Why sue the publishers and Apple instead of Amazon? The DoJ may not have had much choice
April 23, 2012 | 11:57 pm
In the publisher/Apple antitrust suit, one criticism that has emerged from the publisher partisan camp is that the DoJ is picking on them for trying to defend themselves against Amazon’s growing monopoly, while turning a blind eye to what Amazon is doing. However, the Wall Street Journal is running a piece in which it talks to antitrust scholars to try to dispel some misconceptions.
U.S. antitrust law, the article explains, isn’t about protecting little companies from big ones, or even necessarily preventing monopolies as long as the monopolies are reached through legal means. It’s about preventing companies from ganging up on other companies, no matter what their relative sizes are.
"A lot of cartels are [composed of] small firms," says Herbert Hovenkamp, law professor at the University of Iowa. "The criminal cases the Justice Department brings are often family firms—much smaller than these publishers."
And the publishers and Apple are not exactly small companies themselves—many (all?) of the Agency Five are owned by international conglomerates, and Apple has the highest market value of any US company. And when the DoJ sees evidence of price fixing, which Hovenkamp calls “kind of the first-degree murder of antitrust violations,” it is required to act.
And the government has pulled its punches, at least to some extent—it filed a civil case, not a criminal one, so no one will end up in jail, and it is only enjoining agency pricing for two years rather than the more usual five or 10.
When you get right down to it, the experts the WSJ interviewed say, nothing Amazon has done is really illegal. Nothing in the law gives companies the right to band together to keep companies like Barnes & Noble in business.
"The goal of antitrust policy is to protect consumer prices,” Prof. Hovenkamp says. "It’s not to protect inefficient firms from having to exit the market."
And that’s something publishers should probably keep in mind, given that they’ve developed some notably inefficient practices themselves.
Publishers could ask Congress to intervene and vote them an exemption from antitrust law, though it’s not clear that there is a really compelling argument for Congress to do so. Plenty of businesses that were thought essential twenty years ago have gone by the wayside in recent years and there’s nothing about Barnes & Noble that necessarily makes it more worth saving than, say, Tower Records.
The WSJ is running another interesting article, this one paywalled so you have to go in through the Google News search to read the whole thing, which discusses Apple’s standard 30% cut on media, including the pithy quote from an Apple executive, in context of a negotiation for a better deal for newspaper publishers, “I don’t think you understand. We can’t treat newspapers or magazines any differently than we treat FarmVille.”
The DoJ, in its complaint, casts the 30% commission as the result of a conspiracy, but Apple has been insisting on this cut all along, all the way back to when it first began to sell apps through iTunes. It calls the “agency model” inherently wrong, but the problem is that courts have held there is nothing wrong with the actual model, which is used across a number of industries.
Contrary to the Justice Department’s complaint, "this model happens to look exactly like Apple’s arrangement for apps and music as well, right down to the same percentage Apple takes from sales," wrote Geoffrey Manne, head of the International Center for Law and Economics, on the Technology Liberation Front blog. "This makes things easier for Apple, gives publishers more control over pricing, and offers Apple content and a good return sufficient to induce it to market and sell its platform." Or as Apple put it last week in refusing to settle with the Justice Department, "Just as we’ve allowed developers to set prices on the App Store, publishers set prices on the iBookstore."
This is, of course, an opinion piece, and basically presents the other side of the argument: the publishers are doing nothing wrong, they’re trying to save themselves from Amazon, and the lawsuit is already reducing competition. (Found via Ars Technica.)
In the end, a court will decide who’s right. In the meanwhile, I’m stocking up on delicious popcorn. Because no matter who’s in the right, this promises to be an entertaining battle.