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Comment by k-mcgrady | Hacker News Reader

Could someone explain how they came to this judgement? It doesn't make any sense to me. For example:

>>"The U.S. Department of Justice said this conspiracy was designed to undercut online retailer Amazon.com Inc's (AMZN.O) dominance of the fast-growing e-books market."

How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers. From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers. I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks but the fact consumers could just download the Kindle app to an iOS device and get the lower prices (and Apple was new to the market) rules out that argument.

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Relevant part of the decision:

A chief stumbling block to raising e-book prices was the Publishers’ fear that Amazon would retaliate against any Publisher who pressured it to raise prices. Each of them could also expect to lose substantial sales if they unilaterally raised the prices of their own e-books and none of their competitors followed suit. This is where Apple’s participation in the conspiracy proved essential. It assured each Publisher Defendant that it would only move forward if a critical mass of the major publishing houses agreed to its agency terms. It promised each Publisher Defendant that it was getting identical terms in its Agreement in every material way. ... Without the collective action that Apple nurtured, it is unlikely any individual Publisher would have succeeded in unilaterally imposing an agency relationship on Amazon.

It sounds like the stumbling block was a horizontal monopoly in retail held (or nearly held)[1] by Amazon.

You can argue whether or not Amazon is participating in predatory pricing now, but should Amazon end up raising prices (not entirely obvious that will happen)[2][3], then this case could end up being pointed to in the future as a lost opportunity to let the market correct itself.

[1] http://paidcontent.org/2013/07/09/barnes-noble-throws-out-it...

[2] http://www.csmonitor.com/Business/Saving-Money/2013/0518/Wil...

[3] http://www.nytimes.com/2013/07/05/business/as-competition-wa...

You can't break the law just because you think someone else is breaking the law. The judge doesn't have the option of deciding that Apple was not guilty because Amazon deserved it.

The fact that this could very well prove to be a Pyrrhic victory I think is actually extremely relevant to this case, since the fundamental guiding principle here is "is this in consumer's best interest."

Paying more for eBooks because Apple didn't want to compete on price is not in the consumer's best interest.

The fundamental import of Apple's actions was that it significantly increased prices for eBooks without fundmentally altering the value proposition (i.e., eBooks before Apple's price-fixing are no different than eBooks post-price-fixing). The difference in price is the "harm" that consumers have suffered--it represents the increased prices they have to pay over the prices they would have paid had Apple not colluded to artificially increase prices in a way the market did not support.

>eBooks before Apple's price-fixing are no different than eBooks post-price-fixing

That's not true. Apple eliminated windowing. I.e. pre-Apple some ebooks were being delayed for some time after their print releases. Apple's scheme guaranteed they'd be released at the same time. That's a major difference and a major value-add.

That's not entirely accurate; the publishers already knew windowing was stupid and a short term measure. Not every publisher was using windowing. You can read about it on page 25 of the Judje's report.

You mean like Apple did with music?

Not really. Apple was going in the other direction with music. They would make a list of demands to each music publisher like requiring them to offer music on a per-track basis with $0.99 being the standard price. The music publishers were balking at offering their music at such low prices while also giving Apple a cut.

In this ebook deal, Apple was negotiating the prices up with multiple parties so that they could get their cut and the publishers would still make the same or more than they did from Amazon.

The difference is, if you are in negotiations with multiple publishers (read: conspiring) to raise prices, that's bad for consumers. As an analogy, imagine if Exxon, Shell, BP, Total, et al. somehow colluded to sell gas for 50 cents more per gallon. If all the major oil companies did it, none of them would lose very much business.

The only part I'm missing is how this is as bad as my analogy, because consumers could still choose to buy from Amazon. There are even Kindle apps for almost every device including iOS devices.

Maybe someone can enlighten me on that part.

I meant that what Amazon did with books wasn't much different from Apple with music.

No because Amazon didn't force plublisher to change price. They used reduced their own margin do be able to sell at that price.

> From my perspective Apple looked at the market (Amazon), realised their pricing wasn't sustainable, and agreed to a more sustainable model with publishers.

Working something out with all the big publishers is pretty much the definition of an illegal cartel.

On of my favorite Adam Smith quotes is apropos (http://en.wikiquote.org/wiki/Adam_Smith#Book_I):

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

This is classic, slam dunk antitrust, no need to spin elaborate economic theories, just prove to the court's satisfaction that consumers were harmed by an overt conspiracy to raise prices.

If Amazon was selling $12 wholesale ebooks at a loss of $2 a piece for a retail price of $9.99, it seems Apple would also have to sell them at a loss, to prevent book prices from increasing. Even if Apple had sold them at cost, with 0% margin, prices would have inescapably gone up, anyway. It seems that this standard for antitrust is reliant upon predominant pricing already being sustainable.

Well, no. The point was that Amazon was willing to make the investment (the loss per sale) to increase the market for eBooks (and its share of said market), but Apple was not. Apple never even tried to compete at the retail model, and instead attempted from the beginning to impose the agency model.

Important here is that the agency model would only have gone into effect if the publishers jointly succeeded in changing their Amazon contracts. They were able to do so because their joint Apple negotiations geave them the leverage to jointly renegotiate their Amazon contracts.

Joint negotiations aren't always an antitrust issue. But when the result is to increase prices or otherwise burden the market, it's usually (as here) indicative of antitrust activity.

Wow. Did Apple dictate that publishers change their Amazon contracts? If so, then I completely agree, Apple is clearly in the wrong. However, this is the first I've heard this. Can you lead me to supporting evidence?

Read up on the "most favored nation" clause Apple demanded from the publishers.

E.g. from page 12 of the ruling:

The agreements also included a price parity provision, or Most-Favored-Nation clause (“MFN”), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor’s e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not force Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers. As Apple made clear to the Publishers, “There is no one outside of us that can do this for you. If we miss this opportunity, it will likely never come again.”

Welp, I just spent an embarrassingly long while reading the 160 pages of the findings. I'm now of the opinion that Apple is probably guilty of antitrust violation. Judge Cote admits (on page 157) there's nothing inherently wrong with MFN clauses, simultaneous negotiation, price caps, or any of Apple's contracts. It's even plausible Apple could have escaped culpability, were it not for evidence that Eddie Cue and Steve Jobs knew that the publishers already wanted to raise prices, and willfully provided them the opportunity. An MFN clause was meant to protect Apple, but, because of Amazon's artificially low prices, it also had the effect of tending to indirectly trigger an industry wide switch to the agency model with increased prices, and Apple expected this. It was this expectation that apparently elevated the act to conspiracy.

Despite that, I must admit, I feel ambivalent about the ruling. Amazon's below-cost retail pricing appeared to have otherwise prevented Apple from even attempting to enter the market, at all, unless they came up with some way to profit. I guess they picked the wrong way.

So what if Apple didn't have wads of cash laying around, and felt that it could not afford to take a loss to grow the market. Would they be unable to enter the market. This sounds like if Walmart was busy undercutting all the small business in a town but one decided to keep prices a profitable level, and then Walmart sued that small business for price fixing.

I don't think that analogy is at all close. Try this: Target, which wants to enter this market, conspiring with the companies that supply them and Walmart to raise the latter's wholesale prices, and various relevant governments suing all of the former for their conspiracy to harm consumers (in this case, from glancing at the beginning of the decision it was the Feds and some state governments). The suppliers all plead guilty and settle, but for some reason Target thinks they can win in the courtroom.

(The "some reason" would appear to be a hope they can get the Supreme Court to change the law.)

"Some state governments" as in 38, with Connecticut and Texas apparently doing the heavy lifting for the states.

Consumers couldn't get a lower price from Amazon (or others) because the colluding parties had an agreement to set the prices for all retailers. That's the crux of the case.

How does this differ from something like RayBan sunglasses which cost the same everywhere ... the MSRP?

Buy non RayBan sunglasses if you don't like RayBan prices.

Or, you know, what a novel idea, try to get them to LOWER their prices, if you think they charge unfairly.

How can Ray Ban charge unfairly for their prices when you have literally 100's of other non Ray Ban options in any sunglasses store? If brand is that important to you that you feel like you have to buy them and you then overpaid for them I would say that's some pretty sweet branding at your expense.

Because Ray Bans parent company owns all the other brands in the store and also likely owns the store itself.

I have no idea if that's true or not but assuming it is then it's not really a Ray Ban discussion. It's a "state of health of the sunglasses market" discussion.

MSRP is an agreement between Rayban and each of their retailers. If someone wants to sell Raybans, they have to agree to sell at MSRP. But as a retailer, there are plenty of other sunglass makers, who might not have the same requirements. So it's not like you have to sell sunglasses at $100 or anything.

Now imagine that one day, all the sunglass makers come to you at once, and say, you have to sell at MSRP, and it's $100. Since you are in the sunglass selling business, this sucks but what choice do you have? That's why this is also generally illegal, for competitors to collude in setting prices.

I think, also, that such agreements can only apply to the retailers advertised pricing- which is why online stores often say something like "Add to Cart for Price" or "Price too low to advertise", because they have an agreement with the manufacturer as to a Min Advertised Price. Retailers can thus sell Raybans for less, they just can't advertise it. At least, that is my understanding of the situation.

Bad example... in this case Ray Bans are owned by the same company (Luxottica) who more than likely also owns the store where the item is being sold.

http://en.wikipedia.org/wiki/Luxottica#Retail

my gf is an optometrist at Lenscrafters (owned by Luxottica), they have times during the year when they can get any galsses/sunglasses at 50% off for first pair, and 60% off for next 10. the markup, especially on their own brands is through the roof.

Well, then it's not a "real" MSRP if the manufacturer and the retailer are the same. There aren't two parties, so it's just the price and they have complete control over their own pricing.

For more about the craziness of Luxottica: http://www.cbsnews.com/video/watch/?id=50149025n

Apple (Jobs) were bullying publishers into contracts and abandon Amazon.

The best part is how Apple decided that the Publisher sets the price, and Apple gets 30% regardless of profit margin. Apple also stated that they were able to price match anyone who undersold them, and they STILL get 30%, pushing losses onto the Publisher. At least with Amazon, they ate the loss due to their price fixing.

Edit: Fixed last paragraph

Exactly how would Apple bully a Publisher? Jobs went and pulled down the CEO's pants?

"Lower the price or we won't sell your books"?

It was more like "Let us sell your books at higher prices, or lose money to Amazon and piracy."

So, no arms were actually twisted. There was no iBooks marked when the emails were sent and the publishers could've said no.

The publishers had the choice to go with Amazon but decided against it because they made more money with Apple.

So in what way is this bullying again ?

I don't think you understand the concept of price fixing - The intent is that Apple is making the decision for the Publisher's by proposing an offer that isn't in the sense of "pros vs cons", but rather "right vs wrong". Of course most Publishers agreed because it was for the greater good of their company, and the only one hung up with the bad rep is their ring master.

"You can either join us, or we'll collectively squash you."

Like this: http://allthingsd.com/20130515/heres-that-steve-jobs-e-book-...

TL;DR: Lose money when Amazon starts taking a bigger cut, or lose money due to piracy.

The bullying by Apple of publishers was generally about fixing the price caps lower than the publishers wanted ($12.99 for NY Times bestsellers rather than $14.99.)

Apple didn't have to bully the publishers in general, because this deal was a big win for them.

Jobs' scare tactic was that Amazon would eventually take a larger commission.

Jobs even admitted that Amazon would profit Publishers more in the short term, essentially admitting that Apple was going to make Publishers eat losses by price matching Amazon. Then, once Amazon was forced to increase prices in order to make a profit because they've been squeezed out of their Monopoly position, then the profit starts rolling in.

Very illegal, and also leaves Apple unscathed because they don't take any losses. You can understand how bullying would be required in order to get some reluctant Publishers to conform.

>Jobs' scare tactic was that Amazon would eventually take a larger commission.

And how's that a "scare tactic"? Sounds like something entirely reasonable for the publishers to consider.

Predicting a Publishers' "inevitable fates" and conveying that you are their only hope, is a scare tactic.

Also, Jobs also stated rampant piracy would be a major issue if attempting to sell E-Books through alternative means.

Wow you have a warped view of how business works today. These aren't cute, innocent little children.

If Apple comes to them and tells them they are the saving grace of the publishing industry it isn't a scare tactic. It's just meaningless bluster. Microsoft, Google, Amazon et al would be saying exactly the same thing. It doesn't mean anyone has to listen.

Ironically, the three companies you mentioned have all failed trying to succeed independently over and over again, rather than standing on the shoulders of others.

What evidence is there of bullying though ? It sounds like you're just making this up.

> Apple (Jobs) were bullying publishers into contracts and abandon Amazon.

Not really. He was certainly encouraging them, but both the charges and the findings here are that the publishers themselves were actively colluding and looking for pretty much exactly what Apple offered before Apple offered it. The conspiracy didn't start with Apple, it was just that Apple's active, enthusiastic involvement was necessary for it to move forward.

> How can they undercut Amazon's dominance by charging more?? It might make them look better to publishers but not consumers.

Right. Which is why it took an illegal horizontal price-fixing scheme with notional competitors (the publishers) conspiring to raise prices to do that. Apple was a member of the conspiracy who sought to profit from it, but really the principal wrongdoing here was the conspiracy among the publishers.

Apple looks like they were singled out because they were the only one that went to trial, but that's just because they were the only participant in the conspiracy that didn't settle with the Justice Department prior to trial; the involved publishers were all charged along with Apple.

> I could understand the problem if Apple tried to raise prices and had a monopoly on ebooks

How about if many of the biggest publishers, together controlling significant market power in the ebook market, got together and conspired to raise prices, with Apple as willing and necessary co-conspirator (since they needed a retailer with a platform with instant mass reach so that they could have a credible threat of jointly abandoning Amazon if Amazon didn't match the terms they got from the new retailer.)

Because that's what was charged, and that was what the judge found the evidence supported. Its not about what Apple did on their own.

Under the law, you cannot discuss prices with ANYONE you are competing against. Once you do this, regardless of your reasoning, you are in violation of anti trust laws.

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