Case Study Paul Krugman's Allegation Against Amazon

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Paul Krugman’s allegation against “, the giant online retailer, has too much power, and it uses that power in ways that hurt America” says the noble prize-winning New York Times columnist, Paul Krugman. Back in May, a dispute broke out between Amazon and Hachette, a major publishing house. Amazon had kept on demanding for a major cut of the price Hachette sells its books. When the publisher house was unwilling to, Amazon began disrupting the sales. Amazon overwhelmingly dominates online book sales. Hitherto, Amazon hasn’t tried to exploit consumers. It has systematically kept prices low, to reinforce its dominance. But what it has done is pressuring the publishers in effect reduce the price it pays for the books. So far,…show more content…
It has expanded its online database to such an extent that everything is available for the customers to purchase with a click of a button. Also, the prices are low in regard with the convenience of the consumer. Monopsony is a market in which a single buyer completely controls the demand for a good. Such a market existing in input markets has a single source demand for such inputs. While the market for any type of good, service, resource, or commodity could, in principle, function as monopsony, this form of market structure tends to be most pronounced for the exchange of factor services. Characteristics of a monopsony market: a) Single buyer: It is the only buyer in the market. As the only buyer of the market, monopsony controls the demand-side completely. b) No alternative buyers: Monopsony attains the single buyer status because sellers have no alternative customer. c) Restrictions on entry into the industry: the key barriers that exist are (1) government licenses (2) resource ownership (3) patents and copyrights (4) high start-up costs (5) Decreasing average total…show more content…
 Recoupment period- The company may use the power of monopsony in order to facilitate greater profits. Amazon, being the top seller in the book market looks to maximise its profits not through its customers but by negotiating with the publisher houses. Amazon intentionally employed cold policies against Hachette by delaying the delivery of books by 2-3 weeks. This is the place financial aspects and law comes to play, lawful structures have been set up to ensure the different partners by governing body as Against trust Laws under the Sherman’s Demonstration which plan to settle these issue with different explanations. Notwithstanding, on a closer perusing one can without much of a stretch draw the impediments of this follow up on the premise of the monetary welfare benchmarks which it takes after. On a wide seeing, there are two welfare guidelines, the Total Financial Welfare Standard and the Immaculate Shopper Welfare Standard. The Total Monetary Welfare Standard constructs its prevailing upon respect to a more extensive structure as it allows a particular 'exclusionary conduct' just in the event that it expands the total welfare considering the suppliers (rivalry) and additionally the purchasers. The Immaculate Shopper Welfare Guidelines then again allows the behaviour if the behaviour expands the welfare of the customers regardless

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