ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Friday, December 14, 2007

The French Elite: We Fear Innovation!

Or, how governments harm consumers at the expense of the politically connected.

This little story from the New York Times about booksellers in France is just one example of how governments will rarely take action to protect the consumer, preferring instead to protect the interests of those that are politically connected.

December 12, 2007
Amazon Ordered to End Free Delivery on Books in France
By PETER SAYER, IDG News Service\Paris Bureau, IDG

Amazon.com may not offer free delivery on books in France, the high court in Versailles has ruled.

The action, brought in January 2004 by the French Booksellers' Union (Syndicat de la librairie française), accused Amazon of offering illegal discounts on books and even of selling some books below cost.

The court gave Amazon 10 days to start charging for the delivery of books, which should at least allow the company to maintain the offer through the end-of-year gift-giving season. After that, it must pay a fine of e1,000 (US$1,470) per day that it continues to offer free delivery. It must also pay e100,000 in compensation to the booksellers' union.

Retail prices, particularly of books, are tightly regulated in France.

Using "loss-leaders," or selling products below cost to attract customers, is illegal. Other restrictions apply to books retailers must not offer discounts of more than 5 percent on the publisher's recommended price. Many independent booksellers choose to offer this discount in the form of a loyalty bonus based on previous purchases. Larger booksellers simply slash the sticker price of books.

But the free delivery offered by Amazon exceeded the legal limit in the case of cheaper books, the union charged.

The union said it was pleased with the court's ruling, which would help protect vulnerable small bookshops from predatory pricing practices.
Nevermind that such a ruling simply forces French consumers to subsidize sub-standard bookshops into perpetuity.
Amazon.com did not immediately respond to a request for comment.

Earlier this year, the union won a similar legal victory against Alapage.com, an online bookseller with operations in France, Spain and the U.K. The appeals court ruled that Alapage must pay a fine of e50,000 for illegal pricing practices including the offer of free delivery.

It's not been a good month for U.S. e-commerce sites doing business in France: last week, the French auction regulator sued eBay France for breaching rules on the conduct of auctions. The regulator said that eBay's failure to comply exposed consumers to the risk of fraud. In its defense, eBay France maintained that it is not an auctioneer and that it has "invented another way of buying and selling" not covered by the rules.
If only the French would allow the free market to work. Alas, many in this country would probably love to see similar regulation of companies (aka Wal-Mart) in order to "protect the consumer."

As Milton Friedman pointed out in this excellent video from his 1980 series Free to Choose, the free market (through the threat of competition) provides more protection for the consumer than any government can.

I hope the French citizens will enjoy the higher costs of reading. Perhaps this will provide Sarkozy with yet another area of France which requires reform and liberalization.

Your Co-Conspirator,
ARC: St Wendeler

Comments (3)
Jason said...

Oh no, "predatory pricing practices." They make it sound like amazon.fr should be on a sex offender list. When it comes to pricing practices, I (and I believe almost all consumers) don't mind being preyed upon.

St Wendeler said...

Very true, Jason. although the pro-regulation idiots would say that the predatory pricing is only temporary until the company could establish a monopoly (and subsequently jack up prices on the consumer). (The classical liberal would point out that at that time a competitor would jump in at market sustainable prices, eliminating the monopoly position, meaning that predatory pricing is impossible to sustain.)

Of course, that's not the case in Amazon.fr's case, since there is plenty of competition on the online marketplace as well as the bricks & mortar establishments, meaning that it would likely be impossible for Amazon to establish itself as a monopoly.

And I think it's clear that "free shipping" isn't predatory pricing practices... While it benefits the consumer, we're not talking about such a huge discount that's unsustainable by Amazon.fr in the long term.

No, this is out and out protection of mom & pop bookstores - at the expense of the consumer.

Jason said...

I've heard that theory and I don't believe there's much evidence for it. I've been an Amazon customer for over 7 years. I price check and Amazon typically has the lowest prices for a wide range of goods. The "temporary" (I believe the in vogue term is "unsustainable") low prices aren't a tricky tactic. They're a result of amazing efficiency gains that result in permanent lower costs.

If you remember back in the late 1990's .com boom, temporary low prices for market share gains typically lead to bankrupt companies, not monopolies. Even today, XM and Sirius aren't merging to screw the consumer, but instead to stay in business and earn enough to cover the large costs of their up-front investments. If the combined company charges $100/mo for service, they'll simply lose most of their customers.

Monopolies that aren't created by the government are eventually toppled by smaller, faster and more efficient companies that revolutionize the industry in ways regulators could never imagine. Those that protest private monopolies have no problem handing control over to public monopolies, which, in contrast to their private counterparts, typically have no incentives to be efficient or even competent.