Audit Notes: Ebooks, Amazon, and Apple Edition

Barry C. Lynn, author of Cornered: The New Monopoly Capitalism and the Economics of Destruction, writes a good Slate piece on the Justice Department’s misguided suit against Apple and book publishers for fighting Amazon’s ebooks monopoly.

Lynn writes about why low prices aren’t always good for consumers:

For 200 years after the Boston Tea Party, anti-monopoly enforcement aimed mainly at distributing power and protecting the liberties of citizens. One of the hardest lessons we learned during those two centuries was to avoid the siren song of lower prices—precisely because they are so often used, consciously, to concentrate power.

Lower prices enable horizontal predation; when a fatly capitalized retailer (like Amazon) wants to bankrupt its less-wealthy direct competitors, it simply undersells them day after day after day. Furthermore, lower prices can be used in vertical predation, against producers; when a powerful retailer (like Amazon) wants to extract more wealth from its now-captive suppliers, it can set prices to promote those firms who accept its terms and to punish those who resist…

Over time, it became clear that the best way to lower prices over the long run was in fact to allow producers to set higher prices today. That’s because doing so forces producers to compete with producers rather than retailers. And it forces retailers to compete with retailers rather than with producers. The result being that we end up with both producers and retailers doing a better job of serving the consumer.

Here’s take on that from the other day.

Wired’s Tim Carmody also has an excellent piece on the DOJ’s lawsuit and how it handed Amazon nearly everything it wanted, including regained leverage over the market:

At the level of perception, too, Amazon comes off in these documents as a positive protagonist. It is not the tough-as-nails, dominant player in the e-book market that we all know Amazon instead. Instead, they are a white knight, nobly pursuing the interests of customers against an illegal cabal of fearful publishers and a predatory Apple…

What’s left out of the Justice department’s lawsuit might be even better news for Amazon than what’s included. There is no broader look at any of the anticompetitive vagaries of the e-book market beyond publishers’ negotiations with retailers in the period before and after the launch of iBooks.

The suit blasts most favored nation agreements without noting that Amazon has aggressively pursued MFN agreements with publishing partners, including partners whose books it sells wholesale. It’s completely silent on retailers’ and device manufacturers’ use of DRM to lock customers into a single bookstore. Amazon is purely a market innovator, not a budding monopolist, even as the DOJ notes that Amazon’s pricing power helped determine pricing power across the industry.

— Meantime, Mike Cain writes that the Justice Department is missing Apple’s abusive practices with its iBooks store:

The advantage iPhone and iPad owners have in using the iBooks app is that they can browse and purchase eBooks from within that app. It’s a seamless customer experience.

By contrast, all eBook apps from competing eBook stores — such as those from Amazon, Kobo, Barnes & Noble, and others — cannot offer an identical shopping experience. They are disallowed by Apple. Apple has demanded from each of its iBookstore competitors a 30% cut of any purchases made using Apple APIs for what is called “in-app purchasing”…

Indeed, it was just last year that Apple finally demanded all of its eBook store competitors remove in-app purchasing from their already-listed App Store apps or face delisting. Amazon, Kobo, Barnes & Noble, as well as others, had no choice but to comply.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,