From Yale: How Apple v. Amazon was misjudged

A new academic study argues that neither the judge nor the DOJ understood the power of Amazon’s platform.

From “Amazon’s Antitrust Paradox” in the current issue of the Yale Law Journal:

In 2012, the DOJ sued the publishers and Apple for colluding to raise e-book prices. In response to claims that the DOJ was going after the wrong actor—given that it was Amazon’s predatory tactics that drove the publishers and Apple to join forces—the DOJ investigated Amazon’s pricing strategies and found “persuasive evidence lacking” to show that the company had engaged in predatory practices. According to the government, “from the time of its launch, Amazon’s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.”

Judge Cote, who presided over the district court trial, refrained from affirming the government’s conclusion. Still, the government’s argument illustrates the dominant framework that courts and enforcers use to analyze predation—and how it falls short. Specifically, the government erred by analyzing the profitability of Amazon’s e-book business in the aggregate and by characterizing the conduct as “loss leading” rather than potentially predatory pricing. These missteps suggest a failure to appreciate two critical aspects of Amazon’s practices: (1) how steep discounting by a firm on a platform-based product creates a higher risk that the firm will generate monopoly power than discounting on non-platform goods and (2) the multiple ways Amazon could recoup losses in ways other than raising the price of the same e-books that it discounted.

In case you’ve missed her basic thesis, here’s how the author, Lina M. Khan, starts her abstract:

Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny.

Yes, I know. The case was called U.S. v. Apple, Inc. et al., not Apple v. Amazon. See: The view from the hard benches

3 Comments

  1. John Kirk said:

    My analysis is a little simpler. Anti-trust laws are so complex that no one can reasonably know what is and is not legal. And that just ain’t just.

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    February 2, 2017
  2. Gregg Thurman said:

    What’s amazing is that it took a “study” to point out what anybody capable of reading a 10Q already knew: Amazon was pricing its “products” to deter competition while it built out its monopoly.

    0
    February 2, 2017
  3. Ken Cheng said:

    So, now that Amazon and similarly Google have become “essential infrastructure” like a public utility, when will the gov’t treat them like a public utility, because as a shareholder, the timing of the transition becomes important.

    1
    February 2, 2017

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