Collusion to Control a Powerful Customer: Amazon, E-Books, and Antitrust Policy
65 Pages Posted: 23 Feb 2014 Last revised: 24 Feb 2015
Date Written: February 21, 2014
A federal judge recently held that Apple violated antitrust law by conspiring with leading publishers to raise e-book prices. While the Justice Department characterized the case as routine, many commenters argued it should not have been brought. In their view, the real villain was Amazon, whose power and aggressive behavior threatened to create a monopoly, reduce consumer choice, and diminish the vitality of book publishing. In the face of such a powerful customer, the publishers should have been allowed to collude.
This article addresses that issue, in the e-books case and in general. In the e-books case, collusion was almost certainly unwarranted. Amazon appeared to be engaged in 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. There was no evidence it had caused a reduction in the variety of new books.
In some circumstances, however, collusion to control a powerful customer would be justified. This article identifies the most important situations and develops a defense to the per se rule to protect them. While the defense would rarely be satisfied, when it is, it would provide a remedy for anticompetitive buyer power that would otherwise persist.
Keywords: antitrust, Apple, Amazon, e-books, price fixing, collusion, per se rule, powerful customer, buyer power, countervailing power, monopsony power
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