From The Los Angeles Times:
Almost every antitrust case turns on the definition of the market at issue, whether by product or geographically: Is a monopoly threatened in the market for all passenger vehicles or only two-seater sports cars? Are we talking about detergent sales nationwide or only in Wyoming?
The Department of Justice’s lawsuit that effectively killed a bid by Tribune Publishing Co., owner of The Times, for the Orange County Register involved just such a distinction: The agency’s antitrust lawyers said Tribune’s takeover of the Register threatened to create a monopoly over English-language print newspapers in Orange County; Tribune’s response was that newspapers are no longer a relevant market by themselves, given competition for news consumers from TV, radio and the Internet.
. . . .
As Gabriel Kahn of USC’s Annenberg School for Communication and Journalism told my colleague Andrew Khouri, trying to create a monopoly in print newspapers is “the equivalent of cornering the market in horse-drawn buggies.”
. . . .
This isn’t the first time the Department of Justice has been accused of misreading the influence of new technologies in publishing. In 2012, the DOJ sued Apple and six book publishers for colluding to fix ebook prices. Many in the publishing industry thought the agency had picked exactly the wrong targets: The publishers had desperately sought a way to break the near monopoly in ebooks held by Amazon, which had attained 90% of the market by systematically selling ebooks below cost — in fact, at least one publisher had pleaded with the DOJ to file suit against Amazon. Apple’s offer to let the publishers set their own prices (within limits) on its iBookstore was a lifeline, they argued. They lost.
The danger in these cases is that the DOJ’s focus on promoting lower prices for newspaper readers and advertising or for ebooks could undermine the business models of publishers already eroded by technology. That could mean less news and fewer books. As media analyst Ken Doctor put it recently, “newspaper readers are today likely only to see their news coverage further diminished as likely collateral damage of DOJ’s attempt to represent the citizenry.”
. . . .
Amazon’s 90% share of the ebook market terrified the publishers, especially since the online merchant showed it wouldn’t be shy about pushing book publishers around. In 2010 Amazon removed the “buy” button from the online display of books from Macmillan, which was insisting on controlling the pricing of its ebooks. For months in 2014, a similar dispute provoked Amazon to make it hard for customers to order books from Hachette, the owner of Little, Brown and other imprints.
Amazon purchased books wholesale from the publishers and set its own retail price, typically a loss-leader $9.99. Publishers felt that price diminished the value of their hardcover sales and preferred to set their own ebook prices. There also were fears in the industry that Amazon’s pricing could put booksellers out of business, including even giant Barnes & Noble, which would be even worse for publishers. But individual publishers had almost no leverage with Amazon.
Enter Apple, which wished to create its own online bookstore for iPhone and iPad users. Apple’s deal with six major publishers allowed them to set their own ebook prices on the iBookstore, with Apple taking 30% of sales. But Apple didn’t want to be undercut by Amazon either, so it insisted on a “most favored nation” deal which allowed it to sell ebooks at the lowest price available from any other merchant online. That gave the publishers an incentive to present a united front to Amazon; most eventually achieved the right to set their own prices.
The publishers saw their effort as a blow against Amazon’s predatory pricing; to the Justice Department, resembled price fixing. Noting that the deal had helped cut Amazon’s share of the ebooks market to 60% from 90%, U.S. Appeals Judge Dennis Jacobs found that “Apple’s conduct … was unambiguously and overwhelmingly procompetitive.” But his finding was the lone dissent in a 2-1 ruling upholding trial court’s verdict in favor of the Justice Dept. Apple’s to the Supreme Court was turned down this month. It will have to pay $450 million in credits to customers who bought books on iBookstore at supposedly inflated prices.
Taken together, these cases show how technology is making a hash of markets that were reasonably stable for decades. Defining a market in antitrust cases was not always straightforward. But it can hardly have been as complicated as it is today, when an Orange County “newspaper” can serve readers anywhere in the world and a Google search can bring up local news items from dozens of sources. Lower prices today may look good for the consumer in the short term, but if they’re just the precursors of a world with less news or fewer book-buying choices, there’s trouble on the horizon.
Link to the rest at The Los Angeles Times
PG will note that many of the markets which have been “reasonably stable for decades” are markets where competition is constrained and consumer-friendly innovation is discouraged.