Today, it was reported that the Justice Department plans to sue Apple and five of the largest publishers for allegedly colluding to raise prices on electronic books. The following statement can be attributed to Geoffrey Manne, Senior Adjunct Fellow at TechFreedom:
Antitrust regulators all too often forget that the most important innovations are frequently not in technology but in business models—and that disruptive media consumption technologies like the Kindle generally force re-thinking of established models for producing, and pricing, media content. Amazon's early dominance of the e-book market prompted genuine concern about how to fund book publishers, authors, editors and all the other people who bring books to consumers. So it's hardly surprising that publishers were eager to negotiate a new pricing model for their content and found Apple a willing partner. Apple’s tablet now threatens Amazon’s market power in the e-reader market, in part because Apple enlisted publishers with a favorable pricing model.
To assess the competitive effects of this pricing scheme in the e-book (content) market without considering the competitive effects in the e-reader (platform) market is a mistake. It would be an even graver mistake to focus on market power at any given moment rather than on the overall dynamism of the industry. While Amazon pioneered the e-reader category, it now faces stiff competition not just from Apple but from Google, too—competition that will continue to transform both the platform and content markets in unpredictable ways. And as with other antitrust interventions in dynamic technology markets, this one will likely be moot before a court can fashion a remedy.
The Department of Justice should remember the caution of the Nobel Laureate Ronald Coase forty years ago: "If an economist finds something . . . that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of un-understandable practices tends to be very large, and the reliance on a monopoly explanation, frequent”—and frequently wrong.
Manne is available for further comment at email@example.com.