American Booksellers Association Advances Bad Antitrust Argument, But Who Can Blame Them?

Josh Wright —  22 October 2009

The WSJ Reports that the American Booksellers Association has knocked on Christine Varney’s door at the Antitrust Division to complain about the new low prices resulting from the price war between Amazon, Target and Wal-Mart.  The complaint?

In a letter dated Oct. 22, the ABA said it believes that the discount pricing—which has led to 10 of the most anticipated hardcover titles being priced as low as $8.98 on Walmart.com—amounts to such an act and that it is “damaging to the book industry and harmful to consumers.”  The letter said while it may appear that the prices will generate “more reading and a greater sharing of ideas in the culture,” many of the independent stores that belong to the ABA won’t be able to compete.  “The net result will be the closing of many independent bookstores and a concentration of power in the book industry in a very few hands,” the letter said.

Of course, one can violate the Sherman Act with predatory pricing.  But because of the obvious and palpable benefits generated by consumers for low prices, the costs of false positives throughout the economy that would arise from chilling pro-competitive discounting, and the speculative nature of the future harms associated with such claims, the antitrust law has sensibly developed a standard that makes successful predatory pricing claims very rare.  But the ABA is arguing here that any single firm will lower price until rivals go under and exit and then raise price in the future.  Rather, it is basically arguing that low prices will run higher cost independent booksellers out of business — resulting in higher market concentration.

The claim calls to mind Justice Potter Stewart’s famous dissent in Vons Grocery, in which Supreme Court prohibited a merger of two supermarkets controlling less than 10 percent of the market, which offered a nice 1-2 combination to the notion that antitrust could protect both competitors and competition simultaneously.  Justice Stewart reminded the majority that “The Clayton Act was never intended by Congress for use by the Court as a charter to roll back the supermarket revolution” and made the obvious economic point that “the numerical decline in the number of single-store owners is the result of transcending social and technological changes that positively preclude the inference that competition has suffered because of the attrition of competitors.”

So yes, the dog-eat-dog competition between Amazon, Wal-Mart, Target and others will be messy, chaotic, and will produce winners and losers.  Independent bookstores might well lose.  It will depend on how much consumers value those stores relative to the combination of price and other amenities offered by the Amazon’s of the world and other competitors.  This is something the market can and will figure out whether we like it or not — especially if we’ve learned our lesson from Von’s Grocery and no longer use the antitrust rules to roll back innovation in the book business.

Antitrust basics tell us there is not going to be much to the ABA complaint.  Low price to consumers for books are a good thing.  Complaints from competitors without complaints from customers are a good sign that antitrust authorities should stay away.  The likelihood that the ABA can convince the DOJ that there is a convincing case for recoupment in the retail sale of books through the internet or anywhere else is very close to zero.  The antitrust argument is outdated, harmful to consumers, and out of touch with modern antitrust analysis.

But I don’t really blame the ABA for trying.  Why not?

Consider the Obama Administration’s recent White Paper on innovation which I blogged about here previously.  Unfortunately, the Obama Administration’s White Paper appears to explicitly endorse the exclusion of small businesses as an objective of the antitrust laws:

Protect small businesses from unfair business practices. In many industries, small companies are critical innovators, bringing enormous benefits to consumers while putting competitive pressure on incumbent firms. The Obama Administration is committed to enforcing the antitrust laws to insure that innovative entrepreneurs are not excluded from the market by anti-competitive conduct. The Department of Justice actively investigates allegations of exclusionary conduct as part of its law enforcement mission to keep markets open and competitive.

As I wrote then:

This language is hearkens to an era of antitrust where the protection of small businesses and individual competitors was an acceptable antitrust goal.  From an economic perspective, this view was long ago rejected on the basis of the new learning in industrial organization economics during the 1960s and 1970s.  The last sentence is rather unobjectionable.  Nobody is surprised that the Administration is interested in bringing more monopolization cases based on allegations of exclusionary conduct.  But I am a little bit surprised to see the open and explicit appeal to using antitrust as a weapon to protect small businesses.  Perhaps this is the product of a failure to communicate?  Maybe the administration antitrust crew ought to sit down and have a talk with the administration intellectual property folks and tell them that protection of small businesses (rather than the competitive process and consumers) is no longer considered a legitimate goal of antitrust in the courts, agencies, or by antitrust economists.

But if the Administration has signaled its willingness to hear these types of arguments, why not give it a shot?

3 responses to American Booksellers Association Advances Bad Antitrust Argument, But Who Can Blame Them?

  1. 

    This ABA lawsuit is almost eye-rolling in its foolishness. My first question was whether Justice might start poking around the book manufacturing business instead, trying to determine why publishers inflate the cost so much. Vive la bibliothèque!

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