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Collusion to Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy

 |  February 23, 2014

Posted by Social Science Research Network

Collusion to Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy – John B. Kirkwood (Seattle University School of Law)

ABSTRACT: In July 2013 a federal judge held that Apple had violated antitrust law by conspiring with publishers to raise e-book prices. Many critics contended that the case targeted the wrong parties; the real threat to competition was not the publishers and Apple, but Amazon. According to the critics, Amazon’s predatory pricing and aggressive use of buyer power were likely to create a monopoly, lead to even higher prices in the long run, and deprive publishers and authors of the revenues needed to develop a rich array of new titles.

The evidence, however, indicates the opposite: Amazon was almost certainly engaged in procompetitive loss leading, not predatory pricing, and fears of an eventual Amazon monopoly were largely unfounded. Amazon’s buyer power, moreover, was not monopsony power, which is frequently harmful, but countervailing power, which can lead to lower consumer prices. Finally, there was no evidence that Amazon’s exercise of this power had adversely affected the number or variety of new books.

While the e-books conspiracy was unjustified, the larger issue remains: whether collusion to control a powerful customer can ever be justified. This article concludes, contrary to prevailing law, that it can. It also develops, in more detail than any prior effort, a workable defense for such behavior. The defense is demanding, but when the facts are established, it would provide a remedy for anticompetitive buyer power that antitrust law would otherwise not reach.