Numerous Amazon practices that publishers have privately complained about for years came into public view this morning as part of the Association of American Publishers' comments filed in connection with the Federal Trade Commission hearings on Competition and Consumer Protection in the 21st Century. While the AAP urged the FTC "to more closely scrutinize the behavior of dominant online platforms that pervade every aspect of the economy," the only two companies mentioned in the association's comments, attributed to AAP CEO Maria Pallante, are Amazon and Google.
In its 12-page filing, the AAP pointed to the fact that Amazon is not only the dominant retailer in the industry, it's also a major publisher, printer, self-publisher, review hub, and textbook supplier. It's also a platform for third-party sellers and resellers, the owner of a growing a chain of bricks-and-mortar stores, and the owner of the most dominant audio platform and audiobook retailer (in Audible). "The problems with such a concentration of market power in the hands of a single entity are manifold," the AAP stated. “No publisher can avoid distributing through Amazon and, for all intents and purposes, Amazon dictates the economic terms, with publishers paying more for Amazon’s services each year and receiving less in return.”
The AAP went on to argue that the FTC needs to take a closer look at dominating platforms which act as both producers and sellers in the marketplaces in which they operate. The organization said the FTC "should consider how best to redress and prevent harm to competition, whether through structural remedies, requirements for treatment of competitors on fair, reasonable and non-discriminatory terms, or other means."
Another point the AAP stressed, in relation to Amazon specifically, is the role the company plays in facilitating transactions for unauthorized books. The organization claimed that Amazon, on its retail site, allows “widespread counterfeiting, defective products, and fake reviews that both degrade the consumer experience and diminish the incentives of authors and publishers to create new works and bring them to the marketplace.” The AAP added that Google’s complete dominance in online searching is highly problematic “because its business model is largely indifferent to whether consumers arrive at legitimate or pirated goods.”
Pallante's comments also detailed Amazon's much discussed buying terms that involve much more than just discount policies. In particular, AAP criticized Amazon's use of Most Favored Nation clauses that the association says are anti-competitive and harmful to both suppliers and consumers by limiting competitive alternatives for publishers while also extending Amazon's market power.In addition to ensuring that Amazon receives the same economic terms (or better) offered to another distributor, the MFNs also cover, Pallante said, "the availability of books ('selection parity'), included book features ('features parity'), alternative distribution models ('business model parity'), and promotional offerings ('promotions parity)."
"Simply put, the use of MFNs by platforms with market power is anti-competitive and should not be allowed," the AAP stated.
Manipulating search algorithms to favor a platform's own products is another topic covered in AAP's comments, with the association noting that search algorithms often steer consumers toward deceptive “summaries,” foreign editions, older editions, teacher editions, or used copies. While such copies are not necessarily infringing, they may have important substantive and undesirable differences from the authorized copy of the edition the consumer wished to buy, the AAP wrote. "Both Amazon and Google frequently market alternative versions either in place of or in parallel with the publisher’s current edition in a manner that leaves consumers confused as to what they are buying and from whom they are buying."
Because of such actions, the AAP asked the FTC to "investigate dominant platforms’ use of nontransparent and manipulated search algorithms and discovery tools and bring enforcement actions as needed."
The FTC should also address, the AAP said, the practice of platforms tying distribution services to the purchase of advertising services. When offered separately under competitive-market conditions, both services are valuable to publishers and other types of suppliers, the AAP acknowledged. But "digital platforms are tying distribution services to advertising services in ways that warrant the Commission’s scrutiny." Amazon in particular, the AAP said, has used various tactics "to require publishers to pay significant sums for services that used to be free, are provided for free by others, or where the actual cost of delivering the service is far below the fees demanded."
"These tactics are a means by which to extract supracompetitive prices for distribution services from suppliers. They are also a means by which to diminish competition from rival distributors." The AAP urged the FTC "to recognize that platform distribution and platform advertising are separate services, and they have different end consumers. When digital platforms premise their business models on making their platforms free' to users in order to generate a sufficiently large user base and monetize the vast amounts of data collected about them, there is substantial risk that they will use their market power over distribution services to obtain leverage over suppliers in the market for advertising services. That has been an all-too-common experience for the United States book publishing industry."
The AAP concluded its comments by claiming that "the marketplace of ideas will be irreparably diminished if the government permits it to be served only—or even predominantly—by a very small number of dominant platforms."