It looks like Amazon and independent book marketplace ABE Books are going to merge.
Amazon has a 50% market share in the new book marketplace, and I suspect their presence in the used book marketplace is more substantial than that.
I’d research exact stats on that, but this question is more general than that.
There’s also word of them competing with publishers, including notes to that effect in their SEC filings.
My feeling is that they’re working their way towards monopoly status, and this consolidation isn’t a wise move from an anti-monopoly perspective.
What’s the actual point at which regulators care that you’re becoming a monopoly?
Would this even be close?
50% is way too high. PW just had an article on this:
That’s total online, which means that Amazon’s percentage is lower than that. I would doubt if it were much over 10%.
New books are highly driven by bestseller sales, and discounted bestsellers sell best at Wal-Mart and Sam’s Club, along with the big chain stores.
No fed would look at Amazon. It’s not a monopoly, it’s not close to a monopoly, and it’s not going to be a monopoly in any foreseeable future.
Even if Amazon got 90% of the market, that would probably be too low to trigger a federal antitrust suit. There are simply too many other competing outlets and too many other competing publishers.
Besides, in general the feds would never touch an online presence in the current state. Too many seemingly hugely overwhelming online names have disappeared into photons when a competitor offered a better model. Being an online retailer is about as safely non-monopolistic as a business can be.
That’s what I get for trusting a blog.
Thanks for the analysis.
I guess I shouldn’t be too worried; I market my used books in my private business on 6 sites. If I price right, it’ll sell ANYWHERE.
None of those are ABE; their monthly fees are silly if you have less than 20,000 books and don’t have a substantial collection of signed First Edtions.
As a general rule of thumb, I’d say a company is too big when it reaches 51% of its market. At that point it can tell its suppliers “We want an exclusive business relationship. We won’t do business with any supplier that works with any of our competitors. You have to make a choice: us or them.” The supplier will then have to decide whether it should lose 51% of its business or 49% of its business (assuming it supplies every other competitor). They’re going to make the rational deciusion and cut off the smaller competitors. The big company is now the only business that sells that product so it will increase its customer base.
That rule of thumb only works when a business or industry creates its own niche supply industry. I’m not saying it doesn’t happen, but what I’m saying is that these business created their own situation. The same is true when an industry shrinks its players down to just a few. Exclusivity agreements happen all the time, and I think isn’t a big as a problem in a monopolistic or oligarchic setting, as say, lobbying for special regulations. Exclusivity agreements still don’t prevent competition from entering the market.
I can’t think of too many business situations in which it wouldn’t be applicable. It’s not theoretical. Businesses do make “us or them” demands to their suppliers.
I don’t see how you feel that these exclusivity agreements don’t inhibit competition. How am I supposed to open a video rental store when the DVD suppliers have agreed to only sell DVDs to Blockbuster? How am I supposed to open my bar when the beer distributers have agreed to only sell beer to TGIF? How am I supposed to open my comic book shop when Marvel and DC will only supply comic books to Borders? What am I supposed to do - break into the business by opening a national chain of a thousand stores all in the same week?
Most of those examples aren’t from businesses compelling distributors to work only with them; just the opposite, they’re from content providers seeking to guarantee a platform for their product by trading exclusivity for promotion.
That’s interesting in business terms, but it’s not the same thing.
There are exclusivity demands in many businesses. But they are hard to enforce and may actually be self-defeating in the long run. As a manufacturer, which would you rather have: 2% margins in 51% of the industry or 4% margins in 49%? They don’t work all that well on the other end, either. Wal-Mart is known for them but Target keeps doing better on a store-by-store basis.
I don’t consider exclusivity a big deal at all. Most products in any industry are available absolutely everywhere. Most products are so available that it’s hard for any store to compete on the basis of product. A bigger issue for consumers is the production of almost identical products with different names and model numbers so that they can’t be compared from store to store. You can find that in a range of products from running shoes to GPS devices to mattresses. That’s an exclusivity issue I worry more about.
Do you really believe that when a distributor agrees to only sell its product to a single retail outlet, it was the distributor who initiated the deal? Why on Earth would any distributor want to limit its customer base? Distributors want to sell their products to as many outlets as possible. It’s the outlets that push for exclusivity agreements because it helps their business to be the exclusive supplier to the public.
In that case, I’d go with the 49%. So if I owned the big outlet, I’d be stupid to suggest those terms. I’d limit myself to a 3.5% margin for myself and tell my suppliers they can sell to the small outlets at a 4% margin. It’s a small enough edge that I’ll still be the more profitable side of the sales, so they’ll agree. And even though it’s a small advantage it should be enough to move me a little further ahead in the market. Next year when I control 53% of the market and the other guys have 47%, I’ll meet with my suppliers again and bump the margins another half-percent in my favor. In a few years, I’ll be undercutting the competition by ten percent or so.
For examples like those you gave, yes, I do. Or I should say that retailers and distributors seek each other out and propose these deals all the time, so it can be hard to distinguish who is responsible. But the distributor often initiates the deal. Why? For the reason I said. Publicity and promotion. Far better to have a CD or DVD in Blockbuster or BestBuy and know that it will get featured coverage in all advertising material than to throw it out into the market and see if it sinks or swims. Nobody does this all the time, of course, because that cheapens the message. It does work for certain targeted products.
This is a variation on a long-standing technique. Those end-caps you see in supermarkets or the “new fiction” tables in big bookstores are all bought and paid for the company pushing the product. Borders will charge up to $3000 a space for putting the book on that table or a similar one. Publishers come to them with books they want to push.
Do you have actual examples of this practice to point to?
When you see a book being marketed in Barnes & Noble as a “Barnes & Noble exclusive” do you honestly believe that it was because the publisher didn’t want Borders selling his book? Seriously?
Yes I do. They’re frequent enough although obviously it’s not something any business wants to give a lot of publicity to.
I’m sure you wanted me to cite examples but I’m going to plead off for the moment. I’m on vacation and my time and computer access is limited - I really don’t want to get into a long search for cites. If you remind me sometimes in the middle of next week, I’ll be back home and I’ll get on it.
No, I believe it’s because B&N acts as its own publisher. That’s also pretty much the only time you see it.
As far as monopolies and the law go, I don’t know much about this, but isn’t it the Mann act of about 100 years ago that set the stage for all of this? I think what the law is worried about is coercive unlicensed monopolies. That is, if you figure out a way to prevent people from buying products from your competitors even though you want to, that would be a coercive monopoly. In some cases this is allowed - for example, a patent allows you to maintain a coercive monopoly with the government enforcing it, in the sense that you may sue infringers and the government will hear and enforce your case.
If a company can grow to become a monopoly by providing better products and services, I think the Mann act does not try to discourage this, though there was a case tried by Judge Learned Hand against the Aluminum Company of America (“Alcoa”) that famously did try to enlarge the law in this direction (some years ago Alan Greenspan wrote a fascinating article about this).
About mergers giving a company such a large share, I must hope for more posts from experts.
I really, really don’t think that the Mann Act is the Act you’re thinking of. :dubious:
Ooof. Gee, Exapno, following your link, that sure doesn’t look familiar. I don’t know what the problem is, but, no, I wasn’t talking about that one. Thanks for catching the error, and sorry, all! I’ll see if I can find what I meant…
Well, as it was discussed in Cafe Society, a video store can buy from someone else, not direct from the manufacturer, and still rent out the video. You can also buy your beer from TGIF or buy another brand. The Clayton Act prevents most, if not all (it’s been a while since I studied it) of the anti-competition stuff you seemed to be concerned about. While you don’t have to be a national chain right off the bat, if you plan on any large purchases any business will give you some sort of discount. Even Costco. At my local Costco, I see hair salon owners and convenience store owners all the time.
My own company has set exclusive distribution agreements for many of our products, solely because we know that these distributors have high profiles and do an extremely good job of advertising and promoting our products. At the same time, we now know a minimum of production needs, and we can price our internal costs accordingly and better plan for future products and future growth. This might cost us some future opportunity for sales, but the information we receive to use for current planning is invaluable.
Like I said, this only becomes any sort of a problem if the business created itself to be a supplier in a niche industry (or to be a niche supplier itself). In those cases, yeah, it seems like that niche business is screwed, but they created that situation themselves. If they can’t re-tool to become more competitive or grow out of their situation (increase leverage, what have you) then it’s their problem.
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Well, as it was discussed in Cafe Society, a video store can buy from someone else, not direct from the manufacturer, and still rent out the video. You can also buy your beer from TGIF or buy another brand. The Clayton Act prevents most, if not all (it’s been a while since I studied it) of the anti-competition stuff you seemed to be concerned about. While you don’t have to be a national chain right off the bat, if you plan on any large purchases any business will give you some sort of discount. Even Costco. At my local Costco, I see hair salon owners and convenience store owners all the time.
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It’s not a case of a national monopoly going around and telling all its local competitors to get out of town or else. It’s just a matter of them getting an exclusive discount from the same suppliers and then letting the free market have its natural effect. When a group of businesses are competing and one of them is paying ten percent less for its supplies then it’s obvious who’ll still be in business in five years.
It’s nice that you have your loceal hair salon and convenience store owners shopping for their supplies. They don’t have any national chains that control the majority of their businesses so they aren’t related to what I said. Do you see a lot of local department store or local bookstore owners? Those are businesses that are going under.
I am once again going to ask for cites of real department stores and bookstores that are going out of business because their competitors are getting exclusive deals.
You never heard of Boric’s or Fantastic Sam’s or Hair Cuttery? You never heard of Circle K, AM PM, or 7-11? 7-11 has exclusive deals from their deli sandwiches, donuts and coffee. I’m pretty sure some of the suppliers of Surplee products are exclusive, too. Now that I think about it, there is plenty of exclusivity deals with advertising. None of these things creates any sort of anti-competition. Local department stores have been going off the way side since Sears.