I wrote this a couple of weeks ago:
It’s true antitrust laws are there primarily to protect consumers, but they do that in part by protecting competitors and suppliers from chokeholds in markets. Doing so ultimately protects consumers in the long run—on prices and on selection.
That’s not to say the government is supposed to step in “to protect inefficient firms from having to exit the market,” a red herring the WSJ quotes. You can’t be efficient enough to compete with a company willing to lose money in a market, particularly if you aren’t willing or able to subsidize those losses with profits from other parts of your business.
What the publishers were trying to do here, in the absence of any interest from antitrust authorities, was to prevent Amazon from gaining monopsony power over their market. A monoposonistic retailer can dictate or inordinately influence prices and terms to the companies who actually produce the products (think Walmart and its suppliers). The funny thing with the ebooks situation is that Apple is a monopsonist in several major markets, too.
No company tries to lock up 90 percent of a market to keep losing money in perpetuity. Eventually, it will either raise prices or force suppliers to take less money. The latter is where Amazon was or is surely going.
In fact, it already has, in both ebooks and print books. Remember, Amazon, controls some 75 percent of online print sales too. Here’s some example of how it tries to use its power over publishers from part two of The Seattle Times tough series on the dark side of its hometown giant:
The bad news came to McFarland & Co. in an email from Amazon.com. The world’s largest Internet retailer wanted better wholesale terms for the small publisher’s books. Starting Jan. 1, 2012 — then only 19 days away — Amazon would buy the publisher’s books at 45 percent off the cover price, roughly double its current price break…
Amazon, which buys (Berkshire Publishing Group’s) books at 40 percent off the cover price, emailed her in December to demand an even bigger discount. She refused, and Amazon stopped placing orders, affecting 10 percent of her business…This February, Amazon again asserted its influence when it pulled nearly 5,000 titles by distributor Independent Publishers Group from its Kindle e-book store. Amazon wanted better terms, and IPG said “no.”
It’s okay with the DOJ when Amazon behaves like this, but it’s not okay for the companies to fight back. That’s the problem here.
Which brings me to another flaw with the case against the publishers. Typically when a cartel gets together to raise prices in an industry, it’s so, you know, members of the cartel can make more money.
But publishers say they knew when they agreed to it that they’d make less money under the Apple model than they did under the Amazon model.
The Journal doesn’t mention that, either.
I’m pretty sure I’ve never liked something on the WSJ edit page while criticizing the paper’s news side on the same subject. But Gordon Crovitz, the Journal’s former publisher, wrote a good op-ed the same day this news story ran. He raises a valid point: that Apple’s model with book publishers is similar to the one it gives other industries in its app store:
Whether it’s news, games, apps or books, Apple’s position is the same. The market determines the price, and Apple gets 30%. The Justice Department fails to acknowledge anywhere in its 36-page complaint against Apple and book publishers that this is the standard approach. (Indeed, the government complaint inaccurately refers to “30% margins” for Apple. Operating margins are very different from sales commissions.) The government says this “agency model” is inherently wrong (“per se” wrong, in legalese) and “would not have occurred without the conspiracy among the defendants.”
There’s a difference though, and it’s that Apple presumably doesn’t tell Rovio it can’t sell Angry Birds for more than 99 cents. The Justice Department’s case will hinge on whether the companies locked in on the $12.99 and $14.99 prices together. We’ll see, and Crovitz, for one, argues that there’s more price diversity under the agency model, not less.
"Well, yes. The whole point of the pro-publisher view is that Amazon was abusing its monopoly position to stifle competition. It sold the publishers’ ebooks at a loss, making it difficult or impossible for competitors to enter the market and perpetuating its 90 percent market share. Somewhat ironically, Amazon only started making money on ebooks after the publishers forced it to adopt the new model (which gave it the exact same terms as Apple, by the way), which has reduced its market share by a third."
If going to the agency model allowed others to compete, which implies no other company could compete or it was incredibly difficult to compete in the ebook market before the agency model, then why did the Barnes and Noble release the Nook many months before the agency model came into play? Why did Kobo design and announce the Kobo ereader many months before agency came into play? Why did Sony, which had been in the ebook market for several years but is also a company known for scrapping electronic products that are non-profitable or appear as such, release new versions of its ebook reader and open an online store all before the agency model came into play?
In fact, Wikipedia has a nice article comparing ebook readers. If you look at the release dates from those companies, about 90% appear to have released before the agency model went into effect. How could this be if the ebook market was impossible or difficult to enter? After all, actually distributing the ebooks is the easiest part, yet all these companies saw a market opportunity for them to spend millions of dollars in R&D for the big piece--the reader itself.
And if you go to that wikipedia article, where is the flood of companies that should have entered the ereader market after the agency model?
Also, your line that Amazon only made money after agency pricing came into effect is unsupported by any facts. Since Amazon does not release individual segments of its book sales, instead including books in a general media category, your statement is more careless than your complaint with the WSJ saying "Antitrust Scholars..." One can reasonably assume not all antitrust scholars agree, but when you make a blanket statement such as "Amazon only started making money..." You are stating something that you also can't quantify.
#1 Posted by Al N, CJR on Thu 26 Apr 2012 at 02:03 PM
The anti-Amazon witch hunt is easily destroyed here.
E.g., just one basic exposure of the "antitrust" fraud:
"'Book Publishing’s Real Nemesis' by David Carr cites the recent antitrust suit brought by the Justice Department against five publishers and Apple, charging they engaged in the price-fixing of e-books. Instead of condemning this police action against production and trade, Mr. Carr bemoans the fact that the strong arm of the law didn’t go far enough to grip the 'monopolistic monolith' Amazon, which 'has used its market power to bully and dictate.' Mr. Carr considers it bullying and dictating when a private company (Amazon) sets its terms, and other players (the publishers) are free to do business with it or not. But it’s not bullying and dictating when the compulsory power of the state intervenes to set economic terms and punish businesses arbitrarily?"
Read the whole article for a thorough smashing of the blood-thirsty statists' attacks on freedom.
#2 Posted by Dan A., CJR on Thu 3 May 2012 at 04:50 AM