06 February 2013

B&N on the ropes. So what?

Lion of the Blogosphere | Barnes and Noble not doing well

Regarding their e-business, it will ultimately be unfortunate if Amazon gets a monopoly on book sales (both physical and ebook) because in the long run, that means higher prices for consumers when Amazon uses its monopoly power to jack up prices and increase profits.
Can anyone point out to me when this has actually happened? This is a serious question. I totally understand how it happens in theory, but has that theory ever been observed in the wild? I don't remember one single item in my life in which I was merrily buying from the low-cost provider only to see them jack up their prices as soon as they achieved market dominance. Nor do I ever remember being saved from that fate by the heroic actions of the FTC.

Can some one give me some examples of a company gaining market dominance, driving competitors out of business, and then jacking up prices? Sustainably? Without using government coercion to maintain its position?* If not, I'll settle for an example of when it was about to happen, but didn't because of decisive government anti-trust actions.

(* "Except where generated by government regulation, sustainable competitive advantage simply doesn’t exist.")

The only example** I can think of is Diamond, the only large-scale comics distributor, but the problem seems to be as much due to the dominance of DC and Marvel as the "Big Two" producders as it does to their solitariness as a middleman.

(** Putting aside "natural monopolies" like utility grid operators, which is different kettle of fish, and which despite their supposed natural-ness could still be potentially de-monopolized in various ways.)

In contrast, even in the deep dark days of Standard Oil, the prices of kerosene & other petroleum products actually fell. Dramatically. Either monopolists don't have as much power as theory suggests, or they're really bad at being monopolists, or they're insufficiently greedy to maximize their revenue.
But at present, Amazon is clearly the better website.
That "at present" is the catch. They're presently set up to become the only bookmonger because they're presently the best. If they jack up prices, they cease being the best, at which point they cease being the only.


See also:
Coyote Blog | Warren Meyer | Anti-Trust Law and the Corporate State

[Kevin Drum] seems to be arguing that we consider returning to a pure bigness standard without reference to consumer harm. I am not sure that we ever followed such a standard, but certainly today the alternative to a consumer harm standard is not a bigness standard but a competitor harm standard. Whether he knows it or now, this is essentially what Drum is advocating. ... I am not sure what Drum really wants, but the result of eliminating the consumer-harm standard would be an environment where every failed company can haul its more successful competitors in front of the government and then duke it out based on relative political pull rather than product quality.

5 comments:

  1. Do airlines count? In the 90s, NorthWest got competition for the Minneapolis/St. Paul hub from some low-cost airline. NWA dropped prices, ran the other airline out of business because they just can't compete, then when other airline left, NWA promptly raised prices to old levels.

    I think NWA itself is now out of business or has been bought, though.

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    1. Hmmm. Good thinking.

      NWA was absorbed into Delta. I'd want to see a more complete picture of prices into and out of MSP before and after.

      I don't know a lot about how airports are operated, but I know they're far from a free market. I'm not sure of the specifics, but I'd bet NWA was able to pull that off due to some combination of restrictions on landing slots, gate fees, gate leases, etc. Landings slots can't (or couldn't then?) be sold easily in a secondary market, for instance.

      I'd also add that MSP is run by a state agency, so that increases my estimate that NWA was able to do this in part through governmental intervention.

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  2. What Kevin Drum wants is the elimination of any large organization (except the government) that produces anything or supplies any service. He wants us to return to a simpler life, where everyone knows everyone else in the community, and everyone strives )voluntarily and cheerfully, no less!) to produce those items and services that the community needs, within the community. The government is there to prevent anyone from getting the wrong ideas or doing anything that would disturb the harmony of the community. That would include thinking about people or things outside the community, or traveling outside the community, where bad ideas might be encountered. The government is there to protect the community.

    See?

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    1. That makes much more sense now! Thanks! If only I appreciated how wise and benevolent Drum was before I posted this.

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    2. This sounds a LOT like “Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato” (everything for the state, nothing outside the state, nothing against the state.)

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