July 8, 2013

Monopoly achieved: An invincible Amazon begins raising prices


Rich Uncle Bezosbags

Amazon‘s fifteen year campaign to control the book market—a campaign that has included not paying taxes, pulling buy buttons of accounts that won’t agree to terms, coaching the government to sue its opponents for antitrust violations, and loss-leader pricing so drastic it’s questionable the company has ever made a profit—seems to have finally achieved the monopoly it sought. It’s now doing what successful monopolies have, historically, always done upon taking over a marketplace: raising prices.

Or at least, that’s what a New York Times report by David Streitfeld speculates. In a piece published last Friday, Streitfeld spoke to a number of authors and publishers who have all seen the price of their books increased by the retail giant:

[Many authors and publishers say] Amazon, which became the biggest force in bookselling by discounting so heavily it often lost money, has been cutting back its deals for scholarly and small-press books. That creates the uneasy prospect of a two-tier system where some books are priced beyond an audience’s reach.

It is difficult to comprehensively track the movement of prices on Amazon, so the evidence is anecdotal and fragmentary. But books are one of the few consumer items that still have a price printed on them. Any Amazon customer who uses the retailer’s “Saved for Later” basket has noticed its prices have all the permanence of plane fares. No explanation is ever given for why a price has changed.

It seems a rather momentous bit of notice, made all the more momentous by appearing in the biggest mainstream voice of them all. Momentous enough, in any rate, for a follow-up column by Streitfeld filed later the same day, “The Price of Amazon.” Its opening is particularly trenchant:

The Amazon.com story is remarkable. Within living memory, bookselling was a local activity. A major city would have two or three large independent stores selling new books and other large, scruffier stores selling secondhand books. Paperbacks would receive wide if uneven circulation on bus station and drugstore racks. It was not a perfect system, but it had the advantage of being diffuse and thus hard to control. The hippie, black and women’s movements of the 1960s would not have been so successful in challenging authority without the bookstores, which made their ideas widely available and sympathetic in a way that television, for instance, did not.

That transmission system has now been largely dismantled, killed by high rents and new technology. With little discussion, Amazon has skillfully absorbed a large part of the book trade. It sells about one in four new books, and the vast number of independent sellers on its site increases its market share even more. It owns as a separate entity the largest secondhand book network, Abebooks. And of course it has a majority of the e-book market.

The company is a marvel in many ways. You can get almost any print book you want, by the end of the week! And Amazon will pay the postage! For book lovers, it was a dream come true. Amazon presents itself as less a company and more a public utility. One of its greatest accomplishments is the way it has made the future of bookselling seem as if it will inevitably be owned by Amazon.

In the follow-up, Streitfeld goes on to talk at length with Melville House co-publisher Dennis Johnson concerning the implications of Amazon’s apparent changes in its pricing policies. Noting that Amazon raised the price of Melville House’s Cotton Tenants by almost $4.00 after it fell from Amazon’s bestseller list, Streitfeld asks Johnson his opinion of Amazon’s practice of first discounting prices, then raising them as sale drop:

“It sends a confusing message that good books are worth less, and because it encourages buying based on something other than the quality of the book. It’s just an unhealthy business if people are buying a thing mostly because of its price, not its quality. That’s how you sell widgets, not books.”

But of course, the price increases should not be entirely a shock. This is, as mentioned earlier, what monopolies do. Some may be slow to acknowledge it because, as Streitfeld notes, “Even as Amazon became one of the largest retailers in the country, it never seemed interested in charging enough to make a profit. Customers celebrated and the competition languished.”

But the timing just wasn’t right before. If Amazon raised its prices a few years ago, customers still had a number of options. Times have changed. Per Streitfield: “Now, with Borders dead, Barnes & Noble struggling and independent booksellers greatly diminished, for many consumers there is simply no other way to get many books than through Amazon.” And then there’s the DOJ lawsuit, which ended agency pricing—perhaps the industry’s last chance at fighting Amazon’s underpricing, and a factor in the failure of B&N’s Nook and ebook sales. Now, it appears all the pieces are in place.

Amazon has, of course, not only denied that it’s raising prices, but suggested that it’s continuing to lower them, despite evidence that suggests otherwise. Streitfield spoke to Sarah Gelman who said, “We’re actually lowering prices. We pay for these price decreases with relentless focus on improving our execution—and this commitment to low prices is one of the reasons our print books business continues to grow.” As my colleague Dustin Kurtz tweeted over the weekend, “Sorry, but this quote from an Amazon rep in the Streitfeld article is the textual equivalent of a pod person screech.”

Nonetheless the Amazon pod intelligence is a viciously savvy thing, and the mysterious algorithm governing the price increases will likely remain a hard to trace but steadily looming phenomenon, incurring steadily increasing chaos and demeaning the ultimate value of the object known as the book. As Dennis Johnson tells Streitfeld,

“Discounting, and especially inconsistent or shifting discounting, really messes with a publisher’s ability to price a book fairly and accurately to its cost … You have to consider the fact that whatever price you put on the cover, Amazon is going to reduce it by as much as half — unless they don’t — or they may, but only for a while. But in short they’re going to make your book look like a thing with a cost lower than the one you placed on it.

“So do you raise the price, knowing they’re going to lower it, so that the price will then appear closer to what you need it to be? But if you do that then you’re screwing the more honest retailers who can’t discount. And we’ve gotten a long way from recognition of the fact that publishers have costs in making books, and that should have something to do with the price.”

While these price increases feel like the culmination of Amazon’s ruthless campaign to drive competitors out of the book market, they also mark a new beginning for the company. They’ve been top dog for a while in the book market. Now they are the book market.


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives