Why sue the publishers and Apple instead of Amazon? The DoJ may not have had much choice

In the publisher/Apple antitrust suit, one criticism that has emerged from the publisher partisan camp is that the DoJ is picking on them for trying to defend themselves against Amazon’s growing monopoly, while turning a blind eye to what Amazon is doing. However, the Wall Street Journal is running a piece in which it talks to antitrust scholars to try to dispel some misconceptions.

U.S. antitrust law, the article explains, isn’t about protecting little companies from big ones, or even necessarily preventing monopolies as long as the monopolies are reached through legal means. It’s about preventing companies from ganging up on other companies, no matter what their relative sizes are.

"A lot of cartels are [composed of] small firms," says Herbert Hovenkamp, law professor at the University of Iowa. "The criminal cases the Justice Department brings are often family firms—much smaller than these publishers."

And the publishers and Apple are not exactly small companies themselves—many (all?) of the Agency Five are owned by international conglomerates, and Apple has the highest market value of any US company. And when the DoJ sees evidence of price fixing, which Hovenkamp calls “kind of the first-degree murder of antitrust violations,” it is required to act.

And the government has pulled its punches, at least to some extent—it filed a civil case, not a criminal one, so no one will end up in jail, and it is only enjoining agency pricing for two years rather than the more usual five or 10.

When you get right down to it, the experts the WSJ interviewed say, nothing Amazon has done is really illegal. Nothing in the law gives companies the right to band together to keep companies like Barnes & Noble in business.

"The goal of antitrust policy is to protect consumer prices,” Prof. Hovenkamp says. "It’s not to protect inefficient firms from having to exit the market."

And that’s something publishers should probably keep in mind, given that they’ve developed some notably inefficient practices themselves.

Publishers could ask Congress to intervene and vote them an exemption from antitrust law, though it’s not clear that there is a really compelling argument for Congress to do so. Plenty of businesses that were thought essential twenty years ago have gone by the wayside in recent years and there’s nothing about Barnes & Noble that necessarily makes it more worth saving than, say, Tower Records.

The WSJ is running another interesting article, this one paywalled so you have to go in through the Google News search to read the whole thing, which discusses Apple’s standard 30% cut on media, including the pithy quote from an Apple executive, in context of a negotiation for a better deal for newspaper publishers, “I don’t think you understand. We can’t treat newspapers or magazines any differently than we treat FarmVille.”

The DoJ, in its complaint, casts the 30% commission as the result of a conspiracy, but Apple has been insisting on this cut all along, all the way back to when it first began to sell apps through iTunes. It calls the “agency model” inherently wrong, but the problem is that courts have held there is nothing wrong with the actual model, which is used across a number of industries.

Contrary to the Justice Department’s complaint, "this model happens to look exactly like Apple’s arrangement for apps and music as well, right down to the same percentage Apple takes from sales," wrote Geoffrey Manne, head of the International Center for Law and Economics, on the Technology Liberation Front blog. "This makes things easier for Apple, gives publishers more control over pricing, and offers Apple content and a good return sufficient to induce it to market and sell its platform." Or as Apple put it last week in refusing to settle with the Justice Department, "Just as we’ve allowed developers to set prices on the App Store, publishers set prices on the iBookstore."

This is, of course, an opinion piece, and basically presents the other side of the argument: the publishers are doing nothing wrong, they’re trying to save themselves from Amazon, and the lawsuit is already reducing competition. (Found via Ars Technica.)

In the end, a court will decide who’s right. In the meanwhile, I’m stocking up on delicious popcorn. Because no matter who’s in the right, this promises to be an entertaining battle.

5 Comments on Why sue the publishers and Apple instead of Amazon? The DoJ may not have had much choice

  1. The WSJ asked the wrong questions. Anti-trust laws are, of course, about ‘trusts’ between various corporations. But that has nothing to do with legality or illegality of a corporation with a 90% market share selling ebooks below cost (for a time) to destroy its tiny (10%) competition.

    Think logically. It’d be absurd to say that one company with a 90% market share could do something with the intent of destroying a healthy market, but that six companies with a combined market share that’s far less than that can’t do it. Trusts only create a quasi-monopoly over whatever narrow area they agree on. What Amazon had was a real beast of a monopoly.

    It also says nothing about the legality of businesses that are competing in every possible way they can from uniting behind an effort to keep their market healthy and competitive because the DOJ was and continues to do nothing about Amazon. That makes them reformers rather than conspirators. The real scandal in this fuss isn’t Apple, the Big Six or even Amazon. It’s the DOJ.

    My hunch is that this effort to sue Apple but not Amazon discrepancy has either or both of two causes.

    1. Like Boeing tried to do with the USAF tanker contract, money has changed hands under the table. I live in Seattle and our businesses ethics aren’t exactly world-class. Too much of the old Gold Rush, get-rich-quick mentality still survives. Amazon’s simply being like Boeing and Microsoft in the 1990s.

    2. The political types at the DOJ mistakenly thought this would be a winning cause, making them look like champions of lower ebook prices. Our continuing recession, high unemployment, record deficits, and the GSA, Secret Service and other scandals mean that the only way those ‘political types’ will have their jobs come January of next year is by demonizing entire classes of people. This was to be the “rich publishers charging too much” class targeted to be hated.

    And if you look around, you’ll find numerous comments from the very haters whose votes the DOJ is courting. This has been the most divisive administrations within the memory of anyone living, and certain within my memory, which stretches back to Eisenhower.

  2. I only know that I would much prefer to put ebooks on Apple all day long and get their straight 70% return than have to mess around with the monkey-business of Amazon and their un-true 70% return, because they have their search crawlers all over the web watching for the lowest price in print and then discount the ebook off that by 20%.

    That is price-fixing in my opinion.

    And the DOJ has enough trouble of its own (i.e. Eric Holder) to be worrying about Apple. They should be after Amazon IMHO.

  3. Robin Turner // April 25, 2012 at 3:02 pm //

    You want to mention monopoly. . . think APPLE. I would much rather deal with Amazon everyday than Apple even once. You people need to get your heads out of the clouds and realize that you’re not the king of castle anymore.

  4. The definition of a monopoly is a company which as enough market share to elimininate the competition. This is what Amazon has effectively done. Apple cannot be a monopoly because its core focus is on making new and better devices and then selling them; while Amazon employs authors to supply content for its Kindle and then pays them next to nothing for the “privilege” of selling on Amazon. Like me, other authors are suffering the consequences of depending on the giant retailer to sell their ebooks with disastrous results. While my work is spread all over the globe at low prices I have seen sales on Amazon steadily decline since the third quarter of last year as Amazon encourages its customers to stock up on free content. Since then, I have delisted my ebooks and don’t plan to post another new title there, since the prospect for any kind of decent return on my investment of time and effort has vanished. Amazon can do what it wants; it just won’t be doing it with my books. I guess that makes it a nonmono but I still don’t have to deal with it.

  5. I have been going through each of the titles that I have on Amazon and I have had SO MANY issues with the information that I Cannot change on Amazon….it’s amazing!

    When I look at the same titles on Apple – it’s perfect! No problems – what information give them, they post and nothing more and don’t alter it!!

    Amazon is truly the monopoly and the DOJ is going after the wrong people!!

    Royalties on an ebook through Amazon is not the 30% return like they claim..you have to pay a surcharge for the customer’s download, etc. Through Apple, you get the straight 30% return. AND Apple DOESN’T alter my list price based on a print version available.

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