Whereof One Cannot Speak

There’s a simple reason why I haven’t commented on the Department of Justice’s warning to Apple and publishers over the agency model for e-book pricing: I don’t understand the issues yet. Unless and until I do, I know better than to hold forth on them.

Antitrust economics is specialized, technical, and unintuitive. Everyone can understand the basic idea that a cartel to hold up prices will hurt consumers more than it benefits the cartel. But beyond that point, things get hairy quickly. A great many plausible-sounding arguments are either internally inconsistent or unmoored from marketplace realities. Other claims are true about some industries at some times, and false in other industries at other times. Sorting good from bad takes not just care but a willingness to grapple both with formal models and empirical data. I’m not an expert in this; my progress here is slow and halting.

Antitrust law is even harder. Its division of conduct into various silos (“horizontal agreements,” “resale price maintenance,” etc.) creates a layer of serious technical complexity. And not only is it caught caught up in the raging theoretical debates about what economic principles are actually true in the real world, but it’s also thoroughly concerned with error and administrative costs. Antitrust doctrine is incomprehensible unless you recognize that it is driven by the expectation that courts will regularly get things wrong: either condemning pro-consumer practices or blessing anti-competitive ones. Again, I’m not an expert, just plausibly informed on a few narrow slices of antitrust law.

I’ve been reading all of the commentary I can find about the agency-pricing investigation, and I have one thing to say to 95% of the commentators. Please stop. If you haven’t done an antitrust analysis from the top, or read one carefully, or been doing this for so many years that you don’t need to, you literally don’t know what you’re talking about. This is not an area in which knowledge of the industry and layman’s intuition about economics will guide you to approximately the right answer. Believe me when I say that I do not know what the best outcome is here.

Semi-serious snark regarding “you literally don’t know what you’re talking about.” - when has this ever been a factor for punditry? Most especially the bogosphere. Remember, to the 99+% non-experts, an appealing but nonsensical rant counts exactly the same - maybe even more so - than an expert commentary. The “more so” because blather doesn’t need to be constrained by law or empirical data.

I mean, I’ve basically given up on writing about many things, because knowing the topic JUST DOESN’T MATTER. So, while you are right, it’s another example of where being right doesn’t help.

Now Now , any self statement beginning with ‘in my opinion’ can never be false.

It can if dishonest.

James that involves meaning/intention.

James, I respect your honesty but would love your legal analysis when you have one.

The trouble with the situation is, in past years there was no incentive for bookstores to price most of their books far below the publisher’s list/cover price. Oh, remainders of books that were recently, or soon to be, out of print (at least in that format, whether hardcover or softcover) were sold cheap, and many bookstores had a table or two of remainders. Likewise with books that had been beat up on the shelves that the bookstores could no longer return to the publishers, at least not economically. There even were (still are) bookstores that focused entirely on remainders and “hurt” books. Then of course, there were and are used bookstores.

Crown Books’ advertising once trumpeted that (unlike other bookstores) they sold NYT bestsellers at TEN PERCENT OFF! This amounted to two large shelves in the store. All their other books were sold at cover/list price.

Now we have entities such as Amazon and many others, who are not making most of their money selling books. In the case of e-books, many of these entities primarily want to sell their e-book hardware and make it dominant on the market. They are willing to eat substantial losses on the e-books themselves. Amazon is also willing to make very little or no profit on many print books to make themselves the dominant print bookstore on the market. They can afford to do this because they are selling many, many non-book items at the manufacturer’s list price or in some cases above it. Amazon also gets a cut off every sale of a new or used item on Amazon Marketplace, again, not only books but other merchandise.

In the past, publishers knew that although the bargain-dedicated consumer could often find a cheap used book or remainder if they hunted around, most people would just go to a bookstore and buy at cover price. And publishers knew how many books they sold through wholesalers and at what discount, and how many books they sold through bookstores and at what discount. It was relatively easy to set a cover price where everyone could make a profit, the book was not priced too differently from similar books, and readers could afford the book. There is some art to this, and publishers do make pricing mistakes, but publishers do have pricing formulas.

Now entities such as Amazon are even willing to give away e-books just to sell hardware. And if consumers can get those books free at Amazon, they are likely to. Meaning, the publishers’ abilities to SELL books anywhere else are hugely reduced. If everyone is getting the book free at Amazon, Barnes and Noble et all know that and will not buy it.

Therefore, the publishers need some means of controlling the bookseller’s price just to stay in business. And authors, who usually get a percentage of the publisher’s profits, need to earn enough to keep writing books. Because e-books are not free to produce, or nearly as much cheaper to produce than print books as many people unfamiliar with the industry think.

I also appreciate the candor, James.

Also couldn’t help but chime in to say “kudos” on the nod to Wittgenstein. :)