Apple Fights for Its Bite

After the Justice Department charged Apple and five publishers on April 11 with conspiring to fix prices on e-books, three of the publishers immediately settled. Apple, however, vowed to fight, portraying itself as a hero working to break Amazon’s monopoly on e-book sales and end its practice of underpricing e-books. It was a brilliant PR strategy; it was also wrong.

Monopolists don’t lower prices; they raise them. So to accuse Amazon of abusing its monopolistic power to lower prices is inherently contradictory. Market share alone doesn’t make a company a monopolist. A true monopolist has a large market share in spite of price, not because of it.

So as long as consumers have the option to buy e-books from other sources, it’s impossible for Amazon to have a monopoly. Amazon got its initially large market share because of its lower prices, not the other way around.

In 2010, the publishers charged in the lawsuit—HarperCollins, Simon & Schuster, Hachette, Penguin, and Macmillan—worked together to force Amazon to raise its e-book prices. Since then, Amazon’s market share has dropped from 90 percent to about 60 percent. If Amazon had genuinely been a monopolist, that wouldn’t have happened.

However, because Apple is also just a reseller, it can’t be a monopolist in the e-book market. So it’s odd that the Justice Department stressed Apple’s role so prominently in its complaint. The department argues that Apple helped facilitate collusion between the five publishers. But the publishers are the real monopolists—it was they who colluded to drive e-book prices up. Apple may be the marquee player in this battle, but the real fight will be between the Justice Department and the two publishers, Penguin and Macmillan, who haven’t settled. If the facts in the department’s complaint are accurate, those publishers are clearly guilty of price-fixing, which means they’re likely to settle, too.

If that happens, the Justice Department will have essentially gotten everything it wants—for the companies to stop working together to fix prices. It isn’t seeking huge fines or criminal charges. And if all five publishers settle—or lose—the department might drop the charges against Apple: Once the publishers are out of the game, the Cupertino leviathan will have no one left to collude with.