Paul Krugman unloads on Amazon: Economist sounds off on why its heavy-handed tactics "hurt America"

Wading into the debate over the online retailer's growing power, Krugman assails its "undue influence"

Published October 20, 2014 12:45PM (EDT)

                                                                                                                                                                (AP Photo/ Francisco Seco)
(AP Photo/ Francisco Seco)

Add Nobel Prize-winning economist and New York Times columnist Paul Krugman to the list of public intellectuals protesting online retailer Amazon’s unsavory tactics.

In his New York Times column today, Krugman delves into the debate that has roiled the world of letters, and he makes his bottom line clear. Amazon, he writes, “has too much power, and it uses that power in ways that hurt America.”

That’s not to say Krugman would go as far as the New Republic editor Franklin Foer, whose widely discussed cover story this month posits that Amazon has become a monopoly and “must be stopped.”

“Such claims are over the top — Amazon doesn’t dominate overall online sales, let alone retailing as a whole, and probably never will. But so what? Amazon is still playing a troubling role,” Krugman writes.

But neither is Krugman persuaded by what he calls the “paeans to online bookselling” penned by Amazon defenders like his New York Times colleague Joe Nocera, who hailed Amazon last week as a beacon of innovation.

“The desirability of new technology, or even Amazon’s effective use of that technology, is not the issue,” Krugman replies. “After all, John D. Rockefeller and his associates were pretty good at the oil business, too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential.”

Standard Oil and Amazon haven’t behaved precisely the same way, the economist notes. A classic monopoly, Standard Oil exercised its dominance to keep oil prices high. Contrast that with Amazon’s role in its bitter feud with the book publisher Hachette, which the retailer wants to force to lower prices. That’s the behavior of a monopsonist, Krugman explains – “a dominant buyer with the power to push prices down.”

But isn’t that, from the consumer’s standpoint, a pretty benign use of Amazon’s dominant power? Only until you consider how easily that power can be – and has been – abused. Given that word of mouth is crucial to book sales, Amazon can exploit its dominance to “kill the buzz” about books whose publishers won’t accede to its monopsonist tactics, thereby distorting the market.

And so, Krugman concludes, it’s time to rein in Amazon:

It’s not just about the money, although that’s important: By putting the squeeze on publishers, Amazon is ultimately hurting authors and readers. But there’s also the question of undue influence.

Specifically, the penalty Amazon is imposing on Hachette books is bad in itself, but there’s also a curious selectivity in the way that penalty has been applied. Last month the Times’s Bits blog documented the case of two Hachette books receiving very different treatment. One is Daniel Schulman’s “Sons of Wichita,” a profile of the Koch brothers; the other is “The Way Forward,” by Paul Ryan, who was Mitt Romney’s running mate and is chairman of the House Budget Committee. Both are listed as eligible for Amazon Prime, and for Mr. Ryan’s book Amazon offers the usual free two-day delivery. What about “Sons of Wichita”? As of Sunday, it “usually ships in 2 to 3 weeks.” Uh-huh.

Which brings us back to the key question. Don’t tell me that Amazon is giving consumers what they want, or that it has earned its position. What matters is whether it has too much power, and is abusing that power. Well, it does, and it is.

By Luke Brinker

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