"the market for retail distribution of electronic books ... was essentially a monopoly, with Amazon.com ... controlling 90% of e-book sales. Amazon sold many of the most popular e-books at a loss, making it difficult for other retailers to enter the e-book market as they 'would run the risk of losing money if [they] tried."
along with the 1999 conviction of Microsoft being a monopoly in part because they gave away Explorer.
A monopoly is historically identified with having a higher than market price, not a lower.
> A monopoly is historically identified with having a higher than market price, not a lower.
This is not the definition of a monopoly.
What Apple (and Amazon) are being accused of is predatory pricing to root out competition. Monopolies are not bad because they raise prices. Over the long-run, the tend to do so, but raising prices itself is not "bad."
Monopolies are prosecuted when they use their position to discourage competition, which stifles innovation. That's what Apple is in trouble for, by lowering prices such that less-funded incumbents cannot enter the market. That's what $MSFT was in trouble for with IE. Yes, they gave away a browser for free, but in the process abused their power as distributor of Windows to corner another market. No company could reasonably compete with a pre-installed browser, meaning $MSFT would be discouraged from innovating.
In some instances, monopolies are a natural conclusion of free-market dynamics. Centralizing production into one entity maximizes possible economies of scale (ain't no scale like 100%!) Most government programs are based on this principle. The assumption is the NASA, bringing together the financial and technical capabilities of the entire United States, has the best opportunity to advance aeronautic engineering.
In other instances, monopolies use their position to prevent competition. These are the bad guys and gals. Think Standard Oil or the old AT&T. Sometimes, multiple independent companies will collude to form a cartel and abuse their collective market power. Airlines do this by raising ticket prices together, despite no external force (like higher taxes, union wages, or oil prices.)
NASA is a great example of a monopoly that does not abuse its position. It actively encourages competitors (e.g. SpaceX) by granting the contracts.
EDIT: Replaced incorrect usage of "market power" with "predatory pricing". Thank you @baddox and @chipotle_coyote for the corrections.
I'm fairly sure Apple wasn't accused of anything relating to monopoly power; they were accused of colluding with publishers to effectively force Amazon to move to the "agency" model rather than a wholesale model, giving the publishers control over retail pricing of their books. This is covered by antitrust law, but it has nothing to do with monopolies.
It's not really fair to accuse Apple of "price-gouging," either. (It's also not generally illegal.) Apple never mandated prices for publishers any more than they mandated prices in the App Store; publishers could have moved to the agency model and still decided to sell all their books at $9.99 or less. They didn't have any intention of doing that, of course, but that has little to do with Apple. Publishers were afraid that Amazon was on its way to becoming a monopsony, and that with 90% or more of the ebook market they would be able to simply tell publishers "we've decided you're going to sell your ebooks to us for less now, and because you have nowhere else to go if you want to sell them, you're going to do it."
And honestly, that wasn't an irrational fear. From all appearances, Apple did really violate antitrust law due to the collusion, and one can make a good case that ebook prices from major publishers are generally higher now than they would have been otherwise. But that doesn't mean that this couldn't become a "Vlasic and Walmart" situation, where one seller becomes so powerful that they distort the market. To me, this is the real irony of this whole case: the DOJ was essentially right to go after Apple, but Apple's argument against Amazon is also essentially right. If Apple had just said "we're using the agency model, set your own retail price," they wouldn't have gotten into trouble...and, of course, they'd constantly be undercut by Amazon, which just like Walmart is perfectly willing to sell stuff at a loss to hurt their competitors.
This is something I still worry about with Amazon and "indie" publishing; friends of mine who are self-publishers often say that they make 80-90% of their sales on Amazon. And that's great, at first glance, but Amazon already finds a lot of asterisks to attach to that "70% of your retail price goes to you" promise. (That's only true within a certain price range, they deduct "delivery charges," and there's the whole fustercluck of Kindle Unlimited.) And if at some point Amazon says, "You know, going forward, only 60% of your retail price goes to you," well, who's the competitor who's going to keep them in check? Apple?
> Monopolies are prosecuted when they use their position to discourage competition, which stifles innovation. That's what Apple is in trouble for, by price gouging here.
Has that helped competition at all? It seems like before Apple's foray, Amazon owned the eBook market, and now... Amazon owns the eBook market. I don't really see how competition could have gotten worse, and after Apple's legal failures it hasn't gotten any better.
I'd say it is even worse than that. The years of strict agency pricing trained people to not even bother looking at competing ebookstores, entrenching Amazon's dominance.
> What Apple (and Amazon) are being accused of is abusing their market power to root out competition.
But market power is well defined as the ability to raise the market price of a good above its marginal cost while still earning a profit. People seem to be confusing market power with predatory pricing, which is a very different concept.
> A monopoly is historically identified with having a higher than market price, not a lower.
In American antitrust law, it historically can be identified with either one. The usual assumption is that artificially low prices are one tool used to create and/or maintain monopolies, and then secure monopolies are profited from by raising prices. It's actually the first part that's illegal; the Sherman Act bans "attempt[s] to monopolize" a market, not profiting from a monopoly that already exists (if it came into existence without foul play). High prices can be used as evidence that a monopoly exists, but a monopoly can exist without high prices, if for example the company is aggressively defending it with predatory pricing. The general concept of "predatory pricing" goes back to at least the 1910s.
This is why it's so amazing to me Google has come through largely unscathed for so long. Between their extremely competitive (often free) pricing, and their deals to mandate preinstallation of all of their products on various platforms, it's kinda amazing. If it wasn't for someone previously paid by Google running the FTC for a couple years, I imagine Google would already be facing some pretty hefty charges.
> Between their extremely competitive (often free) pricing, and their deals to mandate preinstallation of all of their products on various platforms, it's kinda amazing
I think someone at Google is secretly grateful for the existence of Amazon's Android fork (FireOS). They can rightly claim: "Android is free and open source - you don't have to take our version if you don't like our T&C's. You can fork your own competing version (that you maintain), like Amazon did"
Oh, I'm sure there's nothing secret about that gratefulness. But it's also trivial to dismiss: The Fire Phone flopped badly. While people buying Kindles mostly just expect to be able to read Kindle books, you cannot sell an Android phone today without the Play Store and be successful.
The law is not like programming, if something is 'technically true', it's probably false as far as the law is concerned. The law is much more concerned in this area with what is 'practical'. It is not 'practical' to fork Android, and operate as a business with it.
>The law is not like programming, if something is 'technically true', it's probably false as far as the law is concerned. The law is much more concerned in this area with what is 'practical'. It is not 'practical' to fork Android, and operate as a business with it.
I've never heard anyone say that, that's really insightful. Can you say some more stuff about law?
If you have a higher than market price, then other players can come in and disrupt your monopoly. If you are selling stuff at a loss to drive other players out of the market, then it is impossible for a new player to get off the ground. The definition has more to do with what is in the long term detrimental to the market's diversity.
I'm fairly certain none of those things are illegal. You've just incompletely specified the problem and are consequently reaching the wrong conclusion. It's true that all of those things _can_ be illegal, just like moving your hand or your foot can be illegal if you do so with sufficient force against a person, and not moving your hand or foot can be illegal if you, say, are stopping police from enforcing the law. But that doesn't mean "moving my hands" and "not moving my hands" are crimes.
Charging higher prices as a monopoly is not in itself illegal. Other conditions have to be true.
Collusion and price fixing require you to conspire.
This is mostly a distinction without a difference in practice. Exploit it in certain ways and your monopoly gets broken apart- thus illegal. See ATT/ Ma Bell
It's a very practical distinction since you can avoid exploiting it in certain ways and thus not get into any trouble at all. Violator monopolies do not exert predatory pricing, etc, by accident.
As you note, the circumstance surrounding this particular anti-trust case isn't the most clear, but I think it does make sense when drawn out a bit more:
Consumers were 'harmed' by the actions taken by Apple to approach and collude with publishers to break a monopoly that would benefit the publishers and Apple more than the consumers, even though the publishers felt they had no choice but to deal with Amazon and accept is loss-leader business model.
It doesn't seem rational that breaking up a monopoly would be worse for consumers, but based on the situation of this Apple/Publishers/Amazon case, that's essentially what was argued and the court system agreed at the end of the case(s).
> If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The predatory merchant then has fewer competitors or is even a de facto monopoly.
I wonder what you'd say about Gnu software. It's free, it's good, it comes with an agenda. Yet it doesn't seem to have prevented competitors or innovation in the slightest.
GNU software is not necessarily free of cost. You can charge whatever you want for software under the GPL. So can anyone else who has a copy of it. In fact RMS himself made a living off of selling Emacs for many years.
The fact that you can't restrict redistribution means that it is is hard to keep the price high after you have distributed it once. It will tend to zero [0]. The consequence of that is that you have to charge for new work rather than copies of old work. Many people now make a good living doing that, though relatively few companies have figured out how to build a business model around it.
The reason competitors and innovation are not stifled in this model is that there is a market for new work. Organizations are willing to pay for new functionality -- or even new solutions altogether. You can see the kind of benefit that a company can get from developing free software when you see companies like Facebook being able to recruit new staff that are already trained in their internal tools (React).
Whether or not you could replicate this kind of success in another field is questionable. People are willing to pay for "upgrades" for free to play games. Are there people willing to pay to be the first to read the next chapter of the Harry Potter series, even if they could read it for free a week later? I suspect so, but I doubt you would maximise profits this way.
[0] I know of a few obscure GPLed products that are able to sell their source code because nobody is motivated to distribute it for free. It's rare, but it happens.
GPLv3 has, as there are companies that won't adopt it.
If GNU dumped the LGPL and GPL and re-licensed everything under AGPLv3 then I could see a lot of GNU stuff being dropped in favour of more business friendly licenses.
In reality it increased competition. No business wants to touch GPL'd code so they simply write their own code. The only thing the GPL ensures is duplicated work and effort.
A monopoly is characterized by a lack of competition. Microsoft gave away IE to get customers locked in, which in turn let them use their "Embrace, Extend, Extinguish" strategy.
Similarly Amazon sold at a loss to get customers to use their gateway above all others. Their strategy is to take a cut from so many pies that it doesn't matter that their slices are so small. They're okay if some of those slices end up not covering their costs as long as none of their competition gets any pie at all.
I have thousands of books, constantly buy more, and have no trouble at all buying them from sources other than the Apple and Amazon alleged monopolies.
Apple wasn't alleged to be a monopoly. Appled formed an illegal cartel of suppliers, all who agreed to fix their prices simultaneously as part of a scheme to raise prices across the industry - by acting in concert to force everyone (all supplier, all retailers, including non-Apple) to adopt an agency model giving publishers the market power to raise their prices. More details: https://www.justice.gov/atr/case-document/file/486701/downlo... - there are clear emails showing how Apple orchestrating the scheme by gaining coordinating and gaining cooperation of all publishers, and then of pricing data showing how consumers were harmed as ebook prices rose as the scheme went into effect. See my other comment in this thread for some choice excerpts from leaders of the companies involved, betraying their conscious involvement.
> Amazon sold many of the most popular e-books at a loss
Does Amazon also sell books at a loss?
I understand that the price of something isn't determined by the costs of the inputs, but ebooks are often more expensive than having Amazon retrieve a paperback from their warehouse, put it in a box, then pay UPS to bring it to my front door.
Is it possible that an ebook at $9.99 is sold for a loss while the paperback for $8.99 is profitable?
Amazon moved to an agency model for ebooks (where the publisher sets the price, and Amazon gets 30%) a few years back for this exact reason. So I think the answer to that is no. Amazon cannot sell an ebook at a loss because it doesn't set the price.
The higher prices come once the monopoly is established and the competition is impotent. The problem with IE and the Windows OS is that IE was being seamlessly integrated into Office; MS was hijacking java and javascript making it impossible for users of competitive products to get the full office functionality; and their formats were proprietary. Any individual one of these may seem ok- but the result that was coming was that the web was going to be proprietary. Web pages would be written in Word (not by pros, but by, say, professors and mom-and-pop shops), put on the web via "convert-to-html," have hooks embedded that made the page only usable by MS Office users, etc.
There was no technological challenge to this. Google wasn't around. VCs at meetups talking to young entrepreneurs would explicitly say they wouldn't fund anybody competing with Microsoft.
Think what would have happened if IE contained adblockers: Google would have been killed at the outset.
With no competition an important downward pressure on price is taken away (and an important upward pressure on innovation would be, too).
> With no competition an important downward pressure on price is taken away
True but there were competitors to Microsoft (such as Linux and Apple), and there was no evidence of an upward march in prices. The free software revolution was gaining steam rapidly.
I've been in the software business for 40 years, and the free market free-for-all in software has been legendary. Pricing has trended to $0 for lots (most?) of products, and yet innovation continues at a furious pace.
The only really bad part has been the execrable patent wars.
In the 80s you could argue that there was a mainstream OS choice in Apple vs DOS. Even so, outside of desktop publishing (remember that term?) Apple had little place. I was fairly unique with my Mac Plus when it came out (and proud of my 1Meg of RAM!). Nevertheless, all official biz correspondence has to be retyped in WordPerfect on the IBM machine.
In the 90s, aside from some niche use (artists and home) the Mac was done. I finally switched with Win 95. The only software that was (as far as I could tell) completely compatible between Apple and Win was Mathematica. By that I mean that if I wanted to collaborate electronically (with non-technical folks) I pretty much needed a Win system. So I got one.
And while I'm a huge fan of free s/w I still have to use office to collaborate with people who don't have strong tech skills and perhsps aren't too clever. Ever try to co-write a presentation or doc with someone using Win Office when you are using Libre Office? They just can't seem to keep themselves from formatting and it screws everything up.
So some prices have trended to zero, but there is a large discontinuity in the product set. Office 2003 has all the features I need, and I suspect that's true for most of us. So we are being coerced to upgrade by different means- the latest push is to rent the software so it can be continuously updatable. For all these things I don't need. And we are stuck in a tragedy of the commons situation: If I refuse to play along, I can't collaborate.
"the market for retail distribution of electronic books ... was essentially a monopoly, with Amazon.com ... controlling 90% of e-book sales. Amazon sold many of the most popular e-books at a loss, making it difficult for other retailers to enter the e-book market as they 'would run the risk of losing money if [they] tried."
along with the 1999 conviction of Microsoft being a monopoly in part because they gave away Explorer.
A monopoly is historically identified with having a higher than market price, not a lower.