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The Fate of Apple and Antitrust: Overcoming Confusion About the eBooks Case

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As the Justice Department's so-called "eBooks" antitrust trial winds down in a Manhattan federal courtroom, it is remarkable how many people have failed to see how easy the case really is. Defendant Apple, as the government has shown by overwhelming evidence, orchestrated a garden variety price-fixing conspiracy among five of the six large publishing companies that dominate electronic books. They had motive to do it and the evidence is strong that they successfully raised retail prices for a long time. And while the judge overseeing the trial just caused a minor dither with comments at the close of evidence, hinting that she might have reconsidered her widely reported view that Apple seemed likely to lose, I seriously doubt it. She is a 20-year veteran of the bench, is extremely smart and has handled a number of antitrust cases. I find it very hard to believe she could find, on this evidence, either that there was no conspiracy or that it didn't violate the antitrust laws.

And yet, any number of perfectly intelligent observers have bent over backwards to defend Apple's conduct (see, e.g., here, here and here), most notably in a long, acerbic and deeply misinformed opinion piece last week by former Wall Street Journal publisher and Yale Law graduate Gordon Crovitz.

Why should that be?

It is not because the case is complicated. While Apple urges that electronic publishing is very complex and special -- the kind of argument that antitrust defendants have always made as long as there's been antitrust -- the case is simple. Cheap eBook prices, especially those offered by the market leading retailer Amazon, threatened the reliable revenues that publishers had enjoyed from hard-cover new releases. Publishing companies were at Amazon's mercy, in light of its massive market share, until they found a partner in Apple, which just then was launching its new iPad. With the iPad's eBook sales potential, and Apple's eagerness to coordinate agreement among them (in exchange for a cut of the spoils), the publishers found they could get their retail prices up and impose them on Amazon lest it lose access to their eBooks. In other words, as has happened throughout modern capitalism, this group of incumbent sellers faced the threat of disruptive, desirable innovation by collectively coercing the innovator. It's simple, and it's happened thousands of times.

It is also not because Apple or the publishers have very plausible defenses for their behavior. Their shifting explanations over time have faded as the proof of them failed to materialize. Their view that Amazon was the real villain, that it was a predatory monopolist selling eBooks at a loss for evil purposes, is not very plausible (that Amazon has a big market share at the moment is not in itself a violation of the antitrust laws, and it hardly should be -- so long as it isn't abusing that share or its low prices for the sake of hurting someone later on, its only crime is giving us cheap, high quality products), and their small army of expert witnesses have offered no evidence to support it. But even if Amazon were some anti-consumer threat, it would not mean these defendants should be allowed to conspire. No regulator cares less about the public interest than a cartel of horizontal competitors. And while Apple and its supporters like to point out that average eBook prices have fallen, the prices of the defendants' specific books rose dramatically, immediately after the agreement, and stayed high for a few years even as other eBook prices fell. Perhaps most telling is evidence that as soon as the publisher defendants settled the case earlier this year (only Apple remains), those prices fell again to roughly pre-conspiracy levels. That's pretty open and shut.

That government enforcement in a case so clear as eBooks could challenge American sensibilities suggests that we have lost faith in something that should remain dear, and one might have thought especially dear to Wall Street Journal personages like Mr. Crovitz. If so many of us fail to see a case like this for what it is, then we as a people no longer believe in markets or competition at all.

For those interested in the case, two much deeper dives into the facts and background are here and, for the irony, here.