October 2nd, 2014

Why Amazon Can't Refuse to Sell Hachette Titles -- and Hachette Can't Refuse to Supply Amazon

I've seen a variety of comments on the Hachette/Amazon ongoing negotiation woes. Obvs, a bunch of people say intemperate things like, "Hachette should quit selling its product on Amazon" or "Amazon should refuse to carry Hachette's products"!

I never took these things very seriously, partly because of the Macmillan buy button thing being so short-lived, but mostly because I've heard of "Refusal to Deal".

Over on Jon Konrath's blog, Lee Child is quoted saying:

"I said I think Amazon overestimates the value of Hachette’s catalog to Amazon. My point was quite clear – Amazon won’t dump Hachette because Amazon’s own internal credo is built on being the everything store. Which dilutes its negotiating power. All negotiations are built on a willingness to walk away. Amazon isn’t willing."

http://jakonrath.blogspot.com/2014/09/lee-child-responds.html

So this is really interesting. Hachette was part of the settlement. When they work in concert with other large publishers in setting prices, they are exploiting market power in a Not Legal Way. The publishers have been arguing all along that Amazon has market power. Well, here is what the FTC has to say about corporations which have market power and engage in "refusal to deal", which is what we call it when someone refuses to buy from or sell to.

http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/refusal-deal

"But courts have, in some circumstances, found antitrust liability when a firm with market power refused to do business with a competitor. For instance, if the monopolist refuses to sell a product or service to a competitor that it makes available to others, or if the monopolist has done business with the competitor and then stops, the monopolist needs a legitimate business reason for its policies. Courts will continue to develop the law in this area."

These are companies, this is a business relationship that has already run afoul of antitrust law. Jeff Bezos is not a stupid man (ha ha ha -- that's weaponized understatement. In any situation where you disagree with Bezos for business reasons, you're wrong. You might legitimately have a difference of values or politics, but on a business question? Ha ha ha ha ha.). Jeff Bezos does not want the expense or other problems associated with being the company which develops this undeveloped part of antitrust law.

If Hachette is smart, they won't be that company, either.

ETA: Also, Lee Childs is wrong about negotiations being built on a willingness to walk away. They are technically based on BATNA, which is the best alternative to a negotiated agreement. Which is exactly the relationship which Amazon and Hachette currently have, and it does not require refusal to deal.

ETAYA: If you think Hachette and Amazon are not competitors you have failed to pay attention.

ETA post comments: Someone has been anonymously posting in response to this post, mostly to argue about my assertion that Hachette and Amazon are not competitors. I've tried to be fair and unscreen comments to respond, but while they are nominally on topic, they are not of a very high quality. When I worked at Amazon, one of the proposed lines of business was for Amazon to start selling reprints of public domain titles (the same kind of publishing which Barnes & Noble engaged in at the time). At the time (and I left in the fall of 1998, so this would have been before that), the idea was nixed, IIRC, largely because it would put Amazon in the position of competing with its suppliers (that is, Amazon as publisher would be in competition with the publishers it bought published works from). The idea that Hachette and Amazon, now that Amazon has well and truly become a publisher, are not competitors simply because THEY ARE ALSO in business as supplier/retailer, does not need to be belabored further. Two companies can have any number of relationships with each other, and when commerce regulators get involved, they look at all of them. If you post comments on this, I'm not unscreening them if they just argue this point further.

ETA Still more: http://lawstreetmedia.com/news/headlines/hachette-win-lawsuit-amazon/

This presents an Amazon as monopsony + Amazon is refusing to deal already argument. The author recognizes that this is weak, because Amazon hasn't entirely cut off Hachette, and courts are picky (my word) about the definition of refusal to deal.

The idea that Amazon would be approaching dangerous territory by cutting off Hachette entirely, but can stay in the clear by maintaining the same terms for Hachette that it offers to all comers, and by encouraging their customers to purchase Hachette products from competitors -- a bunch of people thought that was weird. I just assumed it was ass covering in the event of legal trouble. It's hardly "anti-competitive" if you suggest your customers might enjoy shopping from Barnes & Noble amirite being the theory at play here.

Barnes & Noble _has_ reduced its purchases and presentation of publishers from time to time in the course of business negotiations (Hugh Howey has written about how this affected him), but just like Amazon, they didn't entirely terminate the relationship. Just reduced orders, no end caps, no promotion, etc.

ETA Final: Comments are about to be closed. There was only the one commenter and they became abusive.