In what must be the zenith of the pot calling the kettle black, the U.S. government announced last week that it and 15 states are suing Apple and other major book publishers for price fixing electronic books. The Justice Department is alleging that the price fixing publishers have agreed to convert the retailers who sell their e-books into agents who continue to sell their e-books but no longer have the ability to decide what retail price to charge for them. Thus, all prices are determined at the publisher level, allowing the executives in those companies to collude to ensure higher profits for all to enjoy. The DOJ estimates that by adding $2, $3 or as much as $5 to the price of many New York Times bestsellers and mass market paperback titles over the last two years, consumers have been ripped off by over $100 million.
Now, on the surface this may sound shocking. You are probably thinking here is yet another example of corporate bigwigs gouging the little guy. And that is what Attorney General Eric Holder and President Obama want you to think. See, then they can ride in on white horses, file a lawsuit that will cost the defendants so much money that they settle out of court and therefore look guilty of actually doing something wrong , and save the day for average e-book buying Americans. It fits into that government as the great protector of the masses mentality.
But, the real truth is that even without knowing that publishers may have conspired to increase book prices, no one was forced into buying them in the first place. Consumers make choices about what to buy every day and some, if not most, of the time those decisions are based on cost. If they felt the jacked-up prices of the e-books were too expensive, they could have chosen not to buy them. Enough consumers making this choice would have broken the back of the conspirators and forced them either collaboratively or individually to lower prices to market level (the equilibrium point). Consequently, the collusion would have been destroyed through natural means and consumers would have reasserted their position of dominance in the market economy.
Article comments
— go to most recent comments1 - Glenn Contrarian
Since America's been going down the tubes since 1913, exactly how is it that we're still (at least for now) number one on the planet when it comes to GDP, military power, and cultural influence?
2 - Kenn Jacobine
You said it Glenn, "At least for now".
3 - Glenn Contrarian
Hey - we've been number one for 99 years now...so since we supposedly set ourselves up for failure in 1913, why haven't we crashed and burned in the 99 years hence? Hm? 99 years is a LONG time in the modern world, you know.
4 - Kenn Jacobine
Well, the downfall began in 1913 with the Federal Reserve Act. We have been on a steady decline since 1971 when Nixon bowed to his banking masters and closed the gold window to foreign redemption. So yes the seeds for the inevitable collapse which is coming began in 1971 when the floodgates for all the reckless spending for endless wars and the welfare state was enabled to bloom unencumbered.
5 - Zingzing
Could the world even function today like it did 40+ years ago? It was unstable then and it's unstable now, but what would have occurred had Nixon stuck w the gold standard? What wouldn't have happened? There would be good things and bad things, I'm sure... And I don't think everything would be rosy and peachy keen.
6 - Kenn Jacobine
Two things are for sure: the cost of living would not be nearly as high as it is now, and the U.S.A. would not be financially bankrupt.
7 - zingzing
how do you know those things are "sure"? economics depend on a lot of things, not just one factor. i think you place a lot of faith in your chosen golden idol, but i don't know if it's warranted. the gold standard is not the answer to all your problems, kenn. if it was, why would anyone abandon it? it wasn't perfect... nothing is.
8 - Glenn Contrarian
Kenn -
You're choosing - repeat, choosing - not to get what I'm pointing out to you. America was the greatest industrial power from WWI through the 1990's despite all the wracking changes we had during that time. We did not shrink in power or influence during that time - we GREW almost constantly, except for the Depression. If our economy took a poison pill in 1913, we would not have progressed as we did for nearly a full century through all the incredible challenges and upheavals since then. If the century's worth of decline had happened before the Industrial Revolution, then you might have had a point - empires took a lot longer to fall then. But since the beginning of radio empires have risen and fallen MUCH faster than ever before...and 99 years at the top is a long time indeed in the modern world.
Kenn, what's happening is that you're trying so hard to find what went wrong, and you're staking your reputation (on BC, at least) on your interpretation of history...but at the same time you're flatly ignoring the grand sweep of history that disproves your allegations. You're trying to force the facts to fit your assumptions and your political/economic theory, and it's simply not working.
Kenn, you know the details of history better than I - and I've got no problem admitting that. But it's sort of like you're an auto mechanic with a wealth of knowledge of most or all of the parts of the engine, but your weakness lies in your attempts to put all those parts together into an engine that works well. You're choosing to leave out parts of that engine, and as a result the engine you're putting together, well, it just ain't working as it should.
9 - Dr Dreadful
Kenn: The government created the Federal Reserve, thereby sealing our doom!
Us: But that was almost 100 years ago, during which time a lot of terrible things happened including two world wars. Yet we're still here.
Kenn: Ah, but then Nixon abandoned the gold standard. We're doomed!
Us: But that was more than 40 years ago, and a lot of water has passed under the bridge since then. Yet we're still still here.
Kenn: Ah, but just wait...!
10 - Kenn Jacobine
And I thought I would get a hard time from you guys because of my position on price collusion.
11 - Clavos Juarez Santana Zapata
You would get a hard time from those guys if your next article took a position on nothing.
You're a conservative in their eyes; that's enough.
12 - Christopher Rose
I've no idea if Kenn is a conservative or not, nor do I care. What I care about is that the argument put forth in his article is bullshit.
The basic premise, that there is a parallel between corporate price fixing and the price of the US dollar is gibberish.
Beyond that, it is actually the role of government to protect the people; people were not able to make other choices as the ebook is a single format; buying ebooks to read on e-readers is a new phenomenon and the publishers clearly colluded to take advantage of the natural enthusiasm for this; it is entirely speculative and not at all certain that "Enough consumers making this choice would have broken the back of the conspirators"; consumers don't have a "position of dominance" in the economy; buying a second hand physical book is not an alternative choice at all; the property rights argument is a complete red herring of utter meaninglessness, as is the comparison to selling a home; the lecture about the nature of the market is entirely theoretical and betrays a complete lack of understanding of actual real business; and with an e-book there is no physical product or inventory at all.
13 - Dr Dreadful
Whether Kenn is a conservative or not is by the by. Whether his argument is complete bollocks or not is more important. (A question which I think Chris has settled quite thoroughly in #12.)
I personally don't regard Kenn as a conservative, since there is precious little of the status quo that he seems to want to conserve. And also since he seems to find the resemblance between most GOP politicians and toe fungus as striking as I do.
14 - Kenn Jacobine
Chris,
"The role of government is to protect the people".
We absolutely agree. In the above case it includes private property protection which is the foundation of a market system. If people don't have a right to their own property then the system falls apart. It is one of the major reasons why the developing world is so far behind.
15 - Frivolous D
Kenn,
You do realize that when there is a conspiracy to fix a market (e.g. undermining free market mechanisms) it is oxymoronic to believe that a free market can fix it.
Price fixing is a conspiracy to suppress market competition. I'm presuming that you are a libertarian. As such, I know how much you hate any government. But really, in what conceivable universe do anti-trust laws - those laws dedicated to preserving the integrity of a free and open markets - violate your libertarian sensibilities?
16 - Frivolous D
Carlos, re: #11
I've just read a number of Warren Beatty's articles and they are often about nothing so you may well be right.
17 - ST Y'all M
I'm glad Kenn's not teaching my kids.
18 - ST Y'all M
However, price collusion obviously DOES occur, and more often than you'd think at a corporate level.
Bt it has nothing to do with the rate of the US dollar. In fact, the drop in the US dollar has actually aided the snail's pace US recovery by opening up new export markets.
When the dollar stays high (Wall St's "King Dollar" - and it was artificially high and propped up in trading by vested interests who were making a buck out of it - those who might otherwise buy US goods overseas don't because of the high cost, and turn to cheaper alternatives.
That means US jobs being shed, across the board.
Nothing gladdens my heart more than to see American fruit and goodies on the supermarket shelves in Australia, and American cars on the road.
Because, looking from down here at our cousins across the big blue pond, it means far fewer ordinary working people losing jobs, houses and all hope for the future in America.
The lower dollar is probably not benefiting Americans abroad at the moment such as Kenn, but the fall hasn't been that marked and it's all relative.
The dollar is probably exactly where it should be right now, and previously at its high levels it wasn't, particularly with American jobs moving offshore.
At some point, with Wall Street lining its pockets too by selling investors the equivalent of a bet on two flies crawling up a wall, the bubble had to burst.
19 - Christopher Rose
Kenn, whilst delighted that you agree with me, your #14, although true, is not relevant to your poorly thought out article.
I too am opposed to big government but some regulation is always going to be necessary whilst there are people who have no ability to act responsibly without being regulated and controlled.
20 - Kenn Jacobine
So, I have widgets to sell. But I choose not to. Am I forced to sell them? I believe the most hardened statist would say no? So why should it matter what price I sell them for if I don't legally have to even sell them?
Secondly, I have widgets to sell and Glenn does to. We get together, open a store and sell them all together for the same price? Is that collusion?
The bottom line is that if you own something you have a right to do with it whatever you want as long as you don't violate the right of others to do the same thing. So if you use your car intentionally or accidentally to damage the car of another you owe the other person for damages to make them whole. If I want to sell something to someone I have an absolute right to do it or not and with that comes the right of choosing the price no matter how derived. That is freedom. That is what it means to have private property right. I am not saying collusion is a good thing. I am saying it is a right under private property rights and yes the free market has a mechanism to deal with it as I so brilliantly laid out in the above article.
Christopher,
"...there are people who have no ability to act responsibly without being regulated and controlled."
So you want to put some of those same people in charge of your life?
21 - Christopher Rose
Kenn, raising irrelevant arguments that aren't pertinent to the situation you wrote about neither helps your argument or makes you look any more organised.
Collusion - or market rigging to give it a more accurate name - is not legal and actually prevents free market forces coming into effect.
The only thing that is brilliant here - in the sense of dazzling - is your commitment to a deeply flawed understanding of the situation. I presume your dogma is blinding you.
Making glib but inaccurate wisecracks neither convinces or amuses either...
22 - Frivolous D
Kenn,
I kind of feel like you are Monty Python's Black Knight guarding the bridge... You seem to be completely unaware of having lost both arms and both legs.
You lost your first arm here: "Consumers make choices about what to buy every day and some, if not most, of the time those decisions are based on cost." Price fixing is, almost by definition, a denial of consumer choice. "Enough consumers making this choice..." is just plain irrational because consumers are being denied a choice.
You lost your other arm here: "Naturally, whenever the feds bring [an anit-trust lawsuit] they always neglect to take into account property rights." Generally, the author retains ownership the property and the publisher holds a license to distribute and publish. Therefore price fixing amongst publishers is also a conspiracy against the author who is the property owner. An argument against the lawsuit does not represent the best interests of the property owner. In short, you are the one neglecting to take into account property rights.
And off with your leg (This is where is gets almost surreal): "Why worry about a speck in your friend's eye when you have a log in your own?” You forward a naive and flawed argument that price-fixing will inherently be corrected by a free market. Then pivot to attack the government for... price-fixing. At this point, whether it is a "speck" or a "log" is really just a question of scale. Either price fixing is okay or it is wrong. Or are you a "cafeteria" libertarian.
And I will take a whack at your forth leg here: I can only assume that, in your mind, collective bargaining would enjoy the same privilege as the publishers. After all, your own arguments states that, in a free market, there is no compelling economic reason to interfere with a conspiracy to fix prices.
23 - Kenn Jacobine
Frivolous,
I am going to bed now. I will respond to each of your points tomorrow.
24 - Kenn Jacobine
Frivolous,
As to your first point, consumers still have the choice of not buying the product. They do have a choice. And if they don't buy it the price will come down to clear the market. If you have ever gone to a baseball game you would know that the price of food is jacked-up (price gouging). Beers cost $10 and hot dogs $8. I usually wait until the ninth inning when they need to get rid of the Dominoes Pizza and slash the price in half. It is the same principle.
As to your second point, authors contract with publishers. If publishers violate the terms of a contract they should be held accountable. The bigger point is that publishers also want to produce profits for themselves as well as the authors they serve otherwise they are out of business. What incentive would a publisher have to price fix in order to not sell books and thereby hurt an author?
As to your third point, Americans do not have an option to use any other currency in the domestic U.S. Stores, retailers, and other suppliers accept dollars only. Thus if you want to eat you must use dollars. Nothing controls how much the government through the Fed can price fix the dollar. They can inflate dollars infinitely like they are currently doing. Again if you want to read buy a used book to break the back of the price fixers.
As to your last point, people are free to organize to sell their labor and business is free to say no thank you you are asking too much. There are two private resources involved. One is the labor of the workers who are free to shop it on the open market and the other is the business enterprise who is free to shop jobs on the open market. Neither side should be forced to accept by coercion the other. It would result in slavery for the workers or forced unionization for business owners. Both are equally wrong.
25 - Glenn Contrarian
Kenn -
By your 'logic', then, Big Oil could collude and collectively decide to charge, say, $7 a gallon...and since people can choose not to buy gasoline, hey, that's no problem, right?
Except that something happens as a result. You see, with such price-fixing on gasoline there's a trickle-down effect, one that conservatives claimed would also work with tax cuts and breaks for the wealthy (but which trickle-down effect never worked in practice). That trickle-down effect for gasoline would show itself in grocery-store prices, heating oil prices, bus fare prices, all of which would slam the poor even if they never bought a gallon of gasoline themselves.
Kenn, Libertarians and ONLY Libertarians believe in such tripe...which is why I have a lower opinion of Libertarians than I ever did of Republicans - y'all reject pragmatism and ignore common sense and history itself just to adhere to a dogma that is every bit as unworkable as its polar opposite, communism.