By now, I’m assuming that most of you know the rough outlines of last week’s dispute between Amazon and Macmillan. The shorter version is that once the iPad was introduced, Macmillan used its new leverage to demand that Amazon let the publisher raise the prices of eBooks in order to protect sales of its front list hardcovers. After a weak attempt at retaliating, Amazon folded.
The longer version you should get from our excellent Atlantic Business piece by Virginia Postrel.
So as soon as competition was introduced into the eBook market . . . prices to consumers go up? This sounds like an odd outcome. Isn’t competition supposed to make prices go down?
Not necessarily. Actually, if you’re among the majority of
Americans who view the Sherman Anti-Trust Act as one of the finest
legislative achievements in our history, you’ll be surprised to find
that the evidence that breaking up monopolies helps consumers is
actually kind of weak.
Monopolists often operate in markets where there are great returns to
scale, and they keep competition out by offering prices too low for a
smaller new entrant to compete. After the breakup of Standard Oil,
probably the Sherman Act’s most famous scalp, prices for key petroleum
distillates actually rose.
Government granted monopolies
do display higher prices and poorer quality, because the
government-granted monopolies don’t need to worry about new entrants.
If cartel agreements were legally enforceable, all monopolies would
look like Comcast.
But Kindle’s strategy was on the “benevolent
monopolist” side: Amazon wanted to attain a virtual monopoly over the
eBook market by using its bargaining power to keep the prices of eBooks
low. Once Steve Jobs showed that he was willing to give publishers
better terms, that bargaining power was eroded.
Does that mean
consumers are worse off? Maybe. As someone who likes to consume cheap
electronic reading material, I’m tempted to say yes. But the
publishers would say that if consumers like new books, they need profit
margins high enough to feed the queue.
There’s also the
possibility that once companies have gotten a monopoly, they will start
gouging consumers. In practice, you see less of this than you’d think,
because in the absence of some sort of legal protection of their
monopoly status, they can’t act so badly that people start switching to
other companies. But that’s not to say it doesn’t exist.
Still,
I think it’s worth noting that while we usually discuss antitrust as a
means of helping consumers, in fact, it’s more obviously successful at
helping competitors. This is why libertarians are so often
against antitrust interventions: they don’t recognize a right to be
free from competition, even the “unfair” kind.
It may also explain why the harshest actions against Microsoft have come out of the EU.
