Comment by tyre | Hacker News Reader

Comment by tyre | Hacker News Reader

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> A monopoly is historically identified with having a higher than market price, not a lower.

This is not the definition of a monopoly.

What Apple (and Amazon) are being accused of is predatory pricing to root out competition. Monopolies are not bad because they raise prices. Over the long-run, the tend to do so, but raising prices itself is not "bad."

Monopolies are prosecuted when they use their position to discourage competition, which stifles innovation. That's what Apple is in trouble for, by lowering prices such that less-funded incumbents cannot enter the market. That's what $MSFT was in trouble for with IE. Yes, they gave away a browser for free, but in the process abused their power as distributor of Windows to corner another market. No company could reasonably compete with a pre-installed browser, meaning $MSFT would be discouraged from innovating.

In some instances, monopolies are a natural conclusion of free-market dynamics. Centralizing production into one entity maximizes possible economies of scale (ain't no scale like 100%!) Most government programs are based on this principle. The assumption is the NASA, bringing together the financial and technical capabilities of the entire United States, has the best opportunity to advance aeronautic engineering.

In other instances, monopolies use their position to prevent competition. These are the bad guys and gals. Think Standard Oil or the old AT&T. Sometimes, multiple independent companies will collude to form a cartel and abuse their collective market power. Airlines do this by raising ticket prices together, despite no external force (like higher taxes, union wages, or oil prices.)

NASA is a great example of a monopoly that does not abuse its position. It actively encourages competitors (e.g. SpaceX) by granting the contracts.

EDIT: Replaced incorrect usage of "market power" with "predatory pricing". Thank you @baddox and @chipotle_coyote for the corrections.

I'm fairly sure Apple wasn't accused of anything relating to monopoly power; they were accused of colluding with publishers to effectively force Amazon to move to the "agency" model rather than a wholesale model, giving the publishers control over retail pricing of their books. This is covered by antitrust law, but it has nothing to do with monopolies.

It's not really fair to accuse Apple of "price-gouging," either. (It's also not generally illegal.) Apple never mandated prices for publishers any more than they mandated prices in the App Store; publishers could have moved to the agency model and still decided to sell all their books at $9.99 or less. They didn't have any intention of doing that, of course, but that has little to do with Apple. Publishers were afraid that Amazon was on its way to becoming a monopsony, and that with 90% or more of the ebook market they would be able to simply tell publishers "we've decided you're going to sell your ebooks to us for less now, and because you have nowhere else to go if you want to sell them, you're going to do it."

And honestly, that wasn't an irrational fear. From all appearances, Apple did really violate antitrust law due to the collusion, and one can make a good case that ebook prices from major publishers are generally higher now than they would have been otherwise. But that doesn't mean that this couldn't become a "Vlasic and Walmart" situation, where one seller becomes so powerful that they distort the market. To me, this is the real irony of this whole case: the DOJ was essentially right to go after Apple, but Apple's argument against Amazon is also essentially right. If Apple had just said "we're using the agency model, set your own retail price," they wouldn't have gotten into trouble...and, of course, they'd constantly be undercut by Amazon, which just like Walmart is perfectly willing to sell stuff at a loss to hurt their competitors.

This is something I still worry about with Amazon and "indie" publishing; friends of mine who are self-publishers often say that they make 80-90% of their sales on Amazon. And that's great, at first glance, but Amazon already finds a lot of asterisks to attach to that "70% of your retail price goes to you" promise. (That's only true within a certain price range, they deduct "delivery charges," and there's the whole fustercluck of Kindle Unlimited.) And if at some point Amazon says, "You know, going forward, only 60% of your retail price goes to you," well, who's the competitor who's going to keep them in check? Apple?

Sorry, I conflated monopoly and trusts in responding to the parent based on its language. In many people's minds they are the same.

My post was meant to elucidate why monopolies (like price-gouging) are not themselves illegal. It's the consequences on the market which are tracked.

> Monopolies are prosecuted when they use their position to discourage competition, which stifles innovation. That's what Apple is in trouble for, by price gouging here.

Has that helped competition at all? It seems like before Apple's foray, Amazon owned the eBook market, and now... Amazon owns the eBook market. I don't really see how competition could have gotten worse, and after Apple's legal failures it hasn't gotten any better.

I'd say it is even worse than that. The years of strict agency pricing trained people to not even bother looking at competing ebookstores, entrenching Amazon's dominance.

> years of strict agency pricing

You mean the years of strict wholesale pricing?

No, I mean 2010-2013 when agency pricing made shopping across ebookstores a waste of time.

Amazon owns the ebook market? While my anecdotes aren't facts, I only buy ebooks from Apple or maybe Pragmatic.

> Think Standard Oil

Throughout SO's antitrust trial, its market share was declining, and Rockefeller was unable to stop it. See "Titan" by Chernow.

> What Apple (and Amazon) are being accused of is abusing their market power to root out competition.

But market power is well defined as the ability to raise the market price of a good above its marginal cost while still earning a profit. People seem to be confusing market power with predatory pricing, which is a very different concept.

You are correct. I've edited the comment to reflect this.

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