The link below is to an article reporting on changes at Apple iBooks and some thoughts on what is needed.
The link below is to an article reporting on moves by Apple to revisit and update the iBooks reading experience to better compete with Amazon.
The link below is to an article that takes a look at the new books/reading social network ‘Litsy.’ It sounds like an interesting app.
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The Court of Appeals in the US has ratified Apple’s guilt in the e-book case. It was a two-to-one decision by the three judges on the Court. And it provides two lessons for Australia.
First, when industries are being disrupted, incumbents may collude with entrants to prevent competition.
Second, those who are calling for changes to our competition laws need to read the dissenting judgement. It shows how easy it is to confuse protecting competition and protecting competitors.
Before 2010, Amazon dominated e-books. It set the price at US$9.99 per book, which was less than the wholesale price that Amazon paid to the publishers. The reason was simple. Amazon was loss leading on the e-books in order to encourage consumers to purchase its Kindle reader.
Amazon had achieved a significant market share, selling around 90% of all e-books in the US. But the publishers hated the Amazon model. Cheap e-books meant that the publishers sold fewer (highly profitable) hard and soft backs. The publishers also feared that Amazon could evolve as a peer-to-peer platform that would “allow authors to publish directly with Amazon, cutting out the publishers entirely” (Court of Appeal at 14).
When Apple entered, it offered a different business model. The publishers controlled the retail price of each e-book on the ibookstore, with Apple taking a 30% cut. This is not unusual. Apple uses a similar model for Apps. And by itself, Apple’s agency model was not illegal.
However Apple and the publishers also agreed to a ‘most favoured customer’ clause. Under this clause, the publishers had to ensure that the price they set on the ibookstore was no more than the price for the same e-book on any other site – such as Amazon. Effectively this meant the publishers had to go to Amazon and require that Amazon raise its prices. And the data shows that prices went up.
The agreement between Apple and the publishers breached the anti-collusion laws in Section 1 of the US Sherman Antitrust Act.
The incumbents fight back
When industries are disrupted, whether by Amazon, Uber or Airbnb, the incumbents will fight back.
In the case of Uber, this has been through existing taxi laws, labour laws and government assistance.
In June 2015 the California Labor Commission ruled that an Uber driver should be treated as an employee. Uber is appealing. But fear of both labour and taxation laws have led a number of peer-to-peer providers, such as Shyp (a packing and shipping service) and Instacart (a grocery delivery company) to shift informal contract workers to full time employees.
On May 1, 2015, the Uber offices in Guangzhou, China, were raided and closed down. The municipal government then announced plans to launch its own online taxi App which would cover incumbent taxi services.
For Airbnb, the incumbents have fought back through zoning laws and takeovers. Hyatt hotels revealed in May 2015 that it is investing in Onefinestay, a competitor to Airbnb. Similarly, Wyndham hotels has invested in Love Home Swap, a UK home swapping site.
The Apple case illustrates how incumbents can fight back by using dirty competitive tactics. Fortunately, in the Apple case, the competition regulators were ready to act. But we can expect incumbents in other sectors to similarly push the legal boundaries to protect their profits.
Protecting competitors or protecting competition?
The Apple case also highlights the problem of leaving the interpretation of abuse of market power laws to the Courts.
The US Sherman Act provides little guidance to the Courts. However, the US has a long history of sorting out ‘good’ behaviour from ‘bad’ behaviour. The ‘rule of reason’ approach adopted by the US Courts is similar to the approach under Australia’s current abuse of market power laws. In Australia, a firm with market power only breaks the law if it ‘takes advantage’ of that power. The US Courts similarly ask whether or not the impugned conduct is really pro-competitive, not anti-competitive, behaviour. Both approaches try and ensure the law fosters competition rather than protecting individual, potentially inefficient, competitors.
Unfortunately, the recent Competition Policy Review recommended changing our laws. The new laws will take out the ‘take advantage’ test and leave it to the Courts to sort out the behaviour. But even in the US, with more than 100 years of legal cases, the Courts can get this wrong.
The dissenting judgement in the Apple decision illustrates the confusion. The dissenting judge concluded that Apple’s behaviour, that raised prices for e-books, was unambiguously and overwhelmingly pro-competitive. By raising prices, the cartel made it easier for new businesses to enter the market!
On this basis, all cartels would be good. If you raise prices and profits then the businesses benefit. This encourages new entry, but harms consumers. It is the classic confusion between competition (which benefits consumers) and collusion (which benefits businesses but hurts consumers).
Fortunately, two judges in the Apple case avoided this confusion. But protecting competitors can be tempting for a court – particularly when the industry is rapidly changing through innovation and disruption. In the Apple case it was tempting enough to have one judge dissent. And in Australia, we risk throwing the courts in at the deep end, if the legal changes recommended by the Competition Policy Review go ahead.
Apple’s iOS 8 and OS X Yosemite, which launched to the public this fall, come with iBooks pre-installed. That decision has paid off: iBooks has averaged one million new customers every week since mid-September.
Keith Moerer, the director of iBooks at Apple, revealed that statistic in a rare public appearance at the Digital Book World conference in New York City on Thursday. It’s startling to anyone who dismisses Apple as an also-ran in the ebook market and might encourage publishers and authors who haven’t focused on the platform to begin doing so. (And that was probably one of the main reasons that Apple agreed to appear at the conference.)
Moerer also spoke about other reasons that iBooks downloads are increasing. Since the launch of the larger-screened iPhone 6 and iPhone 6 Plus, “We are seeing more of our book sales starting to come from the phone.”
Though neither Moerer nor…
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In a new twist in the long running antitrust case against Apple, an appeals court on Monday cast doubt on the Justice Department’s theory that the company brokered an illegal conspiracy among book publishers, and asked instead why the government’s focus has not been on Amazon.
The 90-minute hearing, which took place at the Second Circuit Court in Manhattan, represented a major shift in momentum in a case that has until now gone completely against Apple. On Monday, the three appeals court judges suggested that District Judge Denise Cote might have been too quick to conclude that Apple’s pricing arrangements with five publishers violated antitrust laws.
“Would it not matter that all those people got together to defeat a monopolist? It’s like the mice that got together to put a bell on a cat,” U.S. Circuit Judge Dennis Jacobs told the Justice Department’s lawyer, Malcolm Stewart.
The cat in question here is [company]Amazon[/company], which controlled over…
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Apple could begin paying out $400 million worth of cash and ebook credits to consumers by the end of the year, after a federal judge approved an unusual deal related to an Apple-led conspiracy to fix the price of ebooks.
Those numbers are conditional, however, on an appeals court upholding a 2013 verdict in the price-fixing case, in which Apple was found to have colluded with five big publishers to fix the price of ebooks. The appeals court will hear Apple’s challenge on December 15, but few expect that the court will disturb the verdict.
In the event the appeals court does send back the verdict to be reconsidered, Apple will instead pay only $50 million to consumers plus $20 million to the lawyers instead.
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The link below is to an article that reports on the news that Apple will settle in the ebook pricing lawsuit.