The recent Apple e-book prize-fixing case made surprisingly little news, but it’s a very interesting example for teaching (in Economics 1 or other courses) about market power, pricing, and antitrust policy. It is also a fascinating story involving behind the scenes conversations between Steve Jobs, his colleagues at Apple, Rupert Murdoch and the other publishing executives. And you run into smart economists on opposite sides of the issue, such as Orley Ashenfelter and Richard Gilbert, serving as expert witnesses at the trial.
The case relates to Apple’s entry into the ebook market in early 2010 and the closely associated increase in the price of ebooks, including at Amazon. Here is a chart showing the increase in prices at that time:
The policy issue relates to what role Apple had along with the book publishers in bringing about the price increase.
The court (Judge Denise Cote) found “by a preponderance of the evidence that Apple conspired to restrain trade in violation of Section 1 of the Sherman Act.” She writes that “Compelling evidence of Apple’s participation in the conspiracy came from the words uttered by Steve Jobs, Apple’s founder, CEO, and visionary.”
Though quite long, Judge Cote’s full opinion is actually a pretty good read. It includes such passages as this:
“On January 27, Jobs launched the iPad…. As part of a beautifully orchestrated presentation,…To show the ease with which an iTunes customer could buy a book, standing in front of a giant screen displaying his own iPad’s screen, Jobs browsed through his iBooks “bookshelf,” clicked on the “store” button in the upper corner of his e-book shelf display, watched the shelf seamlessly flip to the iBookstore, and purchased one of Hachette’s NYT Bestsellers, Edward M. Kennedy’s memoir, True Compass, for $14.99…. When asked by a reporter later that day why people would pay $14.99 in the iBookstore to purchase an e-book that was selling at Amazon for $9.99, Jobs told a reporter, ‘Well, that won’t be the case.’ When the reporter sought to clarify, ‘You mean you won’t be 14.99 or they won’t be 9.99?’ Jobs paused, and with a knowing nod responded, ‘The price will be the same,’ and explained that ‘Publishers are actually withholding their books from Amazon because they are not happy.’”