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October 20, 2014

Latest Posts from Economist's View

Latest Posts from Economist's View


Paul Krugman: Amazon’s Monopsony Is Not O.K.

Posted: 20 Oct 2014 12:33 AM PDT

I've been harping on the lack of concern about market power since I began blogging almost 10 years ago. Nobody much listened or cared -- so this is very welcome:

Amazon's Monopsony Is Not O.K., by Paul Krugman, Commentary, NY Times: Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America. ...
If you haven't been following the recent Amazon news: Back in May a dispute between Amazon and Hachette, a major publishing house, broke out into open commercial warfare. Amazon had been demanding a larger cut of the price of Hachette books it sells; when Hachette balked, Amazon began delaying their delivery, raising their prices, and/or steering customers to other publishers.
You might be tempted to say that this is just business — no different from Standard Oil, back in the days before it was broken up...
Does Amazon really have robber-baron-type market power? When it comes to books, definitely. Amazon overwhelmingly dominates online book sales...
So far Amazon has not tried to exploit consumers. In fact, it has systematically kept prices low, to reinforce its dominance. What it has done, instead, is use its market power to put a squeeze on publishers, in effect driving down the prices it pays for books — hence the fight with Hachette. In economics jargon, Amazon is not, at least so far, acting like a monopolist, a dominant seller with the power to raise prices. Instead, it is acting as a monopsonist, a dominant buyer with the power to push prices down. ...
So can we trust Amazon not to abuse that power? The Hachette dispute has settled that question: no, we can't. ...
Specifically, the penalty Amazon is imposing on Hachette books is bad in itself, but there's also a curious selectivity in the way that penalty has been applied. Last month the Times's Bits blog documented the case of two Hachette books receiving very different treatment. One is Daniel Schulman's "Sons of Wichita," a profile of the Koch brothers; the other is "The Way Forward," by Paul Ryan, who was Mitt Romney's running mate and is chairman of the House Budget Committee. Both are listed as eligible for Amazon Prime, and for Mr. Ryan's book Amazon offers the usual free two-day delivery. What about "Sons of Wichita"? As of Sunday, it "usually ships in 2 to 3 weeks." Uh-huh.
Which brings us back to the key question. Don't tell me that Amazon is giving consumers what they want, or that it has earned its position. What matters is whether it has too much power, and is abusing that power. Well, it does, and it is.

Links for 10-20-14

Posted: 20 Oct 2014 12:06 AM PDT

'When a Stock Market Theory Is Contagious'

Posted: 19 Oct 2014 09:34 AM PDT

Robert Shiller's narrative:

When a Stock Market Theory Is Contagious: Since Sept. 18, the stock market has fallen more than 6 percent. An abrupt decline last week — after five years of gains — prompted fears that the market may have reached a major turning point. Has a bear market begun? It's a great question. ...
Fundamentally, stock markets are driven by popular narratives, which don't need basis in solid fact. True or not, such stories may be described as "thought viruses." ... They spread by contagion. ... The most prominent story since the September peak seems to be one of a "global slowdown" with associated "deflation." Underlying this tale are deeper, longer-term fears. There is a name for these concerns too. It is "secular stagnation"...
Why? It's probably because Lawrence H. Summers ... used the phrase in a talk he gave on Nov. 8... Paul Krugman wrote approvingly about the talk...
There is little talk about secular stagnation in scholarly circles today. The recent chatter has centered in the news media, in conference panel discussions and in the blogosphere. ...
The current secular-stagnation story is ... so vague, the negative feedback loop can't be resolved ... neatly. The question may be whether this thought virus mutates into a more psychologically powerful version, one with enough narrative force to create a major bear market.

'How will Saudi Arabia Respond to Lower Oil Prices?'

Posted: 19 Oct 2014 09:34 AM PDT

Jim Hamilton:

How will Saudi Arabia respond to lower oil prices?: Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don't hold your breath. ...
Last week I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy. ...
In terms of surging U.S. production, the key question is how low the price can get before significant numbers of U.S. producers ... move into the red..., it's in the Saudis' longer-term interests to let that pain take its toll until some of the newcomers decide to pack up and go home. If U.S. production does decline, prices would quickly move back up. But if that happens after a shake-out, the next time there would be less enthusiasm for everybody to jump into the game...
My guess is that Saudi Arabia would lower prices rather than cut production as long as that's the name of the game. ...

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