Amazon’s one of my favorite companies. It’s initial business–selling books on the internet–has disrupted the industry, using a centralized clearing-house model to easily match buyers with sellers (Amazon itself is often the seller). In doing so, Amazon spares buyers their time spent retail shopping for books, protects buyers from the local monopoly power of sellers, and circumvents the seller’s need to choose which books to stock. Thanks to Amazon, buying books is easier and cheaper, while selling used books is easier and more lucrative; in other words, Amazon is creating meaningful surplus for consumers and independent book-sellers.
Amazon expanded its business model to include most physical goods that can be shipped–DVDs, clothes, electronics, etc.–and these businesses appear to be equally lucrative and economically beneficial. Like its namesake river, Amazon.com is a truly momentous force. Until now, I’ve had nothing bad to say about Amazon.
Not content to have disrupted the book business just once, Amazon developed the Kindle, a device that electronically stores the texts of books, newspapers, blogs, etc. Now, instead of mailing physical copies of written material, sellers (Amazon) can transport electrons to buyers, thus cutting printing, transportation and storage of books out of the equation, further reducing costs. However, contrasting with their initial business, Amazon’s incentives aren’t aligned so as to create as much surplus for consumers and independent book-sellers.
Though the Kindle is a competitive product, Amazon has monopoly control over Kindle files, meaning there’s little competitive pressure pushing prices downward. As a result, books and newspapers are more expensive on the Kindle than they ought to be. The extreme example is the curiously common case where it’s more expensive to buy the same information on Kindle than on paper, shipped to your door. Given that sizable swathes of the supply chain have been cut out of the Kindle file sales process, this is fairly ridiculous. Understandable–the economics scans–but nonetheless ridiculous. Amazon is blatantly taking advantage of its monopoly power to screw its customers.
In order to maintain my perception of Amazon as a company that does well by doing good, Amazon should explore ways to correct this. (Ideas to follow in a future post…)