I think in the case of professionals, supply to the market is regulated by professional standards boards which limit entry into the profession.
Due to this pre-existing restriction, I am not surprised the courts would hold that people within that sphere should be free to compete on price, as each doctor will (you would hope) have the same basic set of skills to an extent.
The above restriction is not in place with regards to e-book providers so I think this weakens the argument somewhat.
Inexpensive books? This must be stopped! The last thing the country needs is educated citizens. Think of the job creators! They are special snowflakes.
Did you actually read the story? It's not that the books were low priced. It's that they were priced predatorily. Preditory pricing is bad for consumers in the long run, and in every industry outside of software is seen as a bad thing. In the software business that seems to be the standard VC-backed-company model.
> Preditory pricing is bad for consumers in the long run, and in every industry outside of software is seen as a bad thing.
Not so fast. "Agency model", which is what the publishers want to mandate, is "retailers have to sell at MSRP". There may be nothing stopping them from refusing to sell through Amazon unless Amazon agrees to MSRP.
That said, lots of industries do work on "retailers pick the pricing", which is the deal that Amazon likes. (Either way, the publishers get to decide how much they charge distributors.)
The "predation" here is that Amazon is willing to take a smaller cut than Apple. That's not predatory. If anything, that's a competitive response to Apple's favored status on a dominant hardware platform.
A competitive response? Amazon was selling books below marginal cost before Apple even entered the ebook market. Unless Amazon is equipped with a time machine, I'm pretty sure this wasn't a response to Apple, just a strategy intended to produce a monopsony.
I've actually wondered about this for a long time: why is it legal for software companies to offer products and services at below marginal cost? Clearly zero is below whatever the actual marginal cost is, and Eric Schmidt summed up the industry's view of charging zero: "Consumers like the price of free."
I would love to learn from a knowledgeable lawyer why the practice of giving software away for free -- even when it potentially harms new entrants by eliminating entirely their potential for revenue generation -- is legal.
I am not a lawyer, but it seems to me that you're suggesting that you think that it should be illegal to contribute to open source software that is naturally available for free. As someone who has contributed to open source software, I had plenty of legitimate reasons for doing so other than anti-competitive behavior. One of them is advertising - if I'm in an interview and am asked for a code sample I can just point to CPAN.
Similar considerations happen in a proprietary context. For instance this website is funded and built by programmers whose time is incredibly valuable, yet it is available for free. My belief is that pg sees this discussion forum as an advertising cost for ycombinator. Why shouldn't it be legal for pg to spend his advertising budget giving away a discussion forum when there are competitors that are trying to do similar things as a paid product?
Sorry, I wasn't clear. Obviously the only reason it would be illegal would be if it were done to restrain competition or trade, and done by an entity with a monopoly.
Giving things away for below marginal cost can also run afoul of WTO anti-dumping laws. I am also curious why there are never any dumping complaints made against software companies whereas they are quite common in adjacent markets like RAM chips.
Well, what is the marginal cost of software distribution?
Just bandwidth cost. Literally a fraction of a cent.
There are a lot of costs to software distribution, but the vast majority are sunk costs, not marginal. By contrast manufacturing has significant marginal costs.
This economic fact may be relevant to any decent analysis.
I suppose you could argue the services aren't really free, it's just that advertisers pay for them and not the users directly. So Google isn't really providing a service below marginal cost as long as the marginal revenue of advertising is enough to cover it.
It looks novel (and obviously succeeded in getting attention) but I don't think he used the comic medium potential - it was all mostly bullet points, but instead of bullets, he put a comic frame around each point.
The question and answer format was OK, but really, it did not clarify any points for me or make them less dense.
But then, this was still meant for other lawyers, and not as a layman's explanation.
So he's weighing two bad things against eachother:
- collusive price-fixing
- predatory pricing
These are both definitely bad things, and using one to justify the other is itself problematic.
But there's another dimension - are these allegations true? As I understand it, predatory pricing is when a large player throws its weight around, offering goods at below cost to edge out competitors.
But there's nothing stopping other retailers from offering similarly low prices. Ebooks have almost no marginal price. Just because someone else wants to sell ebooks for a higher price doesn't make prices lower than that predatory.
>Ebooks have almost no marginal price. Just because someone else wants to sell ebooks for a higher price doesn't make prices lower than that predatory.
To Amazon ebooks have a marginal price as they're paying the publisher a fixed value for every copy. They were charging customers less than that value so that's where the accusations came from.
Very true. And it's highly unlikely that another distribution channel could come along and convince the same publisher to sell the ebooks to them at a lower price, so they could compete with Amazon without selling below cost.
It seems a lot of people are fixated on the idea that digital goods have no cost, which is simply untrue. Even discounting the fact that the seller has to purchase the item from the publisher (under the traditional model), there's still a base cost associated with the good because of licensing issues. People need to get paid, and certainly some people do get paid on a royalty basis. As a trivial example, someone needs to pay the author, which is typically done through royalties. But the publisher also needs to get paid, as does anyone the publisher employs.
If you're self-publishing and selling on your own storefront, then no there's probably no marginal cost as you don't have any sort of license or royalty agreements with yourself. But as soon as multiple parties are involved, things change.
"As a trivial example, someone needs to pay the author, which is typically done through royalties. But the publisher also needs to get paid, as does anyone the publisher employs."
Any time someone is paid based on the number of units sold (e.g. royalties), sure it is. If I sell one more ebook, I need to pay out more royalties, and therefore my total cost has gone up.
I realize I'm handwaving a bit, but my basic point is that selling more ebooks is not free for the publisher. There's definitely a cost here. And it's somewhat tangential anyway, because the marginal cost that's important here is Amazon's. In the traditional model they buy ebooks from the publisher at a fixed price, just like with physical books, and then mark them up and resell them. So the marginal cost here is the amount they pay the publisher per copy.
It is a pity that his argument is a load of bollocks.
As I understand it, he argues that an e-books price fixing cartel is in the interests of all, including the consumer, because otherwise, companies such as Amazon will lower the price to a point (whilst continuing making a loss), such that all others e-book sellers are unable to compete long term.
Or, have I misunderstood his five pages of cartoon genius?
Price competition that results in monopoly is not in the long-term interests of consumers. This is the same argument that lies behind anti-dumping legislation.
I'm not convinced by it either, but the lawyer does have a fair point that it is hard to demonstrate the seriousness of the danger without being allowed space to document his view of the economics of e-book competition.
Because it is a non-sequitor. It uses hypothetical future bad behavior (which itself isn't proven) to justify an actual "bad" behavior to compensate before it occurs.
But, I am anti-anti-trust, so I don't have a problem with collusion of this sort; any inefficient collusion will eventually bloat and be disrupted (unless protected by the government as a sanctioned monopoly).
Yes, that's exactly what he's saying. Though, in his cartoon he makes it clear that this is only OK as a one-time event to correct what Amazon is doing (i.e. selling below cost in an attempt to put competitors out of the market and thus preventing the market from being able to efficiently price eBooks).
The argument of the cartoon is great except for one thing, the marginal cost; for e-books the marginal cost is so close to zero it might as well be considered zero. This was also stated by another commenter on the OP discussion section.
If you're paying a $3 royalty to the rightsholders per copy sold, then the marginal cost is at least that plus minor distribution and transactional costs. If you sell the e-book for $2.99, that's below marginal cost.
But that is not what the comics argue since they are attributing it to DOJ guidelines for the Licensing of Intellectual Property.
There is not a single reference to marginal cost or copyright infringement in that document. The guidelines focus around market power, and competitive prices.
Contrary to the comic, the guidelines do to define what an competitive price is, or public goods, or systems goods, or the effect of supply & demand on IP. The closest we get is a statement that market power exist if the consumer can not get the product beyond from a single source.
If someone edited the Wikipedia article about IP and used the same wording as the comic, it would get reverted with the comment ("Does not exist in source").
True, but publishers still need to recuperate the fixed costs of the ebook.
Marginal cost theory holds that the price of goods will trend toward their marginal costs over time. It does not hold that the price of goods will start at the marginal cost.
Somehow I was expecting an ending where the author is awesome. Maybe he lifts a car, maybe the girl gives him a series of unreasonable compliments... just something
So it boils down to "let collusion go unpunished this one time, because we did your job for you!". Right.
Not only would it create a precedent in letting collusion slide, but it would also misrepresent the problem: it's DRM that supports Amazon's monopsony, and only because publishers asked for it.
Initially, Amazon set prices at whatever level they wanted because they had a distribution model with publishers. This means the publisher would charge a set price to Amazon and Amazon could then charge whatever it liked to end-consumers. Amazon engaged in low pricing to build market share.
Apple and publishers didn't like this because lower book prices meant lower revenues and sales for them.
Discussions were had and publishers then collectively went to Amazon to demand a switch to the agency model. In the agency model, the publisher sets the end retail price and the intermediary (Amazon) takes an agreed cut.
The lawyer argues that the above one-time step by the publishers against Amazon was necessary to correct the anti-competitive action of Amazon in engaging in pricing at a level which would reduce competition over time.
Effectively, the rise in prices resulting from the agency model was justified because without the reversion to the agency model, Amazon's continued low pricing would eventually lead to monopsony effects in terms of Amazon being able to control publishers.
The lawyer goes on to say that what is important is not the price level, but its effectiveness in terms of encouraging competition. In the short term, consumers benefit from a low price, but if one actor becomes the only provider, it is likely to have a detrimental effect on the ability of upstream providers to compete.
Which model ended up benefiting the consumer the most, though? I thought that's what antitrust is all about.
Sure, we could make theories all day long about how 10 years from now Amazon will increase their prices, but that's highly improbable, as I think Amazon would like to make book prices even lower if they could. That's why they are allowing self-published authors to sell books even for $2.99, and singles for $0.99. They are working in the same time to disrupt the traditional publishing model. And that's a good thing.
I was hoping Google would be the more innovative company with Google Books, and try to disrupt Amazon with new models of selling books (or free/ad-based, promote self-publishing more, etc), but they've disappointed me in doing that, and honestly I have no idea why they even bothered entering the book market, if they weren't going to be serious and do something radical and disruptive to gain market share from Amazon.
I'm not even a fan of Amazon, and I'll never forgive them for what they voluntarily did to Wikileaks, but so far Amazon has proven time and time again to be the most innovative company in the book industry.
It is of course very difficult to forecast into the future and that is the problem with intervention into free market matters.
I do think it is interesting to note the German approach in terms of protecting publishers, and how there appear to be many more book stores in Germany catering for niche areas of publishing owing to the fixed pricing arrangement for the sale of books.
I'm a failed poet. Maybe every novelist wants to write poetry first, finds he can't and then tries the short story which is the most demanding form after poetry. And failing at that, only then does he take up novel writing.
I agree. This isn't a space-saving brief. It's an attempt to inflame. But...
I think it's pretty cool that a new medium for legal discourse has been actually used. Several years after absorbing Scott McCloud's phenomenal book Understanding Comics (http://en.wikipedia.org/wiki/Understanding_Comics), I set out to argue for a very technical (programming) project at work through a goofy comic. It was surprisingly effective, and got more eyes on it than the more traditional internal wiki plea. I assume that the novelty and incongruence of the medium brings the audience out of whatever comfort zone they routinely occupy.
Reminds me of "Why's Poignant Guid to Ruby" [1]. I can't say how efficient this medium is for transferring information/knowledge, but it's certainly captivating -- sometimes what's needed to get a point across is not efficiency, but captivation.
Maybe it's just the looks of the main character, but this reminded me a bit of Scott McCloud - although I would like how he would do things like this in a "Understanding Comics" style.
Marginal costs on ebooks are essentially zero after factoring payment to authors/publishers. Fixed costs, even long-term variable costs, cannot be considered marginal costs here. The costs are hosting and delivery of content.
So unless Amazon is selling books at a price lower than what it paid to authors/publishers who distribute through them, I don't follow the inherent marginal cost pricing argument.
Although the argument relayed in the comic could be stated in a couple of pages, I believe the point of the comic is to mock the judge for imposing a 5-page limit as this is an insufficient amount of space in which to relay the full argument that the lawyer wanted to make.
The last section states 'it's impossible to tell a complex story in only five pages'.
I can't imagine that this was more efficient, or potentially even more enjoyable, than something that used the space more efficiently: between the handwritten and crowded text, the repetitive panels, and the irritating premise of a conversation that would never have happened, I found reading that document very difficult.
This guy is your typical lawyer who has no life outside of his job. Just a tad bit overeager. "Look at me I'm an annoying laywer! I will argue the moon is made of cheese if you pay me." I can only imagine how long his brief would have been without the limit. The judge was wise; she obviously values her free time more than he does.
"Efficient" prices. Yeah right. In other words, Apple prices. We all know how they work.
> This guy is your typical lawyer who has no life outside of his job.
Far from it. If the comic author is who I think it is [1] (and I'm pretty sure it is), he's not at all your typical lawyer. Way back in the day, he was the general counsel of Borland International [2], which published Turbo Pascal, Turbo C, Sidekick, etc. Bob's Christmas-card newsletters were always a blast to read, although I haven't been on his mailing list for a number of years now.
He's not a bonehead either. But that is a boneheaded cartoon and he is making boneheaded arguments.
When you look at what he's doing now and who is clients are it makes perfect sense why he wants to submit an amicus brief.
As a consumer, Kohn is not looking out for my interests.
The internet makes publishing less expensive. We are getting things for free that we used to pay for. This aggravates lots of people. But technology has no moral sense. It is a means to an end. (The information in legal research databases, not to mention the dubious "copyright" status of court decisions that some "Legal Publishers" assert, are fine examples you should be familiar with. The internet does not benefit every business. Poor Lexis-Nexis. Poor Westlaw. Poor Martindale. They have to adapt and compete. What a tragedy.)
But the internet clearly benefits consumers. We get lower prices and better access to information. How is this a bad thing?
Amazon may be no angel but they have embraced the internet, openness and interoperability to a far greater degree than those who now oppose them, seeking the help of the courts to slow Amazon's progress.
Royalty rates are a matter of negotiation not actual production and distribution costs. It's interesting to see how some commenters seems to view what the publisher deems a reasonable rate as a "fixed cost".
The top post in this thread is spot on. There's nothing to stop anyone from offering low prices like Amazon. It's pretty obvious why they do not want to and why they would go so far as to suggest Amazon is breaking the law.
I don't want to see people's book collections turn into some ridiculous propreitary iTunes-like lock-in, denying people ownership or any reasonable amount of interoperability.
