[opendtv] Re: Electric power as a natural monopoly

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Sat, 15 Feb 2014 08:33:35 -0500

> On Feb 14, 2014, at 8:11 PM, "Manfredi, Albert E" 
> <albert.e.manfredi@xxxxxxxxxx> wrote:
> Do you have evidence that they sold books below cost? Thing is, they wouldn't 
> have needed to use predatory pricing. 

Yes, there is a large body of evidence that Amazon sold Best Sellers, and other 
categories of printed books below their wholesale cost. Here is part of an 
excellent analysis by the Huffington Post.

> If you read the Justice Department's complaint, you'd get the impression that 
> the publishers adopted the Agency Plan as a means of maximizing their profits 
> at the expense of the consumer. Nothing could be further from the truth. All 
> the evidence shows that the Agency Plan was adopted as a defensive measure 
> against a very real threat by Amazon to monopolize both the e-book market and 
> the larger print-book market. The Justice Department lawyers closed their 
> eyes to all that, as they were seemingly swept up by the Amazon mystique.
> The kindest way to describe the Justice Department's analysis is to say that 
> it was superficial. The DOJ latched on to the idea that Amazon would no 
> longer be able to sell e-books from those publishers at $9.99 -- the price at 
> which it had been selling them before the Agency Plan went into effect. They 
> viewed that development as price-fixing, and as far they were concerned that 
> ended the argument.
> But it should have been just the beginning of the analysis. It is clear even 
> in paragraph 30 of the DOJ's own complaint that Amazon was engaging in 
> predatory pricing -- i.e. by selling e-books at $9.99, Amazon was selling 
> them below cost. Predatory pricing is illegal under federal law and under 
> most state laws. Selling below cost is one of the principal tactics used by 
> would-be monopolists to force smaller companies into a ruinous price war that 
> will eventually put them out of business. With their competitors gone, 
> monopolists can then raise their prices to any level they want. Even if the 
> Justice Department was reluctant to stop Amazon from engaging in predatory 
> pricing, it is truly shocking that it would use its power, as it has here, to 
> force others to accept it.
> If the DOJ had been doing its job, Amazon's predatory pricing should have 
> been the tip-off to some far deeper problems. Those tactics didn't just begin 
> recently. Amazon has been selling print-books below cost for a number of 
> years. It continues to pressure publishers relentlessly for special deals 
> that aren't available to its competitors, using as one of its favorite 
> tactics the abrupt, unannounced de-listing of the publisher's book s from its 
> website. According to many experts, Amazon has priced its Kindle Reader below 
> cost, and it has magnified the impact of that tactic by allowing only books 
> sold by Amazon to be read on the Kindle. Even Amazon's fanatical opposition 
> to collecting sales tax fits into this picture as part of an effort to drive 
> a deep wedge between its prices and those of its competitors. There is plenty 
> of evidence that Amazon is using these tactics to attempt to monopolize both 
> the e-book and the print-book markets, but the Justice Department apparently 
> ignored all of it.

And it is not just books. This article - part of a three part series on Amazon 
- talks about the way Amazon uses brick and mortar retailers for "showrooming," 
avoiding the expense of a physical store where customers can look at a product 
before buying. At one point Amazon offered an app that allowed customers to 
scan the bar codes in a store, to see the Amazon price; they withdrew the app 
when retailers cried foul. And Amazon is broadly criticized for abruptly 
terminating its "third party sellers," often just before the Christmas buying 
season, then simply refusing to tell them why they were terminated.


> They jumped into Internet retailing early on, big time, quickly moving *well 
> beyond* just books. An Internet retail business that sells products which you 
> don't need to "try on" or otherwise handle, before purchase, can't help but 
> pose a threat to old time stores. All it took was for people to get 
> comfortable with online shopping.

See above. People still want to touch and feel many products. Showrooming has 
driven many brick and mortar retailers out of business. Amazon has been in 
business for nearly twenty years, yet it has never made a meaningful profit; it 
often operates with manageable quarterly losses. But Wall Street loves Amazon, 
giving the stock a mind boggling price to earnings ratio of 550; meanwhile, 
Apple, one of the most profitable companies in the world trades at a PE ratio 
of 13.5.
> And really, there's no reason for this diatribe against Amazon. Internet 
> distribution, advertizing/customer reviews of other products at the same web 
> site, much lower overhead, a nationwide or worldwide clientele, the 
> possibility of selling electronic versions of books and music (reducing the 
> need for the services of publishers, who are also middlemen, after all), all 
> of these factors conspire to make Internet retail very competitive. As long 
> as the actual content creator is compensated as he was previously, 
> eliminating unnecessary overhead is *totally* fair game.

It is hard to stomach this explanation, if you were driven out of business by 
Amazon. But as Jeff Bezos said in his now legendary CBS’ “60 Minutes” interview 
- the one where he revealed that Amazon is testing the delivery of your 
purchases with drones - "It’s “the future” that’s killing bookstores, he said 
with an awkward smile. Not Amazon. “People can complain about that, but 
complaining is not a strategy,” he told the network.

Publishers, like the music moguls, do play a role in their industries, 
providing "seed capital" to fledgling authors and promoting their wares. Do 
they take too big a cut? Probably! 

The fact that prices to consumers have actually decreased since the industry 
moved to the agency model suggests that the publishers were willing to reduce 
their margins, in order to create a system where retailers (both physical and 
virtual) could actually make a profit.

> It's a bit like the conspiracy theory wrt trollies vs the automakers. Hey, 
> EVEN IF the automakers didn't deliberately conspire to bring down the 
> trollies, there's hardly any doubt that the average joe would have done so 
> anyway. Just because private transportation is way more convenient, most of 
> the time, for most people, than public transportation. Make cars affordable, 
> and they were bound to win.

Bad analogy. Cars were already popular before busses replaced trolleys. GM used 
predatory pricing to kill the trolleys, which are starting to make a comeback 
in some cities. But the freedom from the physical infrastructure that trolleys 
used was also a significant factor, just as online shopping has reduced the 
need for brick and mortar "showrooms."

> To me, it stands to reason that the congloms either do now, or soon will, 
> extend this Amazon example to their own distribution choices. And why 
> should't they? All the conglom needs to see is equal or better returns to 
> himself.

You still don't get it.

For some reason TV/movie content has remained above the fray. Nobody has been 
able to use the Internet to put a dent in the content and distribution 
oligopolies, and now the distribution oligopoly is becoming the ISP oligopoly, 
with the potential to use predatory pricing to favor their content services 
over competitors, or at a minimum, to charge competitors for the privilege of 
improving their quality of service.

It is very important to note that the content and distribution congloms are 
VERY profitable, enjoying the fruits of monopoly rents, and revenue growth that 
is consistently 2-3 time the rate of inflation. 

So please explain why these industries have proven to be immune from the same 
competitive destruction that other industries have experienced because of the 

> Again, this diatribe is totally beside the point, as far as I'm concerned. 
> FWIW, I'd much rather see standard-based tablets and e-readers that can 
> injest standard documents, e.g. Acrobat format. Acrobat files can be 
> encrypted, if that's your concern. If Apple came under extra scrutiny, my bet 
> is they did so because of its their overly aggressive vertical integration 
> model. I don't ascribe exclusively honorable motives to Apple as you do, 
> Craig.

Acrobat apps are commonplace on all of the mobile platforms. Apple's platforms 
use Acrobat intensively; OS-X uses display postscript as it's native rendering 
engine and ANY document from ANY application can be saved in Acrobat format. 
iOS supports acrobat and all of the Microsoft Office formats natively - the 
iBooks App allows you to put Acrobat documents into your library, and it fully 
supports E-books from Amazon. and the Kindle App for iOS lets you buy titles 
from Amazon, and move seamlessly between an iPad and a Kindle while reading a 
book. Amazon does not support Apple E-books on the Kindle or their Fire tablets.

Yes Apple came under scrutiny. The Huffington Post article I cited opens with 

> The record of the Anti-trust Division of the U.S. Department of Justice over 
> the last 40 years has been a sorry one. Sometimes it goes after companies 
> that have done nothing wrong, but more often it lets big-time antitrust 
> violators get away with murder. In a recent case -- one that has roiled the 
> publishing industry -- the DOJ has managed to do both. The Justice Department 
> is hounding MacMillan and Penguin Publishers, even though those companies and 
> other publishers have done nothing more than try to protect their business 
> from the unfair tactics of Amazon.com. In the meantime, the DOJ has given 
> Amazon a green light to continue on its path towards monopolization of the 
> book business. 
> News coverage of the DOJ's case has been almost uniformly critical. (The 
> Atlantic Monthly'sApril 12 article was entitled "The Justice Department Just 
> Made Jeff Bezos Dictator-for-Life"). When large publishers, small publishers, 
> independent booksellers, Barnes & Noble, Apple Corporation, the American 
> Booksellers Association, and the Authors Guild all agree that this case is 
> terribly wrong, it's time for the Justice Department take a step back and 
> re-assess what's doing. Most people in the book business think the Justice 
> Department has gone from being an anti-trust enforcer to an anti-trust 
> enabler.


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