I do love a good bargain, and Amazon’s cheap products lend the site massive appeal. But when do low prices become predatory, and at what point will the world’s biggest online retailer be considered a monopoly?
Take ebooks. For several reasons, the seductive pricing on Amazon’s Kindle store seems a bit unfair.
The company leads the market with a reported 90% share, but its prices are so low that few other ebook retailers can compete.
The vast range of products on Amazon gives it a unique position: it can run at a loss that’s recouped across other parts of its business. It makes even more sense to do this with ebooks…
Sticking to Amazon’s ebooks
The Kindle runs on Amazon’s own proprietary format, so you’re locked in to Amazon’s content and can only buy your ebooks from its store. But if you’re getting ebooks from the cheapest store around, who would be put off from buying a Kindle? No one I know.
In fact, the low prices might encourage you to shop in other areas of Amazon.co.uk, so losses could almost be written off as a marketing expense. One way or another, once you’ve bought a Kindle, you’re pretty much an Amazon customer for life.
There’s no evidence that Amazon’s using a predatory pricing model, which would be illegal under competition laws. For this you’d need to prove that Amazon is setting prices low to squeeze out competition before hiking them up again once we have nowhere else to shop.
The tax dodge?
But one card Amazon does appear to be playing relates to tax avoidance.
Your everyday hardbacks and paperbacks are tax-exempt, but (despite a 5,000-strong petition calling for the government to treat ebooks in the same way) electronic versions carry 20% VAT in the UK.
In 2006 Amazon transferred ownership of its UK business to a company based in Luxembourg (Amazon EU Sarl), meaning that only Luxembourg’s 3% tax rate would apply to its ebook sales.
On top of that, Amazon has apparently avoided paying the UK’s 28% corporation tax on the £3.3bn-£4.6b it generated in UK sales last financial year. The Bookseller reports that Amazon is being investigated by the HM Revenue & Customs, but that could be anything from a routine audit to something more serious regarding corporation tax.
The EU has already conceded that technological advances shouldn’t stand in the way of similar goods and services being subject to the same rate of VAT. At the moment ebooks are taxed as a service rather than a product, so Amazon can charge at the (Luxembourg-based) supplier’s rate rather than the (UK-based) buyer’s. This is, however, set to change in 2015.
The end of high street book shops?
But will 2015 be too late? As a result of Amazon’s tax strategy, which sees operations taking place in Luxembourg and leaves the UK arm as a mere fulfilment company, there’s no way a UK-based company can compete on price alone.
So where does that leave smaller UK publishers and booksellers? Amazon’s storming the ebook market and bookshops have no other product areas for shelter.
The danger is that they’ll go bust and leave the high street a very different place – with far less consumer choice and fewer new authors encouraged to write for what amounts to a pittance from global giants like Amazon.