walkitout (walkitout) wrote,

Who is the monopsony here anyway

Joe Konrath over at http://jakonrath.blogspot.com/ has written, upon occasion, about how Traditional Publishers have treated authors in the past. He speaks in part from personal experience, in part from knowing a lot of other authors and what their experiences were, and in part from a godawful number of sources, over the decades, which have trained People Who Want to Be Published what to expect should they be so Lucky (sic) as to be offered a contract by a Traditional Publisher.

In much the same way that coverage of ebooks vs. pbooks has evolved over the last few years (starting out with I Love to Touch Books Never Take My Paper Away It Smells So Good, through, well, it’s nice for travel, to, I cannot imagine ever going back again), so has coverage of Why Amazon Is Evil. The current argument is that if we don’t support Traditional Publishers/Traditional Publishing Models, then Amazon will be the only place left after TradPub goes the way of the dinosaurs, and then Amazon will treat authors much less well. Specifically, they will change the royalty rate and/or structure. Sometimes, the Audible royalty change is invoked, altho I’m seeing that less often now probably because we’ve all taken a look at the Audible royalty change and we just aren’t finding it sufficiently scary.


You should read Joe. Joe is fun. Joe is smart. Joe is worth reading. I’m not going to get into a lot of what he has to say. I’m going to quote one paragraph from him. Maybe two.

Here’s Joe:

"When publishing’s chattering class frets about Amazon being a “monopoly,” what they really mean is they’re afraid Amazon could become a monopsony -- that is, “a market form in which only one buyer interfaces with many sellers.” With its lockstep crappy terms -- forever-term contracts, twice-yearly annual royalty payments, lockstep low digital royalties, outlandish rights grabs, and draconian non-compete provisions -- isn't that how the Big Five cartel has always functioned with regard to its author suppliers? We have ample evidence that, without competition, the dominant publishing player is free to present a “take it or leave it position” to authors. Don’t we want the Big Five to face competition for authors, rather than enabling it to continue to exercise “take it or leave it” negotiating leverage?”

After my last attempt to insert monopsony into the debate fizzled, I bought Roger D. Blair and Jeffrey L. Harrison’s _Monopsony in Law and Economics_. It is a measure of my commitment to understanding this that I bought it in paperback, as I couldn’t find a kindle version. Their discussion of auction pools caught my attention, but when I hit page 48-51, I really woke up and started dog-earing pages for this and likely future blogging.

“3.3.2 Conditions Conducive to Collusive Monopsony

“There are a number of structural conditions that facilitate collusion among buyers. These include the following:

“1. Few Buyers. The smaller the number of buyers, the lower the costs of decision making within the group. Moreover, the ability to police the agreement is enhanced when the group is small.

“2. Product homogeneity. When the product is homogeneous, the agreement on price is simplified. For a homogeneous product, there is a single price to fix. In contrast, product heterogeneity requires a complex price schedule that maintains equilibrium price differentials. This can lead to differences of opinion and serve to undermine stability of the buying cartel.”

I feel compelled to point out here the shake up that happened in TradPub when the paperback was introduced.

“3. Sealed bids. When buyers must submit sealed bids on an item or a collection, everyone knows who bid how much when the bids are opened publicly. As a result, collusion is facilitated simply because no one can cheat on the agreement without being discovered. Consequently, any agreement that is reached is more apt to be stable. As we will see later, bid rigging and buyer rings at auctions have not been uncommon.”

When I was Young and Naive (I’m Middle-Aged and still pretty Naive), I thought that auctions for Hot Books were super cool. This really puts a whole different spin on those auctions.

“4. Inelasticity of supply. When supply is relatively inelastic, the collusive buyers need not restrict their purchases much in order to achieve a significant price reduction. Consequently, the profits that flow from collusive monopoly will be larger, the less elastic the supply at the competitive price. The greater the rewards to collusion, the more likely such collusion is to occur.”

Is this is why only _published_ authors are “real” authors? Creating that definition and enforcing it is why “real” authors are so drastically underpaid. Those status/money tradeoffs are the worst. With a much greater fraction of the supply making it to the point where the end-customer gets to choose, a whole lot more authors are making a whole lot more money. This is not the same as saying that most authors make any money at all. Which should not need saying, but probably does.

“3.3.3 Organizing and Implementing a Buyer Cartel

“1. Agreement. Any cartel must reach some mutually satisfactory agreement on a host of issues. First, of course, the members have to decide on the price that they will offer. This necessarily requires a corresponding agreement on how much they will purchase collectively since price cannot be depressed without an appropriate restriction on purchases.”

Ever wonder why wildly popular series authors who could produce multiple volumes a year had to go to great lengths to conceal multiple nom de plumes from their various publishers? Yeah, well, they were running up against this. The official explanation isn’t the real one, because when that part of the restrictions started breaking down, the separation of nom de plumes started breaking down, too.

“But this is not all. To be fully successful in extracting the monopsony profits, the buyers must agree on the quality of the product, the service that the seller is to provide, the credit terms, the delivery terms and so on. All dimensions of the transaction must be agreed on or some of the monopsony profit will be lost.”

And _that_ is why all the big houses offered such lock step contracts. Also why most novels are so similar in length, all short story collections work out to a comparable page count . . . The explanation is always about printing technology, but there is an alternative reason.

I spent a bunch of time being annoyed that people called Amazon a monopoly, when it was fairly clear that their concerns were that Amazon was a monopsony. Because I am still Naive, I hadn’t really computed how much of a monopsony the big houses were — and had been for the last century.

There is a school (maybe more than one) of thought and policy that other than during times of rapid innovation, most segments of most industries don’t exhibit true competition or anything like it, but rather some variation on oligopoly, monopoly, monopsony, vertical integration, horizontal integration, etc. This school has been fairly dominant at the judicial level for my lifetime (give or take a few years when I was too young to notice). There is no real indication that this school of thought is going to go away any time soon. There are a lot of reasons to allow an industry (or even most industry) to avoid the ruinous effects of true competition (primarily, because there’s some other country that is protecting their entrant in that industry, but also because it’s way easier to regulate one or a few really big entities than a bunch of fly-by-night, shady small entities that go poof as soon as you notice they put something horrifying in the toothpaste). Also, some projects and products that we all really love can only be produced by really large operations.

One of the artifacts of this judicial inclination is that an antitrust violation has to be pretty raw before anyone will go after it. The Price Fix 6 managed to be that raw. Amazon has been relatively careful to Not be that raw. Currently, traditional publishers are exploring several opportunities to improve their bargaining position vis a vis Amazon: making their case in public, making their case to possibly more sympathetic regulators in countries more accustomed to a mercantilistic/protected monopoly approach, merging their way to size and negotiation parity with Amazon.

But as long as Bezos can view their (monopsonistic) margin as an opportunity, Joe Konrath, Barry Eisler, and a host of other commentators are going to have material for their highly entertaining and illuminating blogs. And when I read monographs on things like monopsony, I will be able to think of specific, familiar, real world examples.

(I am also going to limit my engagement with Paul Krugman’s participation. He really had a strong negative vibe about the monetary union, and thought people were going to join him in that. He was wrong and he has more or less admitted it. Years earlier, in the Bad Old Days of W., Krugman thought that running really big deficits was going to be an economic problem in the short run. He was wrong and he has more or less admitted it. He admits to being wrong, when railing against people who are wrong year after year on inflation and _don’t_ admit to being wrong, by way of providing a better model. These are two conspicuous examples of where Krugman changed his mind, so I feel some confidence that there might be a third one and this might be it.)

[Disclaimer here: I was first a customer of Amazon in 1995. Then I worked for Amazon. I am still long AMZN. I have not included this disclaimer in the past, choosing to refer to those relationships obliquely, usually along the lines of, “I worked for this small internet bookstore once, name starts with an A”. I'm feeling like the last vestiges of pseudonymity have just wafted away, however.]
Tags: our future economy today
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