On the Antitrust Economics of the Electronic Books Industry

Posted by Social Science Research Network

On the Antitrust Economics of the Electronic Books Industry by Germain Gaudin (Heinrich Heine Universität Dusseldorf – Duesseldorf Institute for Competition Economics (DICE)) and Alexander White (Tsinghua University – School of Economics & Management)

ABSTRACT: We show that the observed increase in prices charged for ebooks following Apple’s entry into the market can be explained completely by Amazon’s Kindle device losing its position as an essential component for reading ebooks. Simply put, when it became convenient for consumers to access ebooks sold by Amazon using third-party devices, such as the iPad, Amazon’s incentive to hold down the retail prices of ebooks diminished. This explanation contrasts with the view, advocated by the U.S. Department of Justice and affirmed in a recent court decision, that the price increase stems from a switch in the industry from using wholesale contracts towards using agency contracts. Moreover, we show that, in the absence of an essential device, if contracts revert to wholesale form, as is stipulated by the court decision and related settlements, this will likely push ebook prices up even further.