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Why Is Apple Getting Cored in Washington?
Why Is Apple Getting Cored in Washington?
April 11, 2012
Originally published in Forbes
What should be the price of the paperless word, now that books are going digital in one of the most important transformations in history?
Steve Jobs while presenting the iPad in San Francisco 27th January 2010 (Photo credit: Wikipedia)
Only the Justice Department knows, it would seem.
The Antitrust Division has filed an antitrust suit against Apple and several publishers (Simon & Schuster, NewsCorp’s HarperCollins, Hachette, Pearson, PLC’s Penguin Group (USA) and Macmillan).
The complaint seems to be that collusion and smoke-filled rooms paved the way to a deal by which Apple gets a 30 percent cut of the publishers’ eBooks sold for Apple devices, while other vendors are forbidden from selling below a pre-specified price.
Such ordinary business deals, you see, involve a now-disparaged free market instrument called a “contract” and may not be permitted.
Details aren’t complete but this arrangement appears to have been a normal response to Amazon’s deep discounts of ebooks below physical book prices. Publishers likely feared Amazon’s increasing ebook pricing sway and its potential power to undermine physical book sales.
As Steve Jobs himself put it in the Walter Isaacson book, “We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”
That quote was invoked as damning by the DoJ heroes.
But why would anybody stand aside and have books “iTuned” by Amazon’s cut rate kindle pricing, if they could compete against it somehow? So they reacted. But this deal is capable of being competed against, and it is also vulnerable to unknown future surprises that could torpedo it. But now, thanks to DoJ getting involved, competitors may not need to respond to Apple and the publishers to better serve consumers and shareholders. Step back from all this for a second: Now, you can actually buy an indestructible book that occupies no space, can be “written” on, highlighted and dog-eared yet not worn out; and that can be transported without being transported. Such a miracle, if we were honest, is worth hundreds and would have cost thousands were someone to have offered it a decade ago. But it doesn’t cost hundreds. Even after “collusion,” sometimes it costs more than an inferior regular hardback book, sometimes less. The lack of wonder and gratitude reminds me of Louis C. K.’s “Everything’s Amazing and Nobody’s Happy.”
There is no problem here, but one is being created by antitrust’s disruptiveness. Law professor Geoff Manne noted one of many potential consequences: “To assess the competitive effects of this pricing scheme in the e-book (content) market without considering the competitive effects in the e-reader (platform) market is a mistake. It would be an even graver mistake to focus on market power at any given moment rather than on the overall dynamism of the industry.”
Indeed. Even if most price collusion were deliberate anti-consumer mischief, markets would still curb it better than regulators could. Not that curbing mischief is what antitrusters are doing anyway; economic regulation like antitrust exists to enable “vulture” capitalists who want to avoid competition yet simultaneously gain access to the customers of others. Inefficient “cartels,” if that’s what this is, are inherently unstable. New publishers enter and screw everything up; authors get ticked off, eject and get new reps; parties themselves can “cheat” by competing on the basis of add-ons like discounts and subscriptions and clubs. DoJ’s twisted solution is presumably to stop free enterprise, and allow Amazon to dominate eBooks uncontested. Yet if that were to succeed, you could then count on a future suit against Amazon. That sums up antitrust — an end it itself, unrelated to the preservation of competitive processes.
Further adding to the detached nature of this boondoggle, the whole thrust of the popular conversation has been that the Internet has made publishers out of all of us. The business and tech press daily sings about the rise of self-published ebooks and their Hyper-Gutenberg significance.
You can publish your ebook yourself, without any of the five “conspirators.” So can anybody.
That’s profound. Thus, this isn’t just a matter of publishers’ survival in the face of Amazon’s Kindle eBook pricing, but survival as such.
Publishers are being antiqued; and they have a right, as voluntary assemblages of human beings (shareholders, as all corporations are) to make deals to attempt to survive.
Just as coordination between individuals has benefits, business coordination can help adjust to uncertain competitive environments, cope with imperfect information, minimize transaction costs, deal with fixed costs and economies of scale, or market oscillations that inhibit planning. Prohibition of such cooperation by an antitrust infrastructure has costs. Both competition and cooperation are legitimate features of a market economy, and both can benefit consumers.
Pricing for zero-marginal-cost output is tricky (remember the woes of Netflix last year?), and there are no correct answers.
If DoJ were actually in the game to promote competition it would release statements on the legitimacy of contracts and experimentation, on the vulnerability of business deals, when competitors approached it to complain. It wouldn’t have initiated the investigation, let alone the suit.
Had I a sliver of the illegitimate power these suits are wielding, I would decree that that none working on this case shall be allowed to work at any blue chip law firm after all is said and done.
That’s what antitrust bureaucrats often do, you know; parlay interference with free enterprise from a government perch into the same thing outside, but for more money.
The destructive impact of antitrust in our digital era should be the issue, not Apple and book publishers’ transitory and uncertain effort to cope with the unknown.
A low price is not necessarily the best price for an eBook, yet the top officials cannot (will not) tell you why. There are legitimate reasons for contracts to prevent others from selling at a lower rate. If the reasons are bad, it gets reacted to.
We’re a long way from physically moveable type, and there is no danger of lessening the amount of intellectual content created by price experimentation. Everything’s amazing and nobody’s happy.