From The New Yorker:
Had you listened to the lawyers presenting oral arguments to the United States Court of Appeals for the Second Circuit between ten o’clock and eleven o’clock on Monday morning, you might have assumed that someone was suing Amazon. Much of the discussion centered on whether Amazon had a monopoly on e-book sales a couple of years ago. At one point, a judge even suggested outright that Amazon could be described as a monopolist company that engaged in predatory pricing.
But the case before the court that day wasn’t about Amazon—not directly, at least. It originated in 2012, when the Department of Justice sued Apple and five book publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) for allegedly conspiring to raise the prices of e-books in the run-up to the launch of the iPad, in 2010. Amazon, whose Kindle e-reader had a ninety-per-cent market share for e-books before the iPad’s introduction, had been buying them at the wholesale prices set by publishers, then reselling them at retail prices (typically $9.99 per book) that were often at or even below the original wholesale price. Amazon didn’t mind losing money on each sale, as long as the strategy helped sell Kindles and expand the e-book market. But publishers believed that the low retail price of e-books eroded the public’s perception of what books are worth. They also worried that the heavily discounted e-books were hurting hardcover sales, on which they depended for much of their revenue.
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So why the discussion now of whether Amazon was a monopolist before Apple came along? According to recent case law, price-fixing schemes designated as horizontal (that is, coördinated among competitors) violate antitrust law, no matter the parties’ intentions or the effects on the market. But “vertical” price-fixing (between a retailer and a manufacturer) may not be a violation, depending on such factors as the companies’ motives and the outcomes of their actions.
Last year, a federal judge named Denise Cote found that Apple had, in fact, collaborated in a horizontal price-fixing scheme, not that it had orchestrated a vertical one. Cote noted that Apple executives kept the publishers informed about what other publishers were up to; she also pointed out that Apple made clear to the publishers that it was important for as many of them as possible sign on to the proposed deal. Both of these activities, among others, Cote argued, showed that the company had facilitated horizontal price-fixing.
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On Monday, comments from the appellate judges in New York—especially Judge Dennis Jacobs—suggested that they might be more receptive than Cote to Apple’s line of reasoning. According to Agence France-Presse, Jacobs said, “What we’re talking about is a new entrant who is breaking the hold of a market by a monopolist who is maintaining its hold by what is arguably predatory pricing.”
. . . .
According to the Associated Press, when one of the judges, Raymond J. Lohier, Jr., asked a lawyer for the Justice Department how Apple and the publishers “could have broken Amazon’s monopoly of the e-book market without violating antitrust laws,” The lawyer noted that Apple could have let the competition among companies play out naturally without pursuing explicit strategies to push prices higher—or it could have sued, or complained to the Justice Department and to federal regulatory authorities. First told me, “My view of this has always been that vigilante justice is not appropriate—it was not even appropriate in the Wild West.”
Link to the rest at The New Yorker
PG suggests that, even if Amazon was abusing its position in the ebook world (not a certain thing by a long shot because it was trying to push prices down, a good thing for consumers), the solution to monopoly power is not to create another monopoly that abuses its power – by price-fixing, which is what the Price-Fix Six did.