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Is the French government right on Amazon?

Amazon is under pressure from the French government. The company has been accused of anti-competitive practices to monopolise the book market in France, arguably by pushing traditional book sellers out of business. France’s culture minister, Aurelie Filippetti, has threatened the introduction of a number of measures that would restrict Amazon’s ability to offer free shipping services or discounted book prices.

By: Date: June 6, 2013 Topic: Uncategorized

Amazon is under pressure from the French government. The company has been accused of anti-competitive practices to monopolise the book market in France, arguably by pushing traditional book sellers out of business. France’s culture minister, Aurelie Filippetti, has threatened the introduction of a number of measures that would restrict Amazon’s ability to offer free shipping services or discounted book prices.

The French’s government’s approach is understandable. They attribute to booksellers an important role in society. Traditional booksellers are guardians of cultural niches that would be lost if not protected from the pressure of mass marketing. They preserve a traditional experience that some could define as ‘magical’. Who has not at least once chanced upon an old bookshop, felt compelled to enter, touch the books, exchange a word with the seller and discover previously unknown titles? It is quite different to scrolling through the pages of an online bookseller.

The traditional experience is however considered not charming enough to attract a sufficient number of buyers, so that traditional booksellers can prosper in the national market. Consciously or unconsciously, buyers may be attracted by traditional bookshops, but they are also very much attracted by low prices. And they hardly can resist Amazon’s offers.

The French government therefore aims at correcting this market failure: they probably consider that traditional booksellers  generate positive ‘externalities’ that should be preserved, like providing an in-depth information on books that do not have a market appeal. The proposed methodology to address their concern is however not desirable, for two reasons.

First, if Amazon’s behaviour is truly anti-competitive, antitrust laws will kick-in. There is no need for additional governmental measures.  The accusation laid before Amazon translates into what antitrust laws define as ‘predatory pricing’. In broad terms, predatory pricing occurs if a company sells below its variable costs, making a short-term loss this is compensated for in the longer term by a bigger gain when the company dominates the market, because its competitors have been pushed out of business. If that were true in this case, the French or European antitrust authorities would fine Amazon and compel it to stop this anti-competitive practice. To date, however, no antitrust investigation against Amazon has been (at least formally) opened. One should therefore presume that Amazon is not acting anti-competitively. Most likely, Amazon is simply more cost efficient. That is not surprising, given the global scale of its business.

Second, imposing some sort of ‘discounts ban’ on Amazon or preventing Amazon to offer free shipping services, besides being arguably incompatible with the rules of the European Union single market, would be tantamount to imposing a tax on actual or potential consumers who buy from Amazon’s website. This value would be drained from consumers who may well be the same customers who the French government wants to protect, such as students or under-educated social classes. Those measures, if adopted, would ultimately raise the average price of books, making access to culture more expensive and possibly unaffordable to a significant proportion of French citizens.

The way to deal with the perceived threat to traditional booksellers is appropriate use of subsidies within the EU state aid framework. European state aid rules allow for correction of market failures such as the one described above and to preserve a country’s cultural heritage.  Moreover, it is easier to identify who pays for state subsidies: taxpayers. The government can use subsidies and taxes to correct market failures and accomplish its redistribution policy. It would then be for citizens to judge whether they consider supporting booksellers an appropriate use of their money.


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