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Summary:

The government uses anti-trust law to stop cartels and ensure products can be bought and sold freely. This makes sense for ordinary consumer goods like gas or long distance phone calls, but does it make sense for cultural items like books?

The publishing industry, roiled by ebooks and Amazon’s behemoth behavior, has been the target of government price-fixing charges. The situation raises the question of whether books are a special cultural product that the law should treat differently than buttons or rubber boots.

According to antitrust experts speaking at a New York book event this week, books should be treated like any other good in the market.

“There’s never been a defendant sued for antitrust who didn’t think their market was special,” said Chris Sagers of Cleveland State University, adding that “agency pricing” (a commission-style pricing system used by the publishers to check Amazon) is just another word for price-fixing.

And according to Ariel Katz, a law professor at the University of Toronto, publishers have been engaging in cartel-like behavior for more than a century. In 1908, for instance, a publisher sued the department store Macy’s for disobeying notices that required books to be sold for at least $1 (the publisher lost and the Supreme Court established copyright’s first sale doctrine).

The recent price-fixing charges, in which publishers allegedly ganged up with Apple in order to stop Amazon, also appear to be classic cartel behavior — meaning the government was justified to sue them to protect the free market. Yet, it also feels intuitively wrong to equate book publishers with oil barrons, AT&T or other antitrust villains.

This is because books are not oil or boots or buttons. They are the repositories of our collective knowledge and exemplify what is best about humanity. Nina Elkin-Koren of the University of Haifa, who also spoke at the event, questioned the antitrust experts about whether it is appropriate to leave something as important as books to the whims of the market.

In the language of economists, the question is whether books are a big enough “cultural externality” to justify interfering with the market through corporate protectionism or government regulation.

Sagers suggested that governments can indeed make economic policies to favor cultural and intellectual activities but that the right way to do is by favoring cultural creators directly — and not through intermediaries like publishers.

The antitrust experts make a compelling case for regarding publishers as just another cartel. It will be interesting to see if the theory continues to hold up as Amazon expands its ever-growing influence on the nation’s reading habits.

The experts spoke at “In Re Books,” a two-day conference on law and the future of books held at New York School.

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  1. So I see a disconnect…

    “Yet, it also feels intuitively wrong to equate book publishers with oil barrons, AT&T or other antitrust villains.

    This is because books are not oil or boots or buttons. They are the repositories of our collective knowledge and exemplify what is best about humanity.”

    If books represent what is best about us, then why would it be OK for publishers to act as a cartel to keep the price of books artificially high? It seems that it would be preferrable to see prices reach a level that encourages more people to buy. Amazon’s pricing never harmed the authors….and the publishers were paid their full price. I just don’t see how exposing more people to books at a lower price harms culture.

    As a former bookstore employee, I always thought it would be a GOOD thing to get more people reading, and lower prices certainly do that. Higher prices (illegally maintained) specifically DON’T do that.

    1. Thanks for the comment, Rusty. My goal with the piece is to report the debate, not take a side. My own instinct is that publishing may be one of a handful of industries (such as health or police forces) that should not be governed entirely by market forces. I say this in part because countries like Canada and France have historically carved out special rules for publishers on the ground that books are a special national interest. But I’m unsure whether such policies are practical (or even possible) in the digital age.

      1. Publishing is not governed entirely by market forces because copyright itself is already an intervention in the market, which is supposed to correct a market failure. The question is whether further isolation from competitive pressures is justified and desirable. The special carve outs from competition, such as those in Canada or France, have presumably benefited those who lobbied for them. Whether those policies ever had any solid theoretical basis, and whether they indeed advanced their stated public goals and benefited society is an entirely different question.

    2. Amazon’s pricing does nothing to help me as a consumer. I want physical bookstores and physical books and Amazon is trying their hardest to get rid of both and have everyone reading from Kindles.

  2. Ivailo Peshev Friday, October 26, 2012

    I will never agree to treat books like every other goods and believe that in these electronic ages printed books deserve special protection and smart regulation in order not to disappear like the dino.

    1. Why Ivailo? I’m not trying to troll you, I just honestly wonder what is so sacred about the printed book that you believe they need special protection (which would include pricing protection such that the consumers would effectively pay more than they would otherwise to the industry)? What’s sacred, in my opinion, is the work itself, in whatever format.

      I’m personally in the process of selling off my extensive book collection (40+ years) and replacing with digital copies (except for certain rare books and children’s books).

      1. I also think books are worth preserving – but I think if you just don’t value them, I think it it is hard for you to understand the viewpoint of those of us who hate e-books and want to save printed books. I will be raising my children without e-books. To me, printed books are something special and worth saving for the next generation. There’s just something different about holding the book and turning the pages.

      2. No one is saying that the printed book is sacred. It is one of a number of useful platforms for the distribution of content in a format the end user can use. Amazon does have the stated goal of dominating this business and putting an end to traditional publishers and book stores. How good would that be for the consumer? You should ask the hundreds of thousands of people on the east coast with no power to charge their Kindle if that should be the only platform left to the consumer. It might enlighten your perspective.

        JJC

  3. Look, whenever markets in any segment are manipulated it is not good for the consumer. And what’s good for the consumer is good for the nation.

  4. I think it is important to distinguish between authors and copyright owners. It’s the authors who create the works; the publishers are merely middlemen who want to make a profit just like all corporations. I was invited to speak at a meeting of publishers and book store owners a number of years ago to talk about my experience in the music industry during the Napster era. Like music labels and record stores, the book industry was mostly interested in preserving the status quo. Concern for the welfare of the actual content creators almost never came up, though it is the banner behind which all these companies hide. I miss my local bookstore, and my local record store, but I also like the ability to learn a lot about books and music online. I enjoy Amazon’s low prices now, and confess that I do worry about their ability to unilaterally raise them in the future if there is no competition. So I have to trust that the market will work this out even as it continues to create winners and losers. But I don’t really worry about authors or musicians never writing another book or song.

  5. Michael Herrmann Friday, November 2, 2012

    “There’s never been a defendant sued for antitrust who didn’t think their market was special,” said Chris Sagers of Cleveland State University, adding that “agency pricing” (a commission-style pricing system used by the publishers to check Amazon) is just another word for price-fixing.

    Here’s a guy who has no idea what he’s talking about.

    Agency pricing is a model to compensate agents who perform a service–here, facilitating consumers’ purchase of a product. Price fixing would be if publishers colluded to say that the price of that product had to be $15.

    But we see that under the agency model, prices were still all over the board. The only thing that wasn’t allowed was a deviation from the publisher’s price. In the case of e-books, that makes perfect sense. The reseller (Amazon, other bookstores) is not buying the product and then reselling it. They don’t own any inventory, and should certainly not be allowed to dump it under cost (which, as in the case of “all other products,” is illegal, even if the DOJ chooses not to enforce the law).

    Bottom line is that authors and their publishing partners should be allowed to set prices without the fear that Amazon or anyone else will disrupt their relationship and indeed the industry that supports it in a predatory quest to drive everyone else out of business.

    Shame on the government for taking the wrong side. And shame on so-called experts who don’t know what they are talking about.

    1. I agree 100% Michael. I think it’s awful that the government is working so hard to help Amazon (a large corporation themselves, that certainly doesn’t need any help) destroy the value of something that Amazon has NEVER owned.

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