New Republic: 'Amazon Must Be Stopped'

Shelf Awareness

In a cover story entitled "Amazon Must Be Stopped," New Republic editor Franklin Foer (brother of novelist Jonathan Safran Foer) argues that U.S. anti-monopoly laws, many enacted a century ago, are out of date in dealing with Internet-age monopolies, which he calls "a different species." In addition, the popular and governmental view of the purpose of anti-monopoly law has shifted from a desire to protect monopolists' small-business competitors to ensuring lower prices for consumers. Thus, even though a company like Amazon might be viewed by many as a monopoly--or, more accurately, a monopsony--so long as its products are inexpensive, few are concerned. "In effect," Foer states, "we've been thrust back 100 years to a time when the law was not up to the task of protecting the threats to democracy posed by monopoly; a time when the new nature of the corporation demanded a significant revision of government." Now it's time, he says, for "a government response" to what he calls Amazon's "big-footing."

Foer outlines the danger to the publishing industry from the Amazon approach, which founder Jeff Bezos borrowed in part from Walmart, a low-cost model that depends "on continually getting a better deal from suppliers." Publishers have responded mostly in unsuccessful ways, such as mergers and the disastrous move to the agency model for e-books.

"So, no matter how large they grow, publishers will continue to strip away costs to satisfy Amazon," Foer says. The next casualty will be what he calls the "strange inefficiency at the heart of the business: the advances that publishing houses pay their writers. This upfront money is the economic pillar on which quality books rest, the great bulwark against dilettantism. Advances make it financially viable for a writer to commit years of work to a project.

"But no bank or investor in its right mind would extend that kind of credit to an author, save perhaps Stephen King. Which means that it won't take much for this anomalous ecosystem to collapse."

Amazon's excellent customer service, low prices, quick, efficient shipping, etc., have "seduced" most people and helped "fuel our collective denial about Amazon," Foer continues. "We seem to believe that the Web is far too fluid to fall capture to monopoly." But, he insists, "Amazon is different. It has a record of shredding young businesses, like Zappos and Diapers.com, just as they begin to pose a competitive challenge. It uses its riches to undercut opponents on price--Amazon was prepared to lose $100 million in three months in its quest to harm Diapers.com--then once it has exhausted the resources of its foes, it buys them and walks away even stronger."

He recounts how the federal government slowly but eventually confronted monopolistic practices during much of the 20th century--starting with the Progressive Era, when lawyer and later Supreme Court Justice Louis Brandeis argued and articulated anti-monopolistic approaches, and then during the New Deal and eventually with protracted cases against Ma Bell and IBM and Microsoft. "It took decades of experimentation, mostly unsuccessful, before a serviceable approach for curbing monopolies finally emerged."

He concludes: "There are already a few ideas percolating--one would strip Amazon of the power to set prices; another would deprive it of the ability to use its site to punish recalcitrant suppliers. Those ideas feel like tentative jabs at the problem, rather than coherent solutions to it. Still, if we don't engage the new reality of monopoly with the spirit of argumentation and experimentation that carried Brandeis, we'll drift toward an unsustainable future, where one company holds intolerable economic and cultural sway. Unfortunately, a robust regulatory state is one item that can't be delivered overnight."