How Cheap Should Books Be?

The Atlantic

A looming lawsuit could solidify Amazon's dominance in the book business. That might be good for readers' wallets, but it also might be bad for readers in the long term. Here why.

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If the Department of Justice gets its way, chances are that you will soon be able to purchase cheaper books on your Kindle, Nook, or iPad. The big winner, though, won't just be cheap readers. It'll be Amazon.com. 

On Thursday, the Wall Street Journal reported that the government is planning to file an antitrust suit against Apple and the five major New York-based publishing houses -- Simon & Schuster, Hachette, Penguin, Macmillan, and HarperCollins -- for allegedly conspiring to fix the price of eBooks. The case involves a series of events that took place in 2010, when Apple negotiated rights to start selling books on the iPad. At the time, Apple agreed to buy titles based on a so-called "agency-model," where the publishers would get to set a minimum retail price for each book. 

The deal was extremely peculiar. The industry had long operated based on a "wholesale model," where brick and mortar stores like Barns & Noble and online merchants like Amazon could buy the books, then offer them to consumers at any price they liked. But Amazon had angered publishers by pricing eBook editions of new best sellers as low as $9.99, treating them as loss leaders to lure more customers into purchasing Kindles. The publishers worried that readers would become used to rock-bottom prices, hurting their long-term profits, and forcing out other important industry fixtures like Barnes & Noble.  

After the Apple deal, Macmillan successfully pushed Amazon to accept the agency model as well.  Other publishing houses followed, and eBook prices rose. 

Why would Apple have agreed to pay higher prices for books while Amazon was still out there hocking them below cost? Good question. Those curious circumstances are why some people, including Justice, think there might have been collusion on the part of the publishers. The European Commission opened its own formal investigation into the matter back in December.

If the regulators are right, and the big publishing houses really did get together with Apple to plot a price hike, it would be a clear violation of antitrust law. No contest. I'm not a lawyer, but I feel perfectly comfortable writing that. An old fashioned price-fixing conspiracy is the sort of corporate skullduggery that can get an executive tossed in jail.  

But one has to wonder if, in this instance, the law is really serving the best interest of the public. Consider this question: In the long run, who would benefit more from a publishing market where you might pay slightly more for the new Tom Clancy novel, but multiple merchants compete, and allow multiple publishers to flourish, ensuring a diversity of authors and ideas? Are you better off in a market dominated by a single merchant that can whittle down prices, and publishing industry's profit margins, until they're bone thin? 

It's a question that the New America Foundation's Barry Lynn explored in a recent Harper's cover piece on the evolution of American antitrust law. Amazon, he noted, controls 20 percent of the domestic book market -- including 70 to 80 percent of e-book market. Many publishers fear that Amazon's power will eventually force them out of business. (It doesn't help that the company is now running its own imprint). Even if they survive, they will have to play by the Amazon's rules. 

There was a time, Lynn writes, that the government would have been more concerned with limiting the power of a potential monopoly like Amazon than making sure consumer prices stayed low. Progressive-era trust-busting was aimed at restraining the power of industrial titans that dominated the economy. The same principal guided government antitrust policy up until the election of President Ronald Regan. Lynn writes: 

After Ronald Reagan took office in 1981, his new head of antitrust enforcement, William F. Baxter, swiftly abandoned efforts to promote competition and promised instead a policy "based on efficiency considerations." The goal was now to promote the "welfare" of the consumer, theoretically by increasing his or her access to cheap goods. 

No gun was ever fired, no protest ever mounted, no direct attack on our antimonopoly laws was ever unleashed. Yet the most fundamental purpose of these fundamental laws -- to protect the liberty of the citizen and ensure the safe distribution of power -- was flipped on its head by the innocent-sounding substitution of a few key terms.

And so we arrive in the present, where antitrust law now can favor a corporate hegemon like Amazon, over the interest of smaller, less powerful businesses, such as the publishers. A loss for the publishers could mean a return to the wholesale system that gave Amazon its free hand. And perhaps this is how our system should work. If Random House and the like can't survive without setting a floor on prices, maybe its time for them to adjust their business models. After all, they're not factory workers trying to unionize. They're well-funded corporations, some of which are owned by even larger corporations. They can innovate, or at least try. Maybe this will force Apple to use its marketing muscle and budget to compete more fiercely with Amazon on books. 

But its hard to escape the sense that this means the book business will simply have to go back to living on Amazon's terms. And we'll have the Justice Department to thank for that. 

Image: Reuters





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