Does Amazon monopsony lead to higher prices?

A number of you have questioned that point I made yesterday, arguing that a standard monopolist that becomes a monopsonist will restrict output by hiring less labor, for fear of driving up the price of that labor.

I don’t think Amazon has significant monopsony power in many if any labor markets, but it does have some monopsony power over say book publishers.  Amazon uses this power to force down book prices and that in turn forces down author advances to some degree.  Amazon sells more books and that does mean higher output and lower prices, contrary to what the critics are charging.

Keep in mind also that Amazon is (mostly) a platform company.  It’s not their goal to someday put all their competitors out of business and jack up the price of paperbacks to $35.  Rather, they seek to flood the market with output, investing in brand name, better data, talent hiring, acquired logistics skills, and so on.  To the extent Amazon has monopsony power (again, fairly limited outside of books), they can bargain down costs and flood the market even more, playing into this core strategy, again involving lower rather than higher prices.


Yes, Amazon will definitely not abuse their power! We can totally trust them - the history of humanity shows that we can trust powerful organizations to act in a benevolent way.

Thank you for engaging with what TC definitely said.

The unseen effect of monopsony is products denied entry into the market. Amazon will take surplus from producers.

Amazon has also already shown that it will remove products from the platform. Maybe algorithmic stupidity or censorship (could be corporate policy or an employee with a personal agenda), but the effect is the same: producers can have their business destroyed by a capricious monopsonist. Looking at prices misses where the abuse of power is taking place.

The Idea here isn't that there won't be abuse, its that this is not the abuse Amazon is likely to perpetrate.

I’m just asking questions as to what Steven Pinker was doing on all those flights with Jeffery Epstein. I’m just looking for answers.

Ask Trump. He was there too.

But Trump was there as a “white hat” trying to infiltrate. Is that why Pinker was there too? I don’t know. I’m just looking for answers.

If you actually were looking for answers you wouldn't be looking for them in the comment section of MR and derailing the discussion.

Tyler interviewed Pinker once. Why didn’t he bring it up?

Your question would have been appropriate in the specific entries about his guest speaker before (when TC solicits questions) and after the interview that TC routinely makes, not on every thread here, which is just trolling on your part.

If a Chinese is successful it is because he cheats, this is the mind of Trump voter. If a Chinese is successful, it is because he works very hard and improves himself, this is the mind of Confucius. Confucius has big mind. Trump voter has small package.

If author advances/payments are reduced, wouldn't that reduce output by authors in the future because the incentives are lowered?

That's a good point. It's a red herring to focus on the price/output of books that are already published. The better argument (which I don't necessarily buy) has to do with fewer books being published in the future.

Maybe there's a couner-effect: if there's less investment in 'rock-star' authors, it could be easier for smaller authors to gain mindshare and eek out a modest living. So lower overall pay to authors, but more democratized -> higher output. Example: lower revenue for newspapers, but many more people making a living in journalism and social commentary through online platforms.

I think it's more complicated than that. Amazon has definitely made it easier to become an author by lowering costs and this leads to more books being published and also distributed each year. On the other hand, there may be fewer 'high quality' publications each year because it is harder for publishers and authors to get a significant amount of revenue for a single publication. I think this is very much what alarms people in the publication industry, mainly because it threatens their traditional way of doing business. At the same time, it may also represent a genuine concern - do we really need a whole lot more low quality publications? Public knowledge (and entertainment) could arguably benefit from fewer, higher quality, publications.

is the GMU campus competing for HQ2 or something?

One can hope!

Tyler should be very worried about Amazon coming to NoVa, I think. It's going to raise the price of real estate across the region, and what is that going to mean for all of the cheap restaurants serving regional food from the highlands of Guatemala out of Fairfax County gas stations?

Maybe I'm missing something, but it strikes me that some of Tyler's argument forgets that Amazon, as a middleman, is a buyer at wholesale and a seller at retail.

Their monopsony would manifest in their transactions with wholesalers and other suppliers on their platform. But, if they're a monopoly with regard to online retail purchases, that monopsony power would never lead to lower prices for retail customers. Their monopoly power in that transaction would, predictably, lead to higher prices at retail.

A middleman can be both a monopsony and a monopoly and its effects wouldn't contravene each other to any one other relevant participant, no?

"First, monopsony and monopoly tend to have contrasting or opposite effects."

Has Jeff Bezos been on Jeffery Epstein’s plane like Steven Pinker has?

For the contrarian view of Amazon's low prices and anti-trust, here is the link to Lina Khan's article: Here is a good summary of her argument: Here's the contrarian view of how Jeff Bezos should spend a good portion of his immense wealth in order to preserve it:

Amazon is profitable because of its surveillance business (i.e., cloud services); it's online sales business is about break even. More than a few economists have pointed out that, if Amazon's goal were to maximize profits, Amazon would shrink itself. Just look at a graph of Amazon's gross and net as it climbed from the online bookseller to the online retail behemoth it is today. Amazon's low prices to achieve the goal of size is not without risk, risk for Amazon and risk for the rest of us. What if there was a shock that sent Amazon into significant losses, not just an economic shock but a political shock. As for the latter, what if a president decided to institute policies designed to take Amazon and Bezos off their pedestals. I know, it couldn't happen here. Plus, power loves company, so wouldn't Amazon and Bezos do what is necessary in order to preserve their pedestals? We have witnessed over the past generation how the concentration of wealth has concentrated political power as well as economic power. Power loves company. What about disruption? That's for you and me, not for thee.

Cloud storage is not surveillance.

I don’t know what your problem with Amazon is. They’re making products cheaper for the consumer, just as Wal-Mart did.

Wal-Mart profit rate is low as well, but they can manage because they use their market power to lower the cost of goods and they leverage their internal IT and logistics systems to be ruthlessly efficient.

Amazon online retail is similar in this regard.

Surveillance: close observation. Why accumulate all that data in the cloud if not for close observation. Tech is surveillance. No, I don't have a problem with Amazon or Mr. Bezos. I'm just pointing out the obvious, which may offend some MR readers.

Close observation is not surveillance.

A company using cloud storage for supply chain analytics is not “surveilling.” A company using cloud storage for financial information is not “surveilling.”

Tech is not surveillance.

It can be. Not every rectangle is a square.

You seem to be thinking that cloud storage is only for Facebook and google for advertising data. Which misses the mark.

I'm not convinced that rayward really understands cloud storage. Nor the concept of encrypted communications and data storage. I think he's under the impression that Amazon can easily look through the contents of it's customers data storage.

Furthermore, it's pretty standard practice, if you have truly sensitive data, that you follow a hybrid approach with the sensitive data stored On Premise and the semi-private and public data stored in the Cloud.

Yeah it’s weird, in my experience that’s rapidly changing due to Warren et al.

Companies went from “cloud is less secure, use internal servers” to “if it’s on the cloud and hacked, we’re not legally liable anymore if we write the contract correctly”

Another seen vs unseen consequence of the Warren crowd. Her badgering over credit data theft in Equifax is rippling through the market.

My prediction: data will become less secure but large firms with PII data will become less politically and legally liable for the safekeeping of said data.

I should think it's exactly Amazon's plan to someday put all their competitors out of business and jack up the price of paperbacks to $35. That's how Amazon makes money: by maximising the margin between what they charge retail customers and what they pay publishers. At the moment, that margin is extremely small, but at the point when all customers who want to buy a book online skip right past Google to go to Amazon, there's no reason why Amazon shouldn't increase their margins.

But then new competitor or two show up and the margin is trimmed back.

Well, no. My theory of harm presupposes market power as a platform. (Because at that stage, as I said, people surf straight to Amazon without doing any sort of price comparison with other platforms.)

The obvious reason is that publishing is trivial and there the second Amazon raised prices to $35 a million competitors would pop up, plus that would no doubt result in political and legal action that would cripple Amazon and ruin its shareholders.

Has there EVER been an example of a monopolist behaving as you say (outside of regulatory monopolies)?

Off the top of my head, Facebook has been abusing my private data in direct proportion to its market power.

More generally, are you really arguing that companies with market power don't raise prices? Or that there's no such thing as uncontestable markets? Because that would be bold, to put it mildly...

Can you give an actual example where consumers are being gorged that isn’t a government monopoly?

But it's ridiculous to believe Amazon will ever hold an uncontestable market in retail, even online retail. It is so trivially easy to search for something on google in addition to searching for it on Amazon. If customers were really this lazy, retail would not be the competitive bloodbath it has always been. If Amazon is ever trying to buy Google, then maybe, just maybe, we should be worried. But that would be an actual appropriate time to consider antitrust inteference.

Well, yes, it is of course always open to anyone else to invest the countless billions in marketing that Amazon has done, just like it is open to anyone to invest billions to build an electric power grid next to the one that's already there. But realistically the brand that Amazon has built - and continues to build - is an asset that no one is going to replicate anytime soon. Competition being only a click away is irrelevant if no one knows what those competitors are called and no one believes it will be worth the hassle to check what prices those competitors are charging.


Google allows someone to immediately check the going price for online retail. Google market, etc not to mention the first 10 hits will be ads for online sellers with the prices for the goods one is searching for.

If your “monopoly!!! Consumers are getting gouged !!! They have no options!!!”

Is reduced to one google search then you’ve lost the argument.

You seem to have very little understanding of how internet search operates and little awareness of the history of retail. Market power has never allowed anyone to dominate retail in larger markets and dominance in a brick and mortar world is far more feasible than an internet one where you are one search away from Amazon's competitors. Brand is not equality to SEO dominance. You are badly confused here.

(Also see Max's comment- )

Aren't Tyler and David talking about two different markets, but combining them? That is, I'm suggesting that in a monopoly you get lower output and higher prices, but in a monopsony you get get lower output and lower prices.

In the B2B book market, Amazon is a monopsony, meaning they can demand lower prices (that they will pass along in the B2C market). But wouldn't that also reduce the quantity of books supplied by publishers*? However, in the B2C market, sure, you might see lower prices, but that's not because of monopsony power in that market- Amazon is the buyer in B2B but the seller in B2C!

*relative to baseline equilibrium- in reality, the introduction of e-tail may have changed how the B2C supply curve (aka B2B marginal revenue curve) looks, leading to a net result that looks different if you're comparing to the original curves, but replicates the theory if you're comparing to non-monopsony.

As in the Supreme Court's recent Amex v. Ohio, this is a single platform market rather than a combination of two one-sided markets. And Amazon certain can have market power in the market for online retail platforms (or online book-selling platforms, or whatever).

Not sure I follow. If they are exercising monopsony power, then there at minimum needs to be a restriction of input usage. One can debate whether that would happen on the intensive or extensive margin for a platform. But even if it is all on the extensive margin, then it will still hurt overall market output unless there is an equally efficient distribution platform the marginal authors could turn to. But if that were the case, then how does Amazon have monopsony power?

It's certainly possible that Amazon both has monopsony power and is efficient enough because of economies of scale that on net it contributes to greater output. See eg Wal-Mart. I wouldn't say that is because they are a monopsony, though, it is despite it.

Yep, Tyler's posts about monopsony today and yesterday are baffling.

Dan Culley hits the nail on the head with this sentence: "If they are exercising monopsony power, then there at minimum needs to be a restriction of input usage"

Tyler's post today in contrast says this: ""but it does have some monopsony power over say book publishers. Amazon uses this power to force down book prices and that in turn forces down author advances to some degree. Amazon sells more books"

The first sentence is fine. The second sentence is basically fine although Tyler fails to note that the way the monopsonist drives down prices is by artificially reducing their quantity demanded of the input good.

And the third sentence -- "Amazon sells more books" -- requires a leap of logic, or really illogic, that's like that "then a miracle occurs" cartoon by Sid Harris.

How does Amazon sell more books? They have to reduce their purchases of books to exercise their monopsony power. Tyler's third sentence does not follow from the firs two, not by standard economic models of monopsony.

Maybe Tyler has in mind an unorthodox model of monopsony, but if so he hasn't presented or explained it.

A real example of monopsony power is the fate of older workers. They may be locked in to a pension system that only gives them a full pension after X years. Until then they dare not change jobs. Or, if they are in their mid-50s or older, they rightly are aware that getting a new job is unlikely so they will put up with more cr*p. This does not require the stringent conditions of other monopsony conditions.


I haven't found Amazon to have 'low prices', and that's before you add shipping costs.

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