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Two Economists File Pro-Apple Brief in eBook Antitrust Case

When Apple-logo[1]Apple’s ebook antitrust lawsuit went to trial last summer, some argued that Apple was merely acting in their own best interest and that the judge didn’t understand the economics of the situation. Those arguments got a little extra heft yesterday.

Two economists, including one who had previously testified for Apple as an expert witness, filed an amicus curiae brief on Wednesday. The 33 page brief (PDF) supports Apple’s appeal to overturn the verdict for the ebook antitrust case which Apple lost last year, and it presents a very different view of Apple’s motivations.

The brief is the work of CalTech’s Bradford Cornell, who has no obvious ties to Apple that I can find, and NYU’s Janusz Ordover, who had previously testified in one of the Samsung-Apple trademark /patent/schoolyard squabbles. It’s long and detailed, but the heart of their argument is laid out in a three-paragraph summary:

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.

Apple appealed Judge Cote’s ruling two weeks ago. A DOJ spokesperson said it would file its brief in May.


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New Identity Same Guy March 6, 2014 um 1:24 pm

If Apple wins, Amazon could be dead meat along with its brain dead workers forced to collect 10,000 orders/hour LOL.

puzzled March 6, 2014 um 3:39 pm

What’s amazing is that they wrote that with a straight face!

I had to check my calendar to make sure it wasn’t April First.

Thomas March 6, 2014 um 8:30 pm

So, essentially, Amazon’s BAD; therefore Apple breaking the law is okay?

Nate Hoffelder March 6, 2014 um 10:56 pm


New Identity Same Guy March 6, 2014 um 11:49 pm

Predatory pricing is illegal. And no-profit Amazon are experts at that.
Let’s review the last quarter:
Sales $25.5 billion
Net income: $240m.

Sales: $53.5b
Net income: $13b
P/E: 13

Pretty obvious Amazon is virtually a pyramid scheme.

Nate Hoffelder March 7, 2014 um 12:19 am

That’s an utterly bogus comparison.

Amazon is a retailer while Apple is a maker of premium gadgets. No retailer has margins on the scale of Apple, so trying to compare Amazon to Apple is simply false from the very beginning.

In fact, I just checked and Walmart, for example, had sales to net ratio of 3%. Target came to about 2.6%, while Kroger had a ratio of 1%. So Amazon’s 1% ratio is not so crazy.

New Identity Same Guy March 7, 2014 um 12:27 am

LOL Walmart has the same P/E as Apple.
Amazon profit margin is 10% of Walmart (.3% compared to 3%).
And Walmart is experiencing bad times.
More than sad. Pathetic!
But as long as those Amazon ants get 10,000 leaves/hour everything will be OK.

Nate Hoffelder March 7, 2014 um 7:21 am

Perhaps you should look up P/E before writing. That is a ratio of stock price to earnings, and it actually has very little to do with a company’s operations. That is more of a vote of confidence for the stock market speculators.

And no, Amazon had a 1% margin, not .3%. The data you cited told us that.

New Identity Same Guy March 7, 2014 um 7:30 am

OK I admit it I switched from quarterly to annual earnings to get the 0.3%. Nevertheless that’s what it is.
And while Amazon is not in control of its P/E it could be influencing things behind the scenes. Stock price manipulation has been known to occur at least once or twice before LOL. And a P/E of over 600 is a little exaggerated to say the least.

Nate Hoffelder March 7, 2014 um 7:59 am

In that case the .3% makes sense and does represent a difference.

Anthony March 7, 2014 um 4:11 am

I just gotta respond to some of the comments here!
Here is a simpleton’s view of the ebook anti-trust case. This is about apple and the publishers, NOT AMAZON. Didn’t DOJ investigate Amazon and find nothing? I just DON’T see how Amazon is the bad guy here.

Pre agency agreement, I a paid $9.99 for SOME trad pub ebooks. During agency agreement, I paid $12.99, or more for all trad pub ebooks.

Steve Jobs stated in an email and there is a video floating around of Jobs saying to a reporter that Amazon WON’T be selling at $9.99

1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.

2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.

3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started there will be no stopping it. Trust me, I’ve seen this happen with my own eyes
Didn’t DOJ investigate Amazon and found nothing?

If it looks like a duck, smells like a duck and quacks like a duck. Then it probably is.

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