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Is Amazon a monopolist?

It’s a label the online retail giant’s critics increasingly use to brand the company as a ruthless corporate behemoth bent on driving competitors away. The New Republic magazine did so in a cover story this month, and a group of authors, concerned over Amazon’s brass-knuckle negotiations with the publisher Hachette, is drafting a letter to the Justice Department calling on it to investigate whether Amazon has violated antitrust laws.

“Amazon definitely has a controlling position in many of the markets for books in the U.S. And Amazon has abused that position,” said Barry Lynn, a senior fellow with the nonpartisan New America Foundation think tank, who is working with lawyers on the letter.

There is little doubt Amazon is a potent force in book sales. In May, Amazon accounted for 64 percent of all electronic book sales in the United States, according to the Codex Group, a research firm that surveys book buyers monthly. In the same month, Amazon sold 62 percent of all print books online, and 40 percent of all print books sold online or in brick-and-mortar outlets.

What’s more, Amazon has proved itself a tough negotiator. It continues to press Hachette over e-book pricing by eliminating presale options for some of Hachette’s titles and delaying the delivery of others, a tactic designed to cause the publisher pain.

But proving Amazon is a monopoly, let alone an abusive one, wouldn’t be easy. In legal terms, the word monopoly relates to a company’s ability to control a defined market because of a lack of competition. While there’s not a specific market-share number that defines a monopoly, the threshold is typically quite high.

“The given wisdom is that you have a monopoly if you’re in the 70 percent to 90 percent range,” said Herb Hovenkamp, an antitrust expert who is a professor of law at the University of Iowa.

And even if trustbusters got over that first hurdle, by determining Amazon has a monopoly, that still wouldn’t be enough to take action. There’s nothing illegal about having a monopoly, as long as it was lawfully obtained. So regulators would have to find the company abused its power in the defined market where it holds its monopoly with tactics such as predatory pricing.

“This is not a pretty case for the Justice Department,” Hovenkamp said. “If all Amazon is doing is hard bargaining, it would be a very hard case.”

Representing authors

With help from his team of lawyers, Lynn said he is composing the letter to trustbusters that details Amazon’s alleged violations of antitrust law in its dealings with publishers. The letter is being written on behalf of Authors United, a group worried about Amazon’s growing clout in the wake of the Hachette dispute.

Lynn said the group is discussing how it intends to define the market it believes Amazon dominates. And he said lawyers are deciding what allegations they’ll make to persuade regulators to investigate.

That letter should be done and sent to regulators by the end of the year, Lynn said.

An Amazon spokesman declined to comment on antitrust allegations against the company.

The challenge for the authors group isn’t just that the legal bar is high for proving Amazon has a monopoly; it’s that U.S. antitrust law focuses on harm to consumers, not to producers or suppliers. Amazon may well be squeezing publishers to get lower prices. But the damage to publishers, or the authors whose works they publish, isn’t likely to hold much sway with courts, said Eleanor Fox, a New York University Law School antitrust-law professor.

“One of the big problems (for an antitrust case) is that Amazon is a low pricer,” Fox said.

1 buyer, many sellers

Amazon’s critics may make a case to regulators that the company has created a monopsony. That’s a type of market in which a dominant company can dictate terms to suppliers because they have few other outlets to sell their goods. If the prices are so low that suppliers can’t turn a profit with their products, businesses dry up.

Lynn, in fact, wrote a cover story for Harper’s magazine in 2006 calling for the breakup of Wal-Mart Stores, in part because of its monopsonistic power.

Nobel Prize-winning New York Times columnist Paul Krugman wrote on Oct. 19 that Amazon is acting like a monopsonist, and its negotiations with Hachette show it’s abusing that power.

But Fox said there is very little antitrust case law on individual companies as monopsonies. When regulators consider monopsonies, they are typically concerned with cartels dictating terms to suppliers.

“There are almost no cases finding a single company is a monopsony and is abusing that,” Fox said.

Weyerhaeuser case

One of the few cases centered on the strategy of Federal Way-based Weyerhaeuser, which more than a decade ago was accused of overpaying for alder logs to help push a smaller competitor, Ross-Simmons Hardwood Lumber, out of business.

While lower courts ruled against Weyerhaeuser, the U.S. Supreme Court threw out a $79 million award against the company in 2007. In its ruling, the court held that a company might legitimately use its market power to bid high as a hedge against a future supply shortage or as a way to gain market share. The ruling shows the challenges of accusing an individual company of abusing its control over supplies.

Getting monopsony claims against Amazon to stick might be even more challenging after the company agreed last week to e-book pricing terms with Simon & Schuster. Last Monday the two companies reached a multiyear deal for both print and electronic books, with Simon & Schuster calling the agreement “economically advantageous.”

The deal would seem to isolate Hachette, though Lynn said it shows Amazon’s ability to use its market power to favor one publisher while discriminating against another.

Business risk?

Perhaps the bigger concern for Amazon isn’t an antitrust case but an inquiry that might precede it. If regulators choose to investigate the company, they would likely try to search corporate records, emails and more to determine if the company violated antitrust laws.

In the late 1990s, trustbusters sifted through records at Microsoft to show it abused its then-potent Windows monopoly to crush Netscape’s Navigator browser. Regulators uncovered a trove of damning documents from Microsoft executives that fueled their case against the software giant.

Right now, there appears to be little chance of an antitrust case against Amazon. But if the Authors United letter leads to an investigation and regulators can document abusive behavior, then, Hovenkamp said, “all bets are off.”

Jay Greene: 206-464-2231 or Twitter @greene