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walkitoutI've seen a variety of comments on the Hachette/Amazon ongoing negotiation woes. Obvs, a bunch of people say intemperate things like, "Hachette should quit selling its product on Amazon" or "Amazon should refuse to carry Hachette's products"!
I never took these things very seriously, partly because of the Macmillan buy button thing being so short-lived, but mostly because I've heard of "Refusal to Deal".
Over on Jon Konrath's blog, Lee Child is quoted saying:
"I said I think Amazon overestimates the value of Hachette’s catalog to Amazon. My point was quite clear – Amazon won’t dump Hachette because Amazon’s own internal credo is built on being the everything store. Which dilutes its negotiating power. All negotiations are built on a willingness to walk away. Amazon isn’t willing."
http://jakonrath.blogspot.com/2014/09/lee-child-responds.html
So this is really interesting. Hachette was part of the settlement. When they work in concert with other large publishers in setting prices, they are exploiting market power in a Not Legal Way. The publishers have been arguing all along that Amazon has market power. Well, here is what the FTC has to say about corporations which have market power and engage in "refusal to deal", which is what we call it when someone refuses to buy from or sell to.
http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/refusal-deal
"But courts have, in some circumstances, found antitrust liability when a firm with market power refused to do business with a competitor. For instance, if the monopolist refuses to sell a product or service to a competitor that it makes available to others, or if the monopolist has done business with the competitor and then stops, the monopolist needs a legitimate business reason for its policies. Courts will continue to develop the law in this area."
These are companies, this is a business relationship that has already run afoul of antitrust law. Jeff Bezos is not a stupid man (ha ha ha -- that's weaponized understatement. In any situation where you disagree with Bezos for business reasons, you're wrong. You might legitimately have a difference of values or politics, but on a business question? Ha ha ha ha ha.). Jeff Bezos does not want the expense or other problems associated with being the company which develops this undeveloped part of antitrust law.
If Hachette is smart, they won't be that company, either.
ETA: Also, Lee Childs is wrong about negotiations being built on a willingness to walk away. They are technically based on BATNA, which is the best alternative to a negotiated agreement. Which is exactly the relationship which Amazon and Hachette currently have, and it does not require refusal to deal.
ETAYA: If you think Hachette and Amazon are not competitors you have failed to pay attention.
ETA post comments: Someone has been anonymously posting in response to this post, mostly to argue about my assertion that Hachette and Amazon are not competitors. I've tried to be fair and unscreen comments to respond, but while they are nominally on topic, they are not of a very high quality. When I worked at Amazon, one of the proposed lines of business was for Amazon to start selling reprints of public domain titles (the same kind of publishing which Barnes & Noble engaged in at the time). At the time (and I left in the fall of 1998, so this would have been before that), the idea was nixed, IIRC, largely because it would put Amazon in the position of competing with its suppliers (that is, Amazon as publisher would be in competition with the publishers it bought published works from). The idea that Hachette and Amazon, now that Amazon has well and truly become a publisher, are not competitors simply because THEY ARE ALSO in business as supplier/retailer, does not need to be belabored further. Two companies can have any number of relationships with each other, and when commerce regulators get involved, they look at all of them. If you post comments on this, I'm not unscreening them if they just argue this point further.
ETA Still more: http://lawstreetmedia.com/news/headlines/hachette-win-lawsuit-amazon/
This presents an Amazon as monopsony + Amazon is refusing to deal already argument. The author recognizes that this is weak, because Amazon hasn't entirely cut off Hachette, and courts are picky (my word) about the definition of refusal to deal.
The idea that Amazon would be approaching dangerous territory by cutting off Hachette entirely, but can stay in the clear by maintaining the same terms for Hachette that it offers to all comers, and by encouraging their customers to purchase Hachette products from competitors -- a bunch of people thought that was weird. I just assumed it was ass covering in the event of legal trouble. It's hardly "anti-competitive" if you suggest your customers might enjoy shopping from Barnes & Noble amirite being the theory at play here.
Barnes & Noble _has_ reduced its purchases and presentation of publishers from time to time in the course of business negotiations (Hugh Howey has written about how this affected him), but just like Amazon, they didn't entirely terminate the relationship. Just reduced orders, no end caps, no promotion, etc.
ETA Final: Comments are about to be closed. There was only the one commenter and they became abusive.
I never took these things very seriously, partly because of the Macmillan buy button thing being so short-lived, but mostly because I've heard of "Refusal to Deal".
Over on Jon Konrath's blog, Lee Child is quoted saying:
"I said I think Amazon overestimates the value of Hachette’s catalog to Amazon. My point was quite clear – Amazon won’t dump Hachette because Amazon’s own internal credo is built on being the everything store. Which dilutes its negotiating power. All negotiations are built on a willingness to walk away. Amazon isn’t willing."
http://jakonrath.blogspot.com/2014/09/lee-child-responds.html
So this is really interesting. Hachette was part of the settlement. When they work in concert with other large publishers in setting prices, they are exploiting market power in a Not Legal Way. The publishers have been arguing all along that Amazon has market power. Well, here is what the FTC has to say about corporations which have market power and engage in "refusal to deal", which is what we call it when someone refuses to buy from or sell to.
http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/refusal-deal
"But courts have, in some circumstances, found antitrust liability when a firm with market power refused to do business with a competitor. For instance, if the monopolist refuses to sell a product or service to a competitor that it makes available to others, or if the monopolist has done business with the competitor and then stops, the monopolist needs a legitimate business reason for its policies. Courts will continue to develop the law in this area."
These are companies, this is a business relationship that has already run afoul of antitrust law. Jeff Bezos is not a stupid man (ha ha ha -- that's weaponized understatement. In any situation where you disagree with Bezos for business reasons, you're wrong. You might legitimately have a difference of values or politics, but on a business question? Ha ha ha ha ha.). Jeff Bezos does not want the expense or other problems associated with being the company which develops this undeveloped part of antitrust law.
If Hachette is smart, they won't be that company, either.
ETA: Also, Lee Childs is wrong about negotiations being built on a willingness to walk away. They are technically based on BATNA, which is the best alternative to a negotiated agreement. Which is exactly the relationship which Amazon and Hachette currently have, and it does not require refusal to deal.
ETAYA: If you think Hachette and Amazon are not competitors you have failed to pay attention.
ETA post comments: Someone has been anonymously posting in response to this post, mostly to argue about my assertion that Hachette and Amazon are not competitors. I've tried to be fair and unscreen comments to respond, but while they are nominally on topic, they are not of a very high quality. When I worked at Amazon, one of the proposed lines of business was for Amazon to start selling reprints of public domain titles (the same kind of publishing which Barnes & Noble engaged in at the time). At the time (and I left in the fall of 1998, so this would have been before that), the idea was nixed, IIRC, largely because it would put Amazon in the position of competing with its suppliers (that is, Amazon as publisher would be in competition with the publishers it bought published works from). The idea that Hachette and Amazon, now that Amazon has well and truly become a publisher, are not competitors simply because THEY ARE ALSO in business as supplier/retailer, does not need to be belabored further. Two companies can have any number of relationships with each other, and when commerce regulators get involved, they look at all of them. If you post comments on this, I'm not unscreening them if they just argue this point further.
ETA Still more: http://lawstreetmedia.com/news/headlines/hachette-win-lawsuit-amazon/
This presents an Amazon as monopsony + Amazon is refusing to deal already argument. The author recognizes that this is weak, because Amazon hasn't entirely cut off Hachette, and courts are picky (my word) about the definition of refusal to deal.
The idea that Amazon would be approaching dangerous territory by cutting off Hachette entirely, but can stay in the clear by maintaining the same terms for Hachette that it offers to all comers, and by encouraging their customers to purchase Hachette products from competitors -- a bunch of people thought that was weird. I just assumed it was ass covering in the event of legal trouble. It's hardly "anti-competitive" if you suggest your customers might enjoy shopping from Barnes & Noble amirite being the theory at play here.
Barnes & Noble _has_ reduced its purchases and presentation of publishers from time to time in the course of business negotiations (Hugh Howey has written about how this affected him), but just like Amazon, they didn't entirely terminate the relationship. Just reduced orders, no end caps, no promotion, etc.
ETA Final: Comments are about to be closed. There was only the one commenter and they became abusive.
What is the issue in the Hachette controversy? Are they right or wrong?
Date: 2014-10-03 05:13 pm (UTC)Re: What is the issue in the Hachette controversy? Are they right or wrong?
Date: 2014-10-03 07:21 pm (UTC)Hachette and Amazon are competitors. Both publish work which is not published elsewhere. Over the last few years, Amazon has been expanding its publishing lines as well as expanding its options for self-publishers. The most recent expansion is probably designed to make it more possible for people we would otherwise think of as self-pubbers to be eligible for writing awards and writing groups, which are bastions of cultural legitimacy currently accessible only to authors who receive TradPub endorsement in the form of minimum advances, separation of publishing entity from author, etc. The person in the Konrath blog post, Lee Child, specifically says in an earlier post in the same forum that Amazon wants to be the biggest/only publisher and put other publishers out of business.
Whether Amazon has such a desire or not is largely irrelevant to the following analysis. Amazon _is_ a publisher which is in competition with Hachette to buy works produced by authors and then, er, publish them. If Amazon then turns around and refuses to do business with Hachette, it could be construed as an attempt by Amazon to turn its monopsony power as a purchaser of published works for resale into market power in its other role as a publisher of works for direct sale to customers and also to other retailers of books.
Actually, it would be pretty damn easy to construe it that way.
I have no idea what the particular issues are between Hachette and Amazon in their relationship as supplier of published works and purchaser of published works for resale. I have no opinion, therefore, as to who is right or who is wrong in that negotiation. I am very clear, however, that if either refuses to do any business with the other (in the minimum sense that Amazon will buy published works from just about anyone for resale, and Hachette will sell the works they publish to just about anyone for direct use or resale -- that is, each has terms upon which they will do business with all comers), it will look suspiciously like a punitive measure to improve their market power position.
Hachette _might_ be able to get away with refusing to deal with Amazon (at least from an antitrust perspective -- from a business perspective, not so much), except for the fact they are already under heightened scrutiny because of their previous efforts in concert with other large publishers. And Hachette would undercut its ability to buy or sell itself to competitors in an effort to improve its negotiating position with respect to Amazon, which may be the post-Price-Fix strategy.
Amazon cannot get away with this kind of refusal to deal with its competitor/suppliers. Governments would take an interest. Customers would be troubled. Authors would be concerned. It probably wouldn't hurts its sales, particularly, as Lee Child noted, but you cannot pretend that the rest of the politico-economic environment just doesn't exist.
You are correct in observing that "no retailer is forced by law to carry every wholesale line". But a retailer that shut out a previously major supplier because of a dispute about an area in which they compete is going to enjoy some heightened scrutiny and concomitant legal costs.
Re: What is the issue in the Hachette controversy? Are they right or wrong?
Date: 2014-10-04 02:31 am (UTC)Re: What is the issue in the Hachette controversy? Are they right or wrong?
Date: 2014-10-04 02:44 am (UTC)I'm not sure why you bring up monopoly. Amazon is probably currently and legally a monopsony. They are not a monopoly and unlikely to become one. However, antitrust is not just about monopoly, despite idiots like you trying to make it be about monopoly. A monopsonist who attempts to take their existing market power and leverage that to improve other aspects of their business (include small endeavors such as Amazon's publishing operation) can run afoul of antitrust regulators.
Whoever this anonymous poster is clearly cannot bring themselves to understand the most basic aspects of antitrust law. Which is characteristic of a lot of the debate on this topic. For example, monopoly considerations do not have to result in higher prices to the consumer. Regulators can and have stepped in when commerce has been suppressed as a result of monopoly or monopsony behavior, for example, when suppliers choose to quit supplying/engaging in an aspect of business because the monopsony buyer won't pay enough. However, Amazon's price pressure has not (so far) resulted in authors stopping writing and publishers stopping publishers, so that effect is not a factor (yet). But even if prices go down AND no commerce is suppressed, regulators might still step in taking action against anticompetitive behavior if a monopsony engaged in refusal to deal, which has been my point all along.