My Take on the Whole DOJ Debacle

If you have even a passing interest in the publishing industry, you’ve no doubt heard of the lawsuit the Department of Justice (DOJ) filed against Apple and the Big Six, less Random House, earlier this week. When I noticed that every industry professional I followed was taking the publishers' side (especially since most of those industry professionals were agents and thus not directly affiliated with any of the major players), I suspected something was fishy. And now, after reading Nathan Bransford’s excellent post on the topic, I know it is.

The background is complicated, but here’s the basic idea insofar as I understand it: E-books used to be--and in many cases, still are--priced according to the wholesale model of distribution, in which e-sellers pay a publisher’s wholesale price for e-books, then turn around and sell them at whatever end price they choose. In 2010, Apple convinced five of the six major publishers to switch to the agency model, in which the publishers set the end price for their titles, then split the revenue with the e-seller according to a predetermined percentage.

The DOJ’s claiming that Apple and those five major publishers colluded--that is, got together in some secret lair (read: upscale New York restaurant) and decided as a group--to set artificially high prices. Which is illegal. Which has been illegal ever since they first put the antitrust laws on the books back in the days of big oil and railroad barons.

But here’s the thing: The government implemented antitrust laws to PROTECT CONSUMERS FROM MONOPOLISTS. And even if Apple and Company got together in their upscale New York restaurant and agreed to fix prices--which is a big "if," one that Macmillan, Penguin, and Apple have already decided to challenge in court--you could argue that they were colluding to PROTECT CONSUMERS FROM A MONOPOLIST.

Which monopolist? Well, that would be Amazon, of course.

See, if you want to understand why publishers switched to the agency model--which, as Mr. Bransford pointed out, actually cost them revenue (and continues to do so)--you have to understand what, or who, they were facing. Amazon sets their prices so as to be the lowest-priced seller of every good on the planet, and I daresay they are. In fact, they price many e-books below cost, which means they actually lose money every time one of those e-books sells. And why would they do that? To drive every other e-seller out of the market, thus leaving them free to do whatever they want (which, according to this article, they kind of already are).

It’s called predatory pricing, and it’s also illegal under the government’s current antitrust laws.

I guess what I’m saying is that, like always, the government is a little late to the party and not quite up to speed on what’s actually happening. Even if they can prove that the major players colluded, how are they going to explain why they never came after Amazon, who, arguably, threw the first punch? And how are they going to handle a group of sellers who, even if they are found liable, were only acting to insulate themselves--and consumers--from the market effects of a monopolist?

It’s not often that the best interests of buyers and sellers align, but in this case, I can’t help but wonder if that’s precisely what happened…