When tech antitrust failed
By Shira Ovide
If you’ve wondered recently why prices for e-books seem high, let me tell you why a failure of antitrust law might be (partly) to blame.
A government antitrust lawsuit a decade ago that was intended to push down prices helped lead instead to higher ones.
The outcome suggests that the U.S. government’s lawsuits against Google and Facebook and a just-announced Connecticut antitrust investigation into Amazon’s e-book business may not have the desired effects, even if the governments win. It turns out that trying to change allegedly illegal corporate behavior can backfire.
Cast your mind back to 2012. The second “Twilight” movie was big. And the Justice Department sued Apple and five of America’s leading book publishers in the name of protecting consumers and our wallets.
Book publishers were freaked out about Amazon’s habit of pricing many popular Kindle books at $9.99 no matter what the book companies thought the price should be. Amazon was willing to lose money on e-books, but the publishers worried that this would devalue their products.
The government said that to strike back at Amazon, the book companies and Apple made a deal. Publishers could set their own e-book prices on Apple’s digital bookstore, and they essentially could block discounts by any bookseller, including Amazon.
To the government this looked like a conspiracy to eliminate competition over prices — a big no-no under antitrust laws. Eventually the book publishers settled and Apple lost in court.
Later, Amazon, Apple and other e-book sellers agreed to let publishers enforce e-book prices. The arrangements were legally kosher because they were separately negotiated between each publisher and bookseller. (I can’t answer why Amazon agreed to this.)
The government won but the publishers got what they wanted with e-books. Bookstores can choose to take a loss to heavily discount a print book, but they typically can’t with digital editions. The $10 mass-market e-book is mostly gone.
How did an antitrust case meant to lower prices instead possibly lead to higher prices? Christopher L. Sagers, a law professor at Cleveland State University who wrote a book about the e-books litigation, told me that he believes it’s a failure of corporate antitrust laws.
Professor Sagers and others believe that because a few major book publishers release most mass-market titles, they have the power to keep prices high. He laments that the antitrust laws have failed to stop industries from getting so concentrated. In other words, he thinks it’s bad for all of us that a book-publishing monopoly is trying to fight Amazon’s monopoly.
“American antitrust is basically a failure and this case was a microcosm,” he told me.
Somehow this newsletter keeps coming back to this debate. An influential view — particularly among left-leaning economists, politicians and scholars — is that U.S. antitrust laws or the way they’re applied are flawed. They believe that the government has failed to stop the increasing corporate concentration and mergers in industries like airlines, banking and technology, which has led to higher prices, worse products and income inequality.
In the long run for the book industry and for us, it could be healthy that the artificially low $10 mass-market digital novel is gone. And there are lots of low-priced Kindle works, though, from self-published authors and Amazon’s own book-publishing unit.
Amazon was selling the e-book edition of Professor Sagers’s book about the price-fixing lawsuit for $28.45 on Friday — a price dictated by the book publisher. “I wish it were cheaper,” he said. “I wanted a lot of people to read it.”
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