugman on Amazon's Undue Power

The essential concern behind an Amazon "monopsony" is undue influence (read: power) in the market.

Paul Krugman

The Paul Krugman opinion, that Bloomberg anchors and guests refer to, is Amazon's Monopsony is not OK.  Just as Standard Oil muscled the railroads, so is, he argues, Amazon muscling the publishers.

The comparison with that storied, infamous American corporation puts fuel to the fire of his argument against Amazon.  At first, I thought it was a bit much, but Krugman points out that in the books market, the online retailer has as much share as Standard Oil did in the refined oil market, before it was broken up in 1911.

So far Amazon has not tried to exploit consumers. In fact, it has systematically kept prices low, to reinforce its dominance. What it has done, instead, is use its market power to put a squeeze on publishers, in effect driving down the prices it pays for books — hence the fight with Hachette. In economics jargon, Amazon is not, at least so far, acting like a monopolist, a dominant seller with the power to raise prices. Instead, it is acting as a monopsonist, a dominant buyer with the power to push prices down.

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But isn't it good for consumers to see books on offer for low (pushed down) prices?  I used to buy a lot of books, but I began to school myself to read online 10 years ago and now my consumption is virtually all digital fare.  But on those occasions, when I do buy books, along with DVDs and electronics, Amazon is virtually unbeatable as far as prices go.  Citing a fight between the online giant and publisher Hachete, Krugman hammers home a point he began with:

What matters is whether it has too much power, and is abusing that power. Well, it does, and it is.

Finally, Krugman forewarns us that its monopsony may be a precursor to an Amazon monopoly in the future.