The monopoly power of Amazon

In the late nineteenth century the firms with great monopoly power were the US railroads and oil companies. These days we have a new set of monopolies, companies like Google, Amazon.  For example, Amazon have over 30% of the online retail of books and DVDs.  Also a firm with monopoly selling power like Amazon can often create monopsony buying power. Iff you are an author, there are only a limited number of forms who will take your e-book and sell it for you. Given the little choice of firms to retail your product, puts authors and publishers in a weak position, meaning Amazon can dictate the amount they pay to authors – especially small independent authors.

 

Amazon market share of books in US

If you want to sell e-books, Amazon is a dominant firm. In 2012 in the US, Amazon has 27% of the market share for selling book units (traditional and e-books). (book publisher).

Share of online books, DVDs & music

Online Books DVDs & Music Sales
Source

For online sales, Amazon’s position is greater. With online sales, rising to 36% of the market.

Market Share of e-Book sales

For sales of e-books, Amazon’s share of the market is 60% in 2012 – (down from 90% in 2007). (link) Apple has 10%, and Barnes & Nobel 25%.

Amazon and Publishers

Since, the majority of e-book sales go through Amazon, they have significant market power to dictate the price that authors receive in royalty.

  • For example, for a small self-publishers, Amazon’s Kindle pay 70% royalties – if the price is between $2.99 and $9.99 (£1.98 and £6.60).
  • However, any book, over $9.99 will receive only 35% royalties. This is a very clear incentive for authors to keep the price of e-books low. (I know when I set the price of an e-book I wrote. I made sure it was under $9.99)
  • If Amazon reduced the royalty rate from 70% to 20%, what could I do as an author? Since the book doesn’t sell too many copies, I’m not sure how much it is worth investigating other options for companies with only a small segment of the market. Amazon may give a poor return, but at least they can be relied on to sell some books. As an author, I feel a little at the mercy of Amazon. But, on the other hand, it is rather convenient and opened up an opportunity at publishing I didn’t have before the growth of e-books.

Kate Pool, deputy chief executive of the Society of Authors, expressed concerns that Amazon may be abusing their monopoly power to squeeze the margins of authors.

“Our concern is the increasing dominance that Amazon is having,” she said. “It is starting to change the perception of books entirely and the danger is people will start to see them in terms of cheap items rather than the price reflecting the time and research that has gone in to it.” (self-publishers)

Barriers to entry are very high in the e-book sales markets. For example, it is very difficult for any new firm to replicate the market penetration, brand loyalty and market dominance that Amazon have. Small authors and publishers have only limited power to influence the market.

Maybe there is sufficient competition?

  • It is possible that Amazon are concerned that if they get too greedy, it could cause another powerful tech firm like Google / Apple to enter the market for selling e-books. For example, Google is able to use its dominance of the search engine market to overtake Facebook in promoting its’ G+ social media alternative. Apple and Barnes & Noble have already shown that a firm can challenge Amazon. The fact Amazon’s market share of e-books have fallen from 90% to 70% suggests competition may continue to intensify. However, there is no guarantee traditional book sellers like Barnes & Noble will survive this new cut price market. If Barnes & Nobel / Waterstones in UK go bust, it will leave Amazon with even greater market power.
  • Low prices are good for consumers. The other side of the equation is that lower prices of e-books is good for consumers.
  • Lower costs. Another issue with e-books is that with lower costs of publishing, you would expect the price to be lower than traditional books. But, is it fair that the lower costs benefit the retailer, rather than author who still has to spend time researching and writing?
  • E-books is a new market for authors. E-books offer new opportunities for authors, which didn’t exist before. E-book make it much more practical for authors who sell low volumes or want to publish short booklets. Amazon make it very easy to go from writing a book to instant selling. There are benefits as well as costs from having a dominant firm which has an instant access to the national market.
  • Ironically, in the US, the e-book market is being investigated for artificially fixing high prices for consumers. – Apple, Amazon and the battle for the – e book market at New Yorker.

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By on March 11th, 2013

2 thoughts on “The monopoly power of Amazon

  1. “any book, over $9.99 will receive only 35% royalties”. Do you mean 35% of the amount over $9.99 or 35% of the total price (if over $9,99)? Thx

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