Comment by gvb | Hacker News Reader

Comment by gvb | Hacker News Reader

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This link makes some sense of it: http://blog.nathanbransford.com/2012/03/why-dojs-potential-l...

It isn't the agency model that is the problem, it is how the Apple et al. coerced/enabled the publishers to price-fix and then allowed/enabled the publishers to impose that price fixing on Amazon. I still don't exactly understand why Apple and Google are being sued and not the publishers.

[edit] It is Apple and five publishers according to the WSJ: "Three of the publishers have agreed to settle, according to court documents. Those are Hachette Book Group, Simon & Schuster and HarperCollins Publishers Inc. Under the settlement, those publishers will terminate any agreement they have with Apple regarding electronic books." http://online.wsj.com/article/SB1000142405270230444460457733... [/edit]

Money quote:

Along comes Apple and the iPad. Steve Jobs talked the publishers into the agency model - publishers set their own prices and they get 70% of the proceeds.

[...]

Publishers then turned around and imposed that agency deal on Amazon, which is the subject of the DOJ investigation [the agency model, not Amazon - gvb]. The end result: There really is more competition in the e-book world, but prices are higher than they likely would be if Amazon and others were able to discount as they saw fit.

Right - basically the argument is that publishers cooperated with Apple to raise prices, and prices actually did go up. Which raises a red-flag of anti-competitiveness.

The counterargument is that this took place at a time when prices were artificially lowered because of Amazon's leverage over the publishers. When competition was restored, prices returned to a level set by the market.

Prices weren't lower because of Amazon's leverage over publishers. They were lower because Amazon was willing to lose money to build a platform and a market. Remember, pre-agency publishers made more money along two dimensions:

1. Wholesale prices were often higher than their share of an agency price.

2. Since the prices to end-users were lower sales were higher than they otherwise would have been.

And don't forget, publishers had a much simpler, pro-competitive response if they were afraid of Amazon's dominance: drop the DRM. Then they could have sold ebooks to all of Amazon's customers (including Kindle device owners) without Amazon.

You might be in favor of dropping DRM, but that would in no way provide publishers with comparable access to the Kindle customers.

Kindle customers buy titles using 1-click from their devices or from the Amazon website. How does just 'dropping the DRM' compete with that distribution channel?

And the counter-counter argument is that if it were really the prices set by the market that we were returning to, collusion would not have been required.

Well we don't know whether there was what actually amounts to collusion, but assuming there was it might have been required to break Amazon's leverage over the bookseller which was artificially depressing prices.

That wouldn't make it less illegal, but it would be a reasons why it was necessary to restore the market as a pricing mechanism.

Thank you for the link to Bransford's blog.

You quoted from his post:

"Publishers then turned around and imposed that agency deal on Amazon, which is the subject of the DOJ investigation. The end result: There really is more competition in the e-book world, but prices are higher than they likely would be if Amazon and others were able to discount as they saw fit."

How can something be anti-competitive if it increased competition? Whether prices went up or down is irrelevant. The whole point of anti-trust law is to make sure that the market has competition. Not to make sure that prices are low.

It seems to me that the real issue is that nobody has figured out the right way to deal with digital goods where supply is effectively unconstrained. We have constructed laws to create artificial scarcity of digital goods. If the government wants to lower the price of digital goods, what they should do is find a way to relax the regulations that artificially constrain the supply.

> How can something be anti-competitive if it increased competition? Whether prices went up or down is irrelevant. The whole point of anti-trust law is to make sure that the market has competition. Not to make sure that prices are low.

You're conflating all of the different markets here. There is the publisher and retailer and the retailer and the consumer. The latter now no longer exists, as the publisher chooses the price for both markets.

That the ereader market, a third market in this equation, is now more competitive (which is a debatable subject) isn't relevant, as you can't use anti-competitive measures in one market to increase competition in another.

It is also worth considering Apple's stake in this. Just because they were launching the iPad didn't mean they had to sell ebooks. There were already plenty of ebook vendors and readers on the iPhone, after all.

One effect of the agency model is to make end users care less about which retailer they buy a book from (because the price is the same). A device manufacturer might be interested in encouraging that. For instance, they also might be interested in selling ebooks that only work on their devices to create additional lock-in for the future. An alternative spin would be that they might not want to be hostage to a powerful ebook vendor in the future (the way platform owners often depend on the developers of their key apps).

In any case, Apple's stake was and is altering and, arguably, restricting competition in markets related to ebooks. That's something else the DoJ should be interested in.

Something about what you have written doesn't sit right with me.

If Macmillan decided not to use the iBookStore and sell their ebooks on their own to the customer (the reader of the book), and all the other publishers saw that and thought, "Hey, that's a good idea", that would lead to the destruction of what you have called the publisher-retailer market.

Is it anti-competitive to choose not to participate in a market? It doesn't seem that way to me.

If I produce a product, am I not free to choose (or create) a market to sell this product? And can I not withdraw from that market whenever I see fit?

You can withdraw from the market, of course. It's not anti-competitive to destroy a market by rendering it redundant. But that's not what is happening here.

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