Amazon Makes Waves with Reduced E-Book Pricing

Published May 31, 2016

Amazon’s move to lower the sales price of its e-books has prompted competitors and book publishers to charge the Internet retail giant with an attempt to impose a monopoly on the industry. Free-market economists, however, say letting the market set prices is best for consumers.

After the U.S. Department of Justice announced in early April it was suing five major publishers and Apple for price-fixing on e-book pricing, Amazon announced plans to cut its e-book prices from $14.99 to $9.99 or less. That was the price Amazon charged before the Apple agreements forced up prices for all ebook sellers, including Amazon. Three of the publishers named in the DOJ suit simultaneously settled.

Amazon’s pricing announcement prompted some industry analysts to claim the company was “dumping” product to consumers in order to make inroads with Apple customers, an assertion countered by researchers at The Heartland Institute and the San Jose State University Department of Economics.

Prohibition Doesn’t Ensure Competition
Edward J. Lopez, an associate professor at the SJSU Department of Economics, says a genuinely competitive marketplace is “a more potent antidote to perceived price collusion. If you look at the terms among those firms that have settled, they all prohibit specific business practices. But just prohibiting these practices won’t ensure competition in this dynamic, innovative arena,” he said.

“We need different business models and new pricing agreements to emerge among competing publishers, distributors, and device makers,” Lopez added. “Regulations that prevent specific firms from engaging in specific practices go in the opposite direction, toward centralized control rather than decentralized innovation. So at minimum we should scrutinize the DOJ’s silver-bullet claims that these settlements will restore competition, and we should think more deeply about competition as a dynamic, open-ended process that no one knows enough about to control very well.”

“The notion that Amazon or anyone else has a monopoly over book publication is simply false,” said Samuel Karnick, research director at The Heartland Institute, which publishes InfoTech & Telecom News. “Amazon’s decision merely moves the market back to where it was before Apple made agreements with publishers to raise prices. Publishers used their leverage to push up prices on Amazon, and Amazon is now using its leverage to push them back down. This sort of market activity is good for consumers,” he said.

Bruce Edward Walker ([email protected]) is managing editor of InfoTech & Telecom News.