The current New Yorker magazine features an article by George Packer, “Is Amazon bad for books?,” which discusses how the online bookseller bullies publishers into granting it special payments and larger discounts. (Independent publishers are forced to pay more than the Big Six publishers.) The government has helped Amazon by suing publishers who tried to break Amazon’s iron grip on ebooks, exempting it from sales taxes (even now that it has started collecting state sales tax, it still does not collect or pay Philadelphia’s sales tax), and ignoring its predatory pricing and other anticompetitive practices.
The owner of Cody’s Books (now defunct) once described Amazon as a giant warehouse backed up to the stock market. At the time, Amazon was losing hundreds of millions of dollars a year, even as its stock price climbed ever higher. Those losses went to deep discounting, which built market share, which the company used to force publishers into granting it ever-more-favorable terms, which finally allowed the company to become profitable (most of the time — but just barely; Amazon only recently earned back the huge losses of its opening years, and still loses money about as many quarters as its profitable). But this is not charity. The company is building market dominance. As it builds its power, it uses its clout to extract ever-better terms from its suppliers (especially the most vulnerable) and raises prices to consumers. When/if it succeeds in eliminating the remaining competitors, its monopoly power will be unconstrained. That’s why the stock market keeps pouring money into a firm with steadily rising total sales, but also shrinking profit margins. They’re looking to cash in once Amazon has the field to itself.