Tuesday, October 11, 2011

The Passive Guy writes about monopolies


He writes:
Major publishers have worked themselves into much the same position that Microsoft has. There are separate publishing companies, of course, but in important ways, they act in concert like a single monopolistic company.

For example, each offers virtually identical royalty terms to writers. Each offers very similar contract terms to writers. The only way publishers compete for a particular manuscript is by the amount of the advance. They have tacitly agreed not to compete in other ways.

As others have observed, big publishers have a remarkably haphazard manner of finding what they need to survive – new books.

Generally speaking, big publishers don’t develop their own products. Each sits around and waits for someone outside the company to give them a good new product idea. PG suggests that only in a shared monopoly could such a bizarre business practice be sustained.

The big publishers work with highly monopolistic big book wholesalers. The big book wholesalers work with a network of bookstores that has become highly consolidated over the last 20 years.

PG suggests the entire distribution chain from publisher the wholesaler to bookstore manifests classic features and behaviors of a monopolistic system – lack of innovation, lack of flexibility, narrow-gauge management and inbred thinking.

As one evidence of monopoly among Big Publishing, PG would point to what he believes to be a credible suit against all the large publishers for price fixing, one of the harms of monopoly.

While it is possible that Amazon may someday become a monopoly with all of the drawbacks that accompany such status, today, Amazon is primarily an Internet company. It is very close to its early history fighting its way up through a very competitive environment and is most definitely committed to innovation and very fast and flexible.

In your wildest imagination, can you conceive of Simon & Schuster or HarperCollins developing the Kindle? Elephants would flit back and forth among the clouds before that would happen.

A monopoly believes it is a permanent fixture in its industry. An Internet e-commerce company worries obsessively that it can be destroyed at any time if it doesn’t stay fast and smart. The contrast between Amazon and big publishing could not be more stark.

Big publishing is essentially unable to compete because its monopoly position has caused it to become inflexible and it has lost the ability to innovate. In the same way that Microsoft bumbles and stumbles when it tries to take on Apple or Google, big publishing is slow and oafish when compared to Amazon.
Read the entire article here: Will publishers be able to maintain primacy as ebook publishers?

5 comments:

  1. 1. Theory shows that if a few firms have similar cost structures, they will charge similar prices. Hence competing firms charge similar prices, similar to cartels. The most basic model if called the Cournot model, named for Antoine Augustin Cournot.

    2. You are mostly concerned with the publishing companies' purchase prices, not their sales prices. The term for a "monopoly buyer" is "monopsony."

    3. I agree that publishing companies are backward looking, trying to preserve that which is slipping away.

    4. I don't agree that they are complacent--their income statements contradict that and their shareholders do not listen to errant complacency arguments. They just can't figure out how they can get cut in for a piece of the action in the new world. According to many SFF authors I have talked to, publishing companies are trying to survive for the moment by stealing all the rights they can from authors and taking advantage of every opportunity to stiff whomever they can.

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  2. Yep, that's how it see it. Thanks for the comment, John.

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  3. I was going to comment but after John's... well, I'll just say I have comment envy and let it go at that.

    Thanks for the post. PG is always a source of excellent information.

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  4. I agree! John's comment would have been a good blog post.

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  5. I think John Arkwright is right in saying that you are mostly concerned with the publishing companies' purchase prices, not their sales prices. Because we need also to give attention to some matters not only that one. It is a great help for us to know that the term for a "monopoly buyer" is "monopsony, thanks!

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