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Originally Posted by rhadin
It is both. When Amazon is threatened by competition, it sells at a loss and lets other parts of its business pay the bills. As soon as the competition disappears, Amazon increases prices so that ebooks support themselves. Then when someone else comes along who tries to undersell Amazon and be competitive, Amazon cuts prices to below cost again and lets other parts of its business support the ebooks. When the new competitor goes out of business because it can't sustain the losses, Amazon raises its prices so that ebooks support themselves. When a new competitor comes along and tries to compete with Amazon, Amazon cuts prices to below cost . . .
This is how it is done. This is how Amazon is likely to act because shareholders will demand profits. Is it guaranteed that Amazon will act this way? No, but how likely is it based on current practices that Amazon will let someone undercut it? Not likely at all.
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Amazon hasn't behaved as you're characterising them. They followed Apple's example and set a target price point and said New York Times best sellers will be this price. When others matched the price they didn't lower the price. If they were selling below cost it was because the supply chain wasn't reacting to the reality of the market place.
Amazon focuses on keeping the customer happy builds the market dominance (not monopoly) and then uses that market dominance to squeeze the supply chain. That's what the author's guild and publishers are afraid of. The fear mongering about them building a monopoly and extorting customers is just a smoke screen and people don't believe it.
Amazon has been building a strong negotiating power because of their market dominance and they will use it. The authors and publishers have something to fear but it is just negotiations. If Amazon wields the club too strong they will end up with nothing to sell. The publishers have had the big club for centuries and now they're not happy about someone else having a big club. It's business.