Paul Krugman Thinks Amazon Has Too Much Power

Paul Krugman is one of the most controversial economists and public intellectuals who regularly criticizes businesses and politicians. Of late, he has taken full aim at Amazon, asserting that the online retailer has too much power.

Salon has reported that New York Times columnist and Nobel prize-winning economist Paul Krugman has added his voice to Amazon’s ongoing dispute with the Hachette Book group over e-book sales terms.

The dispute has its genesis in the federal government’s e-book antitrust pricing settlement with publishers. Publishers supply e-books to retailers at a price set by the publishers but which retailers are able to discount. Retailers such as Amazon get a roughly 30 percent cut of the fixed price, but any discounting reduces the retailers’ actual take. In the talks with Hachette, Amazon is seeking a higher percentage split, an agreement that Hachette has no interest in.

The publishing world has been in an uproar over the dispute between Amazon and publisher Hachette, with writers and readers caught in the middle. The standoff escalated, with Amazon pulling pre-order buttons from well-known writers such as J.K. Rowling and Michael Connelly.

According to Publishers Weekly, Krugman characterized Amazon as a monopsony.

In his op-ed column published in the New York Times, Krugman gave an explanation.

“Does Amazon really have robber-baron-type market power? When it comes to books, definitely. Amazon overwhelmingly dominates online book sales. Even if you look at total book sales, Amazon is by far the largest player.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.”

Krugman went on to compare Amazon to the monopolistic abuse of power by J.D Rockefeller’s Standard Oil, noting Amazon has immense market power, even beyond its market share.

The growing market power of Amazon, as discussed by Krugman, was revealed by The Inquisitr in a report which announced the debut of AmazonFresh, Amazon’s online grocery service.

[Credit: AP Photo/ Francisco Seco]