Earlier, Bob mentioned the Justice Department’s recent anti-trust lawsuit charging Hachette, HarperCollins, Simon & Schuster, Macmillan and Penguin, and Apple, with conspiring to fix prices on books. Actually, what they did was to conspire to wrest control of book pricing from Amazon. Amazon can afford to charge less than it pays for books, to attract high-end customers to the site where they might buy other products.
The publishers didn’t want Amazon’s super low price points to become the industry standard. They wanted to set the prices for the retailer. It’s called agency pricing. And one prominent retailer, Apple, agreed. So Amazon scored a big victory last week when the Justice Department settled with three of the ‘Big 6’ who promised to cease conspiring with other publishers on agency pricing.
Apple and two other publishers will proceed to court. Barry C. Lynn is a senior fellow at the New American Foundation. He believes that while the Department of Justice has followed the letter of the law, it’s missed its spirit.
BARRY C. LYNN: They were discussing creating a pricing policy. And that’s very different than sort of creating a scheme to raise prices. And one of the things that people haven’t focused on a lot here is that on the overall price of e-books between December of 2010 and 2011 went down by maybe 20 percent.
What we want to protect here is the marketplace, where you have many, many, many suppliers of books, writers of books, editors of books, and you want, as much as possible, to have no large powers in between the writer and the reader interfering with the marketplace.
BROOKE GLADSTONE: But haven’t there always been large powers [LAUGHS] standing between the reader and the marketplace, in the form of large publishers?
BARRY C. LYNN: We don’t want to at any point say we’re gonna protect the Big 6 publishers. What we would ideally want is to go back to what we had in the late 1970s, which is a system in which you had no dominant publishers and you had no dominant retailers.
BROOKE GLADSTONE: Okay, so what happened in the 1970s and ‘80s? What was the situation before, and why did it change?
BARRY C. LYNN: Going back to 1773, to the Tea Party, which was an action against the British East India Company, we used our anti-monopoly laws to distribute power so that no one had the ability to dictate to us as citizens.
What happened in the late 1970s and 1980s is this really weird coalition of the consumerist far left and the libertarian far right came together and said, “Let’s get rid of that old model. What we want to do now is make a system that yields more efficiencies, so that it will benefit the consumer in the form of lower prices.” So we took the very lessons that the United States was founded upon and that kept us free as a people for 200 years and we threw it out.
BROOKE GLADSTONE: The Justice Department was much more concerned about the collusion than about the pricing scheme. As a result, the biggest publisher using agency pricing, Random House, which was not involved in the actual conspiracy, according to DOJ, is free to go ahead and pursue agency pricing.
BARRY C. LYNN: They are free to go ahead, technically. The problem is that unless everyone’s doing it at the same time no one’s gonna do it.
BROOKE GLADSTONE: In the game Monopoly one of the monopolies you can buy is a railroad. And you’ve likened what’s going on in publishing to the railroad in days of yore.
BARRY C. LYNN: In the late 19th century, these new technologies – the railroad, the telegraph – allowed a few people to capture control over most industry in the United States. The new railroads, the Internet, Amazon being probably right now, commercially, the foremost player – one of the ways that you neutralize railways is you prevented them from owning other lines of business, like quarries or oil wells, because if you allow them to own other lines of business, they will favor their own lines of business.
Right now Amazon, we allow them to vertically integrate. We allow them to own publishing operations, to favor what they publish and to disfavor what other people publish. Over time, this leads in one inexorable direction which is towards complete control over this system by a single group of human beings.
BROOKE GLADSTONE: Isn’t it true that when Amazon under-prices it isn’t cutting into the publisher’s share. The publisher gets a certain amount, regardless of how low Amazon sets the price for the book, right?
BARRY C. LYNN: They get a certain amount, absolutely. The problem is six months from now, twelve months from now. If a reader who’s accustomed to spending 19.99 and then Amazon accustoms them to pay 9.99 or 8.99, even if the publishers this year are getting 12.99 at wholesale, next year they’re gonna get less because there’s a new price in the marketplace, and their share of that will be some fraction of the new price.
BROOKE GLADSTONE: So what are you arguing here, that Amazon is going to kill the book industry with its low pricing? Why would it do that? That would be suicidal.
BARRY C. LYNN: They actually don’t really care that much about the book industry. Amazon wants to sell televisions, Amazon wants to sell shoes. They can lose money on books forever, throw ‘em out the front door as a form of candy to lure us, the consumers, into their realm, so that they know who we are, know what we like to buy, and then sell us all these other things forevermore.
BROOKE GLADSTONE: So do you think in 40 years the Monopoly board will have an Amazon square?
BARRY C. LYNN: Actually, we probably won’t because most of the Monopoly games will be sold across Amazon, and I assume they won’t allow that to happen.
BROOKE GLADSTONE: [LAUGHS] Barry C. Lynn, thank you very much.
BARRY C. LYNN: Thanks for having me today.
BROOKE GLADSTONE: Barry C. Lynn is a senior fellow at the New America Foundation.