You can when the six biggest publishers enter into an agreement to fix prices and thwart the forces of the free market, which is exactly what happened here. I'm just surprised it took this long for them to get sued.
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U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing
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You can when the six biggest publishers enter into an agreement to fix prices and thwart the forces of the free market, which is exactly what happened here. I'm just surprised it took this long for them to get sued.
Protecting competition, not competitors. The difference may be subtle, but real nonetheless. The DoJ may be reacting to a complaint from Amazon, but they are not "defending" Amazon, they are going after violations of antitrust laws. Cartels have been illegal under U.S. law since 1890. I have to shake my head in wonder over how this could become controversial, more than 120 years after the fact. I mean, we figured out a long, long time ago that it's bad for our economic well-being to allow companies to band together and fix prices for goods. Even old Adam Smith recognized this as a flaw in free markets. So I don't know what reading of even the most classical economics supports a philosophical argument against antitrust law.
If Amazon uses their market power to restrain trade, have no fear that their competitors will beg the DoJ to bring a complaint against them. The fact that they have a large share of this market is not in itself actionable. It's what they do with that market share that matters.
No, and no. Fundamentally, the basis for antitrust laws is the understanding that free markets can be short-circuited by players who wield sufficient power in a market. Given completely free reign, they can drive competitors out of a market, they can create barriers to competition to prevent competitors from gaining a foothold in a market, and they can collude with competitors to fix prices (cartels). Preventing competitive abuses is not an effort to "regulate" the markets (let alone, the economy more generally), it is designed to free up the markets to create more wealth. As I said above, knowledge of the problems associated with free markets were known even to Adam Smith. He might not have suggested any solutions, but he recognized that these were imperfections in market economies. The U.S. competition laws go back over 120 years, so it isn't like these are new concepts.
The "philosophical" objections I am hearing to antitrust laws are kind of amusing. They'd have to rely on some thinking from the 17th century or earlier. I don't know what that could be. Greco-Roman, perhaps?
With this logic, any list price to an item would be price fixing.
How about the price fixing that's going on in the telecommunications industry (cell phones, particularly data rates, internet connections).
Why is there no outcry?
But when the book industry and their authors are looking for a viable business models that allows them to actually make money, the government stomps in.
It may be OK for Amazon to sell books at a loss in order to attract other business.
But it's not OK for anybody working with books.
So, why not suggest a lawsuit against Amazon for e-Book dumping at the same time?
How about the price fixing that's going on in the telecommunications industry (cell phones, particularly data rates, internet connections).
Why is there no outcry?
But when the book industry and their authors are looking for a viable business models that allows them to actually make money, the government stomps in.
It may be OK for Amazon to sell books at a loss in order to attract other business.
But it's not OK for anybody working with books.
So, why not suggest a lawsuit against Amazon for e-Book dumping at the same time?
This has nothing to do with the President. This is about the Justice Department protecting consumers. But you can never be surprised by the WSJ putting this type of spin on a issue like this.
I really don't get it. Seems to me Apple simply proposed an attractive competing channel of distribution that was more attractive to publishers than the Amazon model. It merely proposed to take its cut and left it to the publishers to set their own prices. How is Apple, who merely provides an alternative distribution channel, engaging in collusion to fix prices. Seems to me it just won the competition for distribution of content by effective outbidding Amazon with a model that was more attractive to publishers. The fact that it had the effect of raising prices for consumers, or that Steve Jobs (RIP) predicted that Apple's model would trounce Amazon's does not make it illegal. Perhaps the publishers then colluded in setting prices, but Apple did not set the prices. It merely told publishers it had a more lucrative alternative to the Amazon model--again that does not strike me as illegal. I also don't see the problem with the most favored nation clause. Such clauses are commonly employed to ensure that one party is negotiating the best deal they can. It does not necessarily turn into price fixing. For instance, the publishers could have competed on price with each other despite the clauses in respective contracts. In other words Apple could have benefitted from the MFN clause by getting a lower price with respect to one publisher than another publisher was willing to give. The clauses ensure that Apple gets the best price, not that publishers collude to fix prices amongst themselves. Finally, the fact the Amazon abandoned its model in favor of Apple's does not mean that Apple did anything illegal. Amazon has a basis to gripe only if the publishers indeed colluded on price and it was the collusion on price (as opposed to publishers opting to use the Agency model) that forced Amazon to abandon its competing model. Finally, I don't think it can reasonably be argued that the agency model, in and of itself, violates antitrust laws.
No, it would not. You missed the part about the publishers colluding. That's the alleged violation of antitrust laws.
Only until the publishers told Amazon to kick rocks and either sell at the prices the publishers want thir titles sold at or lose them. The writing was on the wall on that one before Apple came into the game.
Unless there is a smoking gun that Apple demanded the publishers only agree to agency with all ebook stores, there's no guilt on that point for Apple. The favored nation, however is another issue
You clearly don't understand what the DOJ is do you? or what their role is in government. Or for that matter I would bet 2 Romney's you don't understand what anti trust laws are either. Do yourself a favor and stop smoking you sound misplaced.
Again, the agency model is not the issue. The issue are publishers colluding to fix prices abusing the agency model. Some quotes from The Verge analysis of the DoJ position, with emphasis mine:
Granted, this is the DoJ position, and as such biased. We'll see how the lawsuit will go. Still I'm not betting on Apple & co. on this.
Anti-Trust is an extremely complicated area of law.
In this case, it appears that the DoJ is focusing on two areas:
One, did the publishing companies conspire or collude on the retail pricing of their books?
That may be hard to prove. The press release today mentioned meetings at exclusive New York restaurants. But that, in and of itself, isn't evidence of "collusion." Business executives from rival firms frequently meet under similar circumstances to discuss items of mutual interest. Even if they explicitly discussed the issue of Amazon's $9.99 bestseller pricing, and the threat it posed to their historical market (ie. physical bookstores) that, again, doesn't prove that they agreed to conspire to raise prices.
Two: Does Apple's "Most Favored Nation" sales clause, which states that sellers agree not to sell their product elsewhere for less, in combination with the collusion alleged above constitute an Anti-Trust violation?
I'm pretty sure Apple's lawyers are on pretty firm ground when they say that the "Most Favored Nation" clause on its own is legitimate. Its a very widely used business condition, and its the reason you don't see discounts on all sorts of name-brand products, like Bose headphones and Jimmy Choo shoes.
So, as far as Apple is concerned, they really only have a problem with the sales clause IF, and only if, the DoJ can prove collusion, and that Apple itself was a party to it.
Several of the Publishers have agreed to settle with the DoJ. Fighting an anti-trust lawsuit is expensive and distracting, and I'm pretty sure at least some of them made the business decision to settle, rather than fight.
In this case, it appears that the DoJ is focusing on two areas:
One, did the publishing companies conspire or collude on the retail pricing of their books?
That may be hard to prove. The press release today mentioned meetings at exclusive New York restaurants. But that, in and of itself, isn't evidence of "collusion." Business executives from rival firms frequently meet under similar circumstances to discuss items of mutual interest. Even if they explicitly discussed the issue of Amazon's $9.99 bestseller pricing, and the threat it posed to their historical market (ie. physical bookstores) that, again, doesn't prove that they agreed to conspire to raise prices.
Two: Does Apple's "Most Favored Nation" sales clause, which states that sellers agree not to sell their product elsewhere for less, in combination with the collusion alleged above constitute an Anti-Trust violation?
I'm pretty sure Apple's lawyers are on pretty firm ground when they say that the "Most Favored Nation" clause on its own is legitimate. Its a very widely used business condition, and its the reason you don't see discounts on all sorts of name-brand products, like Bose headphones and Jimmy Choo shoes.
So, as far as Apple is concerned, they really only have a problem with the sales clause IF, and only if, the DoJ can prove collusion, and that Apple itself was a party to it.
Several of the Publishers have agreed to settle with the DoJ. Fighting an anti-trust lawsuit is expensive and distracting, and I'm pretty sure at least some of them made the business decision to settle, rather than fight.
I don't understand how the DOJ believes that Apple's offering to all publishers that it would distribute digital content for a 30% fee is illegal. Certainly, Amazon could have employed a similar model and competed by charging a lower fee. Also this didn't determine the ultimate price of books as publishers set the price. Absent evidence that Apple itself affirmatively helped publishers actually collude on price, I don't see how Apple did anything illegal. Merely providing a competing distribution model that publishers chose to employ when they allegedly colluded to set prices does not mean Apple did anything illegal.
If you're starting from a monopoly (or near-monopoly) position, like Amazon was when it was selling e-books at prices below their own costs, it can be illegal. At the time, Amazon was essentially the *only* significant retail outlet for e-books. Their ability to subsidize losses with the profits from selling other products gave them the ability to aggressively push their other competitors out of the market. Had this been able to continue, Amazon would have been in a position to dictate pricing both to their suppliers *and* customers, allowing them to pay very little for the books, but price them astronomically high for customers.
That is *exactly* the sort of situation that anti-trust laws were drafted to prevent/punish.
I have to shake my head that, more than 120 years after the fact, the many failures of anti-trust laws are still ignored.
The same people who shout, "anti-competition!" when private firms form loose associations to "set prices" can also be counted on to screech, "predation!" when a rogue firm (e.g., Wal-mart) "dumps" by setting prices lower than their competitors are willing to go.
So, what will satisfy you?
You don't want multiple firms cooperating to set prices, but you also don't want a single firm undercutting the prices of its competitors. Well, you can't have your cake and eat it too, so what's the solution? Enlisting bureaucrats to decide the prices at which producers may sell and the prices at which consumers may buy?
Central planning doesn't work because the untold *billions* of variables affecting market conditions make it impossible for a committee of finite-minded bureaucrats to determine an "optimal" price or competitive environment. Attempts at doing so inevitably distort the market, ultimately causing economic harm to producers and consumers as a result.
There's a better way: let the market determine prices.
And it's easy -- leave firms free to charge what they will for their goods and services, even if they use said freedom to form loose associations (i.e., "collude"), and allow consumers to decide what they are willing to pay.
Demands for anti-trust regulation also tend to be emotive: collusion is simply a pejorative for cooperation. Many of those who cheer on anti-trust law suits are perfectly fine when unions collude to set prices -- a much bigger problem, by the way, than any collusion in the eBook market.
The truth is, cartels can't endure long enough to do any long-term harm for the following reasons:
- If pooling resources is more profitable than going it alone, the cartel members will merge.
- If pooling resources is less profitable than going it alone, the cartel will dissolve
- An outsider will enter the market with a better product/business model and out-compete the cartel (Sam Walton vs. Sears Roebuck)
So, the harm inflicted by cartels ultimately null. Unfortunately, the same can't be said for anti-trust laws. Cartels are temporary, government regulations are forever.
Sargent notes that Macmillan makes less money under the agency model than it did under the previous wholesale model, but that it made the change to support competitiveness in the market, not stifle it.
I would like to see evidence of this statement from ANY publisher. They are taking 70% of the retail price of the book... they also have RAISED the retail price of books considerably, and ebooks have been priced in concert with print books 90% of the time since this switch to the agency model occurred.
Under prior wholsale agreements, a company could get better pricing for volume purchases (yes, even on ebooks. A company could commit to pre-paying for x number of digital copies to secure a price, plus barter with print purchases). In these previous agreements, a publisher was getting closer to 50% (with an actual range of 45%-55% depending on sales agreements with retailers).
So someone please tell me how when you take 70% of a pie, when before you only took 50% of a pie, that you have less pie now?
WTF do publishers care if Amazon was the number one book seller? They were... selling their books. If Amazon can move twice the units with bargain prices, the publisher might get less margin per book, but more margin dollars by selling more books.
I'm glad they went forth with this suit. What most articles aren't hitting on hard enough is that for the publishers, this was less about the margin % on the book, but driving up ebook prices. Here is where they MIGHT be getting more pie now. Before, a hardcover might sell for $25 and the ebook was going for $17.99.... not so much anymore. You're lucky to get a dollar discount on an ebook now. Oh but wait... no, that supports getting MORE pie now... in addition to the fact that there are no production/distribution costs with an ebook... they were making more on the ebook when selling it for less than the print book. It's total greed, collusion, and price fixing with anti-competitive practices thrown in the mix. I can't wait to see this go to court and hear an industry justify breaking several laws.
I think Apple has far less to worry about than the publishers... and now that a few have made deals, I doubt the others will be far behind. They made those deals with savvy legal teams recommending those... and not just because of saving litigation costs. Their lawyers surely knew these deals pushed legal boundaries when they were signed.
I would like to see evidence of this statement from ANY publisher. They are taking 70% of the retail price of the book... they also have RAISED the retail price of books considerably, and ebooks have been priced in concert with print books 90% of the time since this switch to the agency model occurred.
Under prior wholsale agreements, a company could get better pricing for volume purchases (yes, even on ebooks. A company could commit to pre-paying for x number of digital copies to secure a price, plus barter with print purchases). In these previous agreements, a publisher was getting closer to 50% (with an actual range of 45%-55% depending on sales agreements with retailers).
So someone please tell me how when you take 70% of a pie, when before you only took 50% of a pie, that you have less pie now?
WTF do publishers care if Amazon was the number one book seller? They were... selling their books. If Amazon can move twice the units with bargain prices, the publisher might get less margin per book, but more margin dollars by selling more books.
I'm glad they went forth with this suit. What most articles aren't hitting on hard enough is that for the publishers, this was less about the margin % on the book, but driving up ebook prices. Here is where they MIGHT be getting more pie now. Before, a hardcover might sell for $25 and the ebook was going for $17.99.... not so much anymore. You're lucky to get a dollar discount on an ebook now. Oh but wait... no, that supports getting MORE pie now... in addition to the fact that there are no production/distribution costs with an ebook... they were making more on the ebook when selling it for less than the print book. It's total greed, collusion, and price fixing with anti-competitive practices thrown in the mix. I can't wait to see this go to court and hear an industry justify breaking several laws.
I think Apple has far less to worry about than the publishers... and now that a few have made deals, I doubt the others will be far behind. They made those deals with savvy legal teams recommending those... and not just because of saving litigation costs. Their lawyers surely knew these deals pushed legal boundaries when they were signed.
The gold standard is probably too recent because that implies the use of paper money. Bartering and pieces of eight would be closer to the mark, whatever existed before Adam Smith for sure. My question about the philosophical basis for pre-Adam Smith economics was a serious one, since he was the godfather of modern economics, and he goes back 250 years. I am genuinely curious to know how much further back into history you'd go to find no basis for concern about cartels and monopolies.
What does the 17th century have to do with anything? You might try addressing my arguments.
And not that an ideas date of conception has anything to do with its validity, but if you want to play that game: the labor-union economics you've been spouting is a marriage of 16th Century mercantilism and 19th Century Ludditism. And central tenets of these views precede mercantilism by centuries.
Well . . . I thought that is what they are accused of:
s Apple "knowingly served as a critical conspiracy participant" by promising all the publishers the exact same deal and keeping everyone informed about the status of negotiations. When Penguin explicitly said that it wouldn't sign unless at least three other companies signed, Apple "supplied the needed assurances."
While this is made to sound salacious, agreeing to charge your customers the same commission charge ("the exact same deal") and letting other potential customers know that they succeeded in securing other customers ("supplied the needed assurances"), this is not illegal.
Prior to the creation of the agency model under Apple, Amazon consistently set prices for ebooks artificially low to further the sale of their own e-readers, the Kindle. These prices, while appealing to consumers, were not 'real', they were set as loss leaders to further the sale of the e-readers. It sounds like the DoJ are gauging Apple and other publishers against this artificial pricing, which I don't think takes into account the rational for why those prices temporarily existed.
Of more importance, the low price points set by Amazon are not sustainable for the publishing industry. The book publishing industry is struggling as it is and having one e-book retailer artificially depress their prices will only hurt them severely in the future. Under the agency model, prices did rise slightly, however they rose because they were being held down artificially by Amazon's monopoly.
Prices today allow a flourishing book publishing industry that is competitive and fair. Returning to the wholesale model will only favour a monopoly by Amazon, which in the end is not good for consumers or the industry. The publishing industry is fundamental to the culture of the US, and while prices of ebooks are not as low as they were, I believe the current agency system allows for a fair balance between consumer prices and preventing a one retailer monopoly.
Of more importance, the low price points set by Amazon are not sustainable for the publishing industry. The book publishing industry is struggling as it is and having one e-book retailer artificially depress their prices will only hurt them severely in the future. Under the agency model, prices did rise slightly, however they rose because they were being held down artificially by Amazon's monopoly.
Prices today allow a flourishing book publishing industry that is competitive and fair. Returning to the wholesale model will only favour a monopoly by Amazon, which in the end is not good for consumers or the industry. The publishing industry is fundamental to the culture of the US, and while prices of ebooks are not as low as they were, I believe the current agency system allows for a fair balance between consumer prices and preventing a one retailer monopoly.