This story is in reference to latest news on Apple's e-book business, whereby Reuters report - "U.S. District Judge Denise Cote in Manhattan found 'compelling evidence' that Apple violated federal antitrust law by playing a 'central role' in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices." [story here]
Amazon is the leading player in e-books market, and maintains about 65% market share right now, and had 90% market share once. The cause for this downfall is claimed to be a collusion between Apple and top 5 leading publishers which led to an increase in the prices of e-books. The basis for an anti-trust lawsuit is typically high prices which leads to loss of consumer surplus, its best practice is to have a healthy competition in the market which protects consumer rights [refer to US-Airways and AA merger lawsuit story, at CNN].
The question now is, in such dynamic and developing technology oriented markets with evolving business models, where Amazon had an almost monopolistic role, entry barrier can be very high. In defense of Apple, this price variation due to favorable contracts with publishers, secured its entry into the market in short term. However, long-term evolution can be totally different, and should lead to lower prices to direct competition between Amazon and Apple.
There are several questions of interest:
Amazon is the leading player in e-books market, and maintains about 65% market share right now, and had 90% market share once. The cause for this downfall is claimed to be a collusion between Apple and top 5 leading publishers which led to an increase in the prices of e-books. The basis for an anti-trust lawsuit is typically high prices which leads to loss of consumer surplus, its best practice is to have a healthy competition in the market which protects consumer rights [refer to US-Airways and AA merger lawsuit story, at CNN].
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| Amazon Kindle vs Apple iPad (ebook wars) source: Guardian |
There are several questions of interest:
- How upstream contracts affect downstream pricing in a competition?
- Given an incumbent and an entrant, what should be the strategy (pricing, contractual) of entrant to be successful in - (a) short run (b) long run?
- How can 1 and 2, be implemented without conflicting with RPA (robinson-patman act) ?
- What should be the amount of Govt. intervention in technologically evolving markets?
People are already taking a case for Apple such as this article in Forbes, which defends Apple's position as an entrant in the e-book market.
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