Originally Posted by Cpsro
How is it collusion when the publishers aren't selling the same books? Would it be collusion if a car manufacturer talked with a real estate broker before coming to an agreement with Apple about how to price cars and real estate in iTunes?
I think the DOJ is nuts here (the equivalent of Javert from Les Miserables), but the collusion is fairly easy to understand.
In the wholesale model (what most retailers use), a publisher would sell books to a retailer for say $15 (wholesale price). The retailer is than free to sell it to end consumers at the MSRP, like $25, or $20, or loss lead for $10. The price competition arises because a publisher would sell their books to multiple retailers: like Barnes & Nobles, B. Dalton's (defunct) or Borders/WaldenBooks (defunct). The publisher sells books at agreed upon wholesale price to each of the retailers. The retailers, stocked with piles of these books in their stores, then compete for customers by being able to change the prices on the same books. Customers can shop at different retailers for the cheapest price.
Apple's deals with the publishers for ebooks did a couple of things. It moved the control of ebook prices from the retailer to the publishers with the agency model. By being a powerful enough new entrant into the ebook market (iPad et al), Apple enabled the publishers to move other ebook retailers (Amazon, B&N, Kobo) to agency models by threatening not to sell ebooks to retailers. The MFN is a red herring, as it was just a vehicle by which Apple guaranteed that publishers wouldn't stab them in the back (sell an ebook cheaper in one ebook store over another). The key thing was Apple's entrance into the market and that they were big enough for publishers to use as the stick to get other ebook retailers to change to agency.
With the publishers wanting higher prices for ebooks, and they got them by wresting control of prices from retailers to themselves, the prices did indeed rise instantaneously, only to gradually fall to basically where they were when Amazon was controlling the prices. With everyone on agency, there's no price competition on individual ebooks. When the DOJ says "price competition", they are talking about "price competition between retailers". The DOJ and the court apparently didn't think that basic demand/price curves was enough to change prices, but they aren't economists after all, but I digress.
The DOJ obviously did not like this. The judge agreed. The DOJ's remedy is to prevent this from happening again. We'll see how the judge decides on the remedy soon, and I think the DOJ's remedy will sale through with flying colors, and we'll all revisit this again on appeals and probably the SCOTUS if the remedy of Apple's IAP cut being eliminated will be put into effect.
Obviously, I disagree with the DOJ and the courts as the mechanics and dynamics of business in a digital goods market is totally different than in physical goods, and the laws developed through the years based on physical book sales really don't apply. Just to read an ebook, you need invest in a tablet that can cost anywhere between $50 to $500. Then you needed a reader application that has to be supplied by and supported in perpetuity by the platform vendor to be able to read the ebook. Just batpoop insane for the DOJ and the court to think they should apply traditional anti-trust law to this.
If they wanted price competition, mandate a standard format for ebooks, and enforce compatibility. That's about all they need to do.