Amazon’s monopsony

In an interesting blog post by Paul Krugman this week, he lays into Amazon and the power that it wields in the books marketplace today. Amongst many other points he makes, he mentions that while Amazon is not a monopoly in trying to use its power as a dominant seller to increase prices but instead, is a monopsony – using its power to keep prices low for its customers. In the particular example of Amazon v/s the book publisher Hachette, Amazon was able to squeeze the publisher into giving a larger share of the book sales to Amazon by disrupting the sales of their books on its website. Books from Hachette would take longer to be delivered when compared to books from other publishers and such. Amazon used its power to influence the market place to benefit itself and also its customers.

In the Indian landscape, Amazon has not yet achieved the kind of power that it ostensibly wields in the American market place. E-commerce websites such as Flipkart, Snapdeal and even Junglee were already present before Amazon made its entry. Flipkart, in fact, started off much like Amazon did. At its inception, it was exclusively an online books e-store offering fabulous discounts and speedy delivery. Today, Flipkart offers a range of items such as household goods, accessories, computers, etc. Where earlier Flipkart would source the books directly for its customers, it has now evolved into a model very similar to Amazon and Snapdeal – it provides a portal for sellers to reach their customers.
At least thus far, in India, I have not seen a situation such as the one described by Krugman, emerge. The likelihood of that happening, of course, does remain. Book publishers here would do well to pay attention to the Hachette case and learn from it. The power that Amazon and Flipkart wield in the Indian book market place must not be discounted. In cities such as Bangalore and Hyderabad, the number of brick and mortar book stores has declined. Stores such as Reliance Timeout have gone out of business. While I am not privy to the reasons for their closure, the online book sales must have affected their sales in malls and the RoI for a store in a busy locality with high rentals. If the two companies so wish, they could squeeze Indian publishers in a very similar way that Amazon did with Hachette.
A corollary to the books is with Mobile phones. Recently, Moto phones have been launched exclusively with Flipkart. How the sales of other phones would have been impacted due to the promotion given to the Motorola phones on Flipkart is worthy of a case study. If Flipkart were the sole dominant player in the e-commerce space in India, we would be hitting the same Amazon-like scenario seen in the US, in India. More the reason to cheer for Competition!

Residing in Bengaluru, I am a Techie by profession and a thinker and doer by birth. I muse about any topic under the sun and love to share my thoughts in print when I am not doing something with them. I love reading and at some point, thought that maybe others would like to read what I have to write, too!

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