Apple is likely to win the e-book lawsuit being brought against it by the Department of Justice, reports CNET after consulting various legal experts.One simple reason Apple has a good case against antitrust is that it is a tiny player in the e-book business. It has very little share of the market. Amazon owns 90% of the e-book market. Antitrust scholar Geoffrey Manne tells CNET, “Strengthening a new competitor against an incumbent hardly sounds like a terrible outcome for consumer.”
Further, Apple is just a distribution point for the books. If the publishers worked together in collusion, they could be in trouble, but not Apple, says CNET.
NYU legal professor Richard Epstein wrote an article on why the DOJ will probably lose the case. Epstein describes himself as “an expert in constitutional law, contracts, corporate law, real estate law, torts, labour law — even Roman Law.” He’s also known to his students as “the libertarian.”
Here’s his reasoning for why the case is bogus:
First, there is no need for any collusion on this issue. If a single publisher had dreamed up this new scheme, it could have refused unilaterally to sell any books to Amazon or anyone else unless they bought into the model. Why is it illegal for Apple to come up with a bright idea that helps its competitive position with Amazon?
Second, it is not clear that lower prices are necessarily in the long term interests of the public at large. As with all complex transactions, lower prices spell both low costs to consumers and low royalties to authors. The lower royalties translate into lower level of production of new books, so that we do not have here the usual cartel situation where higher prices reduce output. It is plausible that the higher royalties increase the number of titles available, and by increasing competition in the new book market, prices are lowered in the long run.
Third, it is not clear why this arrangement is bad if done by all major publishers simultaneously. If it has justifications for each acting alone, those justifications remain when they act together. Under pure competition we would expect gravitation to a single new model if it proves better overall than its rival. That could be just what is happening here. The cooperative efforts speed the industry toward a more sustainable business platform.
Stated more generally, the usual cartel involves restrictions that have few if any efficiency benefits. These agency transactions have both pluses and minuses for consumers and for overall social welfare. It is a good rule of thumb to hold back from public enforcement when the relative balance is unclear. But note that in the current political climate, that presumption is likely to be reversed by populist forces. Big is bad. It will take some time to hear the whole story, but the betting here is that this law suit is a mistake.
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