Its Not Just Run of the Mill Competition in the Book Market

Megan McArdle says the Amazon, Walmart, Target price war is just a healthy dose of comeptition.

The American Bookseller’s Association represents independent bookstores, whose members cannot afford to sell top bestsellers as loss leaders.  But the interest of antitrust law does not lie in protecting small, inefficient sellers for the tiny minority of Americans who prefer to shop there.  They lie in making sure that there is robust competition in the bookselling market.  What they’re trying to do here is stop bigger, more diversified companies from competing with them, because they’ll lose.

But as this makes clear, the big players are competing:  with each other.  Which is where the market is going to end up anyway, because outside of a few big cities, independent booksellers can’t compete with the convenience of Amazon or Barnes and Nobles’ economies of scale.  The only way the American Booksellers Association is going to save its members is by forcing Amazon, et al to sell books at a 10% premium.

I’m not sure if this is something to get concerned about but we shouldn’t confuse this with simple competition. If the stores are selling at a loss then there is strategic behavior here.

No it could simply be that they want to drive traffic to their website or into their locations, so that they can sell other goods. However, just on the surface it looks as if they are attempting to damage each others market position.

Walmart wants people to say to themselves, “I can get all of my Christmas gifts at Wal-Mart, not just X, Y and Z” and Wal-Mart wants to do this because it will increase their future market power.

Conversely, Amazon wants to remain the go to place for online books sales, thus increasing their market power.

These strategies may or may not work, and in any case small booksellers are likely collateral damage. Still I don’t think you are getting the full picture if you look at this as run of the mill price competition. Would Wal-Mart of Amazon be doing this if they both had 1% of the book market? I think not.