Jacobson on the Apple ebooks case: It is hard to find an easier antitrust case than United States v. Apple

totmauthor —  15 February 2016

by Jonathan Jacobson

Try as one may, it is hard to find an easier antitrust case than United States v. Apple.

Consider: The six leading publishers all wanted to prevent Amazon and others from offering best seller e-books at $9.99 (or other similar low prices). The problem, however, was that they had no mechanism for accomplishing that result. Then came Apple. Apple figured out that the “Amazon problem” could be fixed if the publishers changed their customer relationships from sale/resale to “agency,” all subject to an MFN with Apple that would prohibit any of the publishers – and, through the MFN, Amazon – from underselling the (higher) prices on Apple’s iBookstore. Loving this “aikido move” (in Steve Jobs’ words), all the publishers but Random House happily agreed. Prices for best seller e-books increased 30% almost overnight.

So what is this? The fact of a horizontal conspiracy among the five publishers is largely undisputed. Is it any less per se illegal because Apple was involved? Hardly; especially on these facts, where the participation by the “vertical” player was essential to make the whole scheme work. Apple’s role in no way made the conspiracy benign. It made it worse – and it couldn’t have been achieved without Apple’s active role.

Truly, all one needs to know about the case is in the attached video clip from the iPad launch event. Asked by the Wall Street Journal why anyone would pay $14.99 for a book from the iBookstore when it could be had for $9.99 on Amazon, Steve Jobs said: “Well, that won’t be the case.” Asked to explain, he added: “The prices will be the same.”

So we have a horizontal conspiracy to fix and raise e-book prices, made operational only through Apple’s aggressive involvement, that immediately raised prices by 30%. If that’s not an antitrust violation, we’re all in trouble.

9 responses to Jacobson on the Apple ebooks case: It is hard to find an easier antitrust case than United States v. Apple

  1. 

    Hear, hear. It’s nice to see some sanity on this topic, in this forum. And worth noting that if Richard Epstein’s claim of a decline in revenues subsequent to the change is correct, then we also have irrefutable empirical evidence that the claim that this collusion to increase prices was somehow pro-competitive and output enhancing is simply vacuous. (As if the evidence of ebook prices often hardly different from — and sometimes even higher than — hardcopy versions weren’t enough.)

    Perhaps it is interesting from an academic standpoint to opine on whether or not such behavior should be deemed illegal per se, but the ultimate conclusion that the behavior in this particular case was harmful to consumers, and precisely what antitrust laws are intended to prohibit, seems obvious to anyone that doesn’t have their head stuck in some ideological sand.

    The real question of practical significance at this point is, what can be done to properly remedy the substantial damage done by this bad behavior.

    • 

      It’s not irrefutable evidence to point to a price increase in the short run. Price changes alone are insufficient to prove anticompetitive effect, especially over such a short time frame.

      Regardless, whatever you think the right outcome should be, the per se/rule of reason question is not merely academic. It has enormous implications for subsequent behavior throughout the economy, and subsequent cases.

      • 

        I didn’t say price increase, I said decline in revenues. Decline in revenues, with unit prices increasing, clearly demonstrates reduced output, not increased output.

        (So far as prices, themselves, go…by common sense, that ebook prices rose to be hardly different from, and sometimes even higher than, hardcopy books, despite much lower production and distribution costs PLUS the elimination of the ability to rent or resell on a secondary market — is pretty strong evidence that the change was not pro-consumer.)

        As for the per se issue, I don’t have the expertise to evaluate or properly respond to such. But if the behavior in question would be illegal per se absent the involvement of a third-party distributor, it’s pretty hard to understand why it shouldn’t be illegal per se merely because a third-party distributor is willing to participate in the scheme. And even harder still to understand why concluding such would be a (detrimental) shockwave to the economy.

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