Amazon's monopsony power

There has been much focus on the retail prices of eBooks following the DOJ’s investigation into publishers and Apple. Countering that has been an undercurrent of discontent regarding Amazon’s monopoly power as a distributor. While it is legitimate to worry about such things, it was a complicated and dynamic situation and so it was tough to draw conclusions.

Today brings a post from Andrew Hyde that opened my eyes on this issue some more. I had not realised that Amazon charged authors/publishers for downloads of digital books in addition to the 30 percent cut of the overall revenue. Actually, I may have seen this but I had figured that it would be virtually nothing. But that was because I had text books in mind. Add something more and things will accumulate.

Amazon charges $0.15 per MB for downloads. Compare that with $0.01 per MB for typical phone plans. For Hyde his book was 18MB and so each download cost him an average of $2.58. This compares with a download, say, from Amazon’s own cloud service that would have cost him $0.002 for each book.

What does that means? For Hyde, if he sells a book for $9.99 through Amazon, he pays Amazon 30 percent of $9.99 – $2.58 plus $2.58 and so he keeps $5.19. (Hyde claimed to keep $5.10 but I couldn’t replicate that). Notice that if you do not have a 3G Kindle, the consumer also faces charges for delivery but that would be about 18 cents. So customers on WiFi only Kindle, Kindle Fire or iPad implicitly pay $10.17. Interestingly, from Hyde’s average it looks like most people downloading his books were using Amazon’s 3G service.

Compare that with Apple. In that situation, Apple takes a 30 percent cut but does not charge for delivery (the customer pays that). So Hyde gets $6.99 but the customer implicitly pays $10.17.

The difference in wholesale pricing to the author is quite extraordinary. Either Amazon has a woeful set of data deals or it is charging huge monopsony mark-ups. Either way, it is suggestive of their market power. What they should be doing given these high costs is passing them through to customers so they can make their own decisions as to how they receive eBooks. At the moment, Amazon are cross subsidising their 3G product with a huge 25 percent plus tax on other forms of delivery; at least for books that are richer than just text.

5 Replies to “Amazon's monopsony power”

  1. Despite your belief, Amazon is not a monopsony. Yes, it buys a lot of books from publishers, but so does Barnes & Noble, Waterstones, WH Smith, etc. Basically, Amazon’s not the only book retailer out there, so it’s impossible for it to be a monopoly or a monopsony. Simples!

  2. Either Amazon has a woeful set of data deals, it is charging huge monopsony mark-ups, or, most likely, self-publishers are uploading files with lots of JPEGs, then bitching and moaning when they get hit with the charges for the huge file sizes of their books. Again, simples!

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