Apple brings out the big guns in ebooks case — economists!
Despite a series of events that would be better suited for a David E. Kelly legal comedy than an actual court of law, Apple is still fighting on in their ebook case, and this time bringing in some economists as backup, namely Bradford Cornell of CalTech and Janusz Ordover of NYU. The goal seems to be to better explain to the court why, according to Apple, they don't understand the market and are getting it all wrong. Philip Elmer-DeWitt extracts the pertinent part on Fortune:
Efficient markets depend on firms acting in their independent business interests. In this case, the District Court's failure to consider the economics of the vertical agreements between Apple and the Publisher Defendants led it to infer that Apple facilitated and participated in a horizontal price-fixing conspiracy. The District Court never considered evidence and economic reasoning that the vertical agreements were in Apple's independent business interest in entering e-book retailing, wholly apart from any horizontal conspiracy.
The provisions of the agreements at issue—agency, 'most-favored-nation' (MFN) clauses, and price caps—can be instrumental in facilitating new entry, particularly into markets with an entrenched, dominant firm. In this case, the District Court disregarded economic evidence and reasoning that these provisions served Apple's independent business interest in entering the e-book market, where Amazon was a near-monopolist. The District Court also ignored economic evidence and reasoning suggesting that Apple's entry into e-book retailing, and not the MFNs, allowed the Publisher Defendants to persuade Amazon to switch from a wholesale to an agency business model.
The District Court also erred in equating price increases for some e-books with harm to competition. Apple's entry into the e-book retail market dramatically increased competition by diminishing Amazon's power as a retail monopolist (and its ability to pursue a "loss-leader" strategy that inefficiently priced e-books below their acquisition cost). That increased competition gave publishers more bargaining power, thereby bringing ebook pricing closer to competitive levels. These errors threaten to chill competition by discouraging the use of common vertical contracting techniques that are often essential to facilitating the expensive and risky investments needed for entry into highly concentrated markets. Our antitrust laws should encourage, not penalize, vertical contracting arrangements that facilitate entry and enhance competition.
While I know many would disagree, this case has never smelled right to me. Having lived under Amazon's near-monopoly as a writer, publisher, and customer, everything from targeting Apple in the first place to the remedies imposed by the court to the monitor put in place to enforce them have seemed downright farcical.
Does the excerpt above change your mind at all? More importantly, does it stand a chance in hell of changing the court's?
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