Wednesday, June 5, 2013

The Government's Shameful Antitrust Persecution of Apple Reaches Trial

The government's antitrust suit against Apple went to trial this week. The judge in the case urged Apple to settle because he believed the government had "a strong case," but Apple CEO Tim Cook vowed to fight, saying Apple would take "a very principled position on this." Let's hope so.

Apple is accused of "price-fixing," because it allegedly contracted voluntarily with major book publishers to set the e-book price for its iPad a few dollars above Amazon's $9.99 price. Amazon's price was well below the $25 to $35 price of hard cover versions, which would have hit publishers' profits pretty hard. So, the publishers signed agreements with Apple in which they, rather than Apple, would set the price, guaranteeing Apple a 30% commission on each sale (the so-called "agency model"). The hope was that Amazon, which at the time had an "iron grip on the electronic book market," would follow suit with the publishers. They eventually did. The strategy apparently worked. The agreement apparently raised the price of e-books by anywhere from $2-$5.

For this, Apple is charged with "conspiracy" because, according to the government, Apple didn't want to "compete" with Amazon. This is the bizarro world of antitrust: When a producer takes the risk of raising prices because it believes existing prices are below what the market could bear, that's "price-fixing." When the government forcibly forbids producers from doing so, thus keeping prices unnaturally low, that's not price-fixing. "Competing" means charging whatever the absolute lowest price some competitor is currently charging. Risking a loss of sales by raising prices to what one believes consumers are willing to pay is, somehow, not competing.

But what Apple and the book publishers (all of whom caved in and "settled") did was, precisely, to compete. Apple leveraged the economic power it earned in the market by proposing a deal with the publishers, allegedly to raise the price of e-books. The publishers, who were eager to thwart Amazon's cut-rate pricing because of the harm it could do them, agreed. Apple believed this strategy would work, and indeed it did. Consumers willingly paid the prices set by these agreements (Apple claims that average prices actually went down, not up). Whatever the case, what Apple did was precisely to successfully compete in the market, in pursuit of the honorable goal of maximizing its profits. Despite all of the antitrust thugs' blustering, the result of Apple's "price-gouging" is a cut in book prices by more than 50% from hard-cover versions!

It's interesting that the government is claiming that Apple cheated consumers. Apple could raise the market price of e-books because of its economic power; a power that consumers themselves granted to Apple. Economic power is a measure of the value that consumers place on a producers products by virtue of their willingness to voluntarily buy them. Economic (or market) power is achieved through consumer satisfaction. Apple used its consumer-granted power to influence the market for e-books--successfully, in this case---which is exactly what successfully competing is all about.

Through it all, nothing but voluntary agreements to mutual advantage are evident--between Apple and the publishers, the publishers and Amazon, and Apple, Amazon, and the publishers with consumers. Apple's only "crime" was to contract voluntarily with publishers on a pricing model. For this, they are smeared as "conspirators." Who is wielding force? The government, allegedly on behalf of consumers who were not defrauded or wronged in any way; who, in fact, benefited from the e-book revolution created by the likes of these companies--an achievement that the antitrust thugs could not even conceive of, let alone match.

If Apple successfully managed to get prices up a bit, to a level the market was proven to be able to sustain, kudos to them. There is no inherent right of consumers to some government-dictated "low" price. Prices are legitimately set only y the market, which includes the cumulative voluntary choices and agreements of and between producers and consumers. The governments only job is to fight fraud and breech of contract, but otherwise protect the rights of all to voluntary trade and contract.

Shame on our government for its attack on Apple and the book publishers. The government is criminalizing legitimate business practices, which highlights the tyrannical essence of the antitrust laws. And good luck to Apple in its fight to defend itself, and its courageous willingness to do so.

For some background on this case, I found this article via Voices for Reason.

Related Reading:

Antitrust Prosecution of Apple is Rotten

Apple Followup: Barbara Straniero's Mistaken Understanding of "Free Market"

The Abolition of Antitrust, by Gary Hull

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