Because the merger of Penguin Random House is also about Amazon

Amazon is not on trial in a big book lawsuit. But her power is.

The US government is suing to prevent book publisher Penguin Random House from buying a competitor, Simon & Schuster. The government says the merger, which will reduce the number of large American mass-market book publishers from five to four, will harm some authors by reducing competition for their books.

A trial in the government lawsuit has begun this week, and my colleagues have written a helpful explanation of the legal issues and the stakes for the companies involved, writers and book lovers.

This case, which is about much more than the books and earnings of famous authors, is another example of the debate on how to run the big companies, including the biggest digital powers, that shape our world.

The elephant in the room is Amazon. Book publishers want to get bigger and stronger in part to have more influence on Amazon, by far the largest book seller in the United States. One version of the Penguin Random House strategy boils down to this: Our book publishing monopoly is the best defense against Amazon’s book-selling monopoly.

As the dominant way Americans find and buy books, Amazon can, in theory, direct people to titles that generate more revenue for the company. If authors or publishers don’t want their books to be sold on Amazon, they could disappear into obscurity or counterfeits could proliferate. But if the publisher is large enough, according to the theory, then it has leverage on Amazon to stock books at the prices and conditions the publisher prefers.

“Their argument is that to protect the market from Amazon monopolization, we will monopolize the market,” said Barry Lynn, executive director of the Open Markets Institute, an organization that wants tougher antitrust laws and enforcement.

Penguin Random House isn’t saying it wants to buy a rival to beat Amazon in the power game, which isn’t legally relevant to the government’s lawsuit. But Lynn told me that if Amazon’s dominance is harming American book publishers, readers, authors, or the public – and he believes it is – allow a book company to get more muscular to bully. on Amazon is counterproductive. The best approach, he said, is to curb Amazon with laws and regulations.

We know that some tech companies, including Amazon, Google, Facebook, and Apple, have tremendous influence over entire industries and our lives. We are all trying to understand how their power is good or bad for us and what, if anything, government policy and law should do about the bad. This controversial amalgamation of book publishers is an example of the showdown on these essential issues.

It’s not uncommon for companies to justify acquisitions by saying they need more power to level the playing field. When AT&T bought the media and entertainment company called Time Warner a few years ago, one of the company’s explanations was that it wanted to become an alternative to digital advertising powers like Google and Facebook. Music companies have consolidated over the past 15 years in part to carry more weight as digital services like Spotify transform the way we listen to music.

And a decade ago, when German conglomerate Bertelsmann bought a competitor to create Penguin Random House, that merger was a response to Amazon’s influence on book sales.

Today, Penguin Random House says another acquisition would make book publishing more competitive and help authors and readers. In a twist, he cites Amazon’s fast-growing business in book publishing as an example of stiff competition in its industry.

Lynn’s criticism of both Penguin Random House and Amazon reflects an influential view, particularly among left-wing economists, public officials, and lawyers, that America has failed in its approach to large corporations, particularly digital ones. The criticism is that the growing consolidation of sectors such as airlines, banks, digital advertising, media and meat packaging hurts shoppers, workers and citizens.

Some Republican politicians agree with the left in wanting more restraint from the government of digital superstars. Congress also debated a bill that would require potentially extensive trade changes to Amazon and other tech giants, though it’s unlikely to become law right away. Similar laws have been passed in other parts of the world.

Chris Sagers, a law professor at Cleveland State University who wrote a book about a previous government antitrust lawsuit in the book industry, told me the outcome of this case probably won’t matter much. According to him, the book industry is already overloading readers and underpaying authors. He believes that both Amazon and book publishers have been allowed to get too big and powerful.

This book publishing legal case is a window into deep-rooted problems in the US economy that have taken decades to accomplish and will take a long time to change.

“There is really substantial consolidation in markets all over the place,” Sagers wrote in an email. “Once an economy is allowed to get to that point, there is very little that any antitrust law (or any other regulatory intervention) can hope to do.”

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A classic scene from the movie “Singin ‘in the Rain”, but with a velociraptor in place of Gene Kelly. (Thanks to my colleague Jane Coaston for sharing this tweet.)

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