Unpacked   //   January 21, 2021

What a price fixing lawsuit against Amazon says about antitrust

Price fixing allegations are back in the ebook industry.

On January 14, the consumer law firm Hagens Berman filed a lawsuit alleging that Amazon was fixing the cost of ebooks through anti-competitive contracts with the five major book publishers — Hachette, HarperCollins, Macmillan, Penguin Random House and Simon & Schuster. A day earlier, the Wall Street Journal reported that the Connecticut Attorney General William Tong was investigating the same practice.

In its lawsuit, Hagens Berman alleges that, as Amazon has consolidated its market share, consumers are paying more than they should for ebooks. The firm found that in 2014, only 5% of ebooks from major publishers cost $15 on Amazon. But by 2020, even after adjusting for inflation, “55% of titles sold for about $15.” Notably, during that same period, Amazon’s ebook market share increased from about 67% to 76%.

Why did ebook prices go up?
The price increases, according to the lawsuit, weren’t an accident. The lawyers accuse Amazon of agreeing with each publisher to set higher ebook prices, ensuring that no other bookselling platform could go below those agreed-upon prices. “Had Amazon and its Co-conspirators only raised prices on Amazon.com, consumers would be free to shop for lower-priced eBooks on other retailer sites,” the lawsuit noted. “Instead, Amazon and its Co-conspirators agreed to a price restraint that prevents lower eBook prices on other eBook retailer sites.”

The throughline of the lawsuit is the massive power of Amazon. It offers a preview of what happens when two interrelated industries — publishing and bookselling — each become heavily consolidated. Since the 1960s, the number of formidable publishers shifted from the hundreds to — as of the latest merger at the end of 2020 — just four major publishers. Meanwhile, Amazon has come to control 53% of all book sales, far ahead of all its competitors.

How does Apple play in?
If this lawsuit sounds familiar, it might be because the Justice Department successfully sued Apple and five publishers over a similar scheme in 2012. The accusation at the time was that five of the six major publishers (Penguin and Random House hadn’t yet merged) conspired with Apple to make sure ebook costs stayed high. They agreed on a minimum price with each other — $12.99 — and then threatened to remove their books if Amazon, which was selling major publisher titles for $9.99, didn’t go up to a $12.99 minimum. (Amazon eventually did.)

In the wake of the Apple decision, courts instituted a two-year freeze on publishers’ ability to negotiate prices with distributors like Apple and Amazon. During those two years, ebook prices dropped back down to around $9.99. But then, immediately after the injunction passed, the prices were renegotiated and jumped up again. According to the Hagens Berman suit, ebook prices have leapt 30% since 2014.

(How ebook prices have changed since the DoJ settlement, via Hagers Berman)

Is this Apple 2.0?
The current suit is not exactly the same as the 2012 one. What made the original Apple case such a clear-cut violation of antitrust law is less that the five major publishers coordinated with Apple, and more that they coordinated with each other. That kind of collusion between publishing competitors is called “horizontal” price-fixing. It violates antitrust law because it suggests that consumers aren’t getting fair prices.

During the Apple lawsuit, said Christopher L. Sagers, who wrote a book about the case called “United States V. Apple: Competition in America,” the Justice Department “had pretty much smoking gun evidence that the publishers conspired horizontally.” But, said Sagers, the newly filed Amazon case shows signs only of vertical price-fixing — meaning, price-fixing agreements between the seller and the distributor, or in this case, individual publishers and Amazon. That can still be illegal, but it depends much more on the burden of proof and the motive of each party.

So far, the Amazon lawsuit doesn’t focus on coordination between publishers. That might very well come later, given that the consumer lawsuit is only in its very early stages and the Connecticut attorney general is investigating the same price-fixing accusations.

For now, “it’s pretty clear that Amazon has individual bi-literal contracts with each publisher, and the contracts are similar,” he said, but “there isn’t yet such clear evidence of horizontal conspiracy.”

Will this lawsuit make a difference?
The fact that price-fixing accusations have resurfaced so quickly is concerning. Sager is doubtful that, even if the Connecticut attorney general is able to prove that publishers are fixing prices with each other and Amazon, anything would really change for the ebook industry.

That’s not just because of Amazon’s power — it’s also because publishing is one of the most heavily consolidated industries in retail, and publishers benefit from the higher ebook prices. Amazon, meanwhile, is by far the largest bookseller in the U.S., and if publishers agree that prices will increase on all competing distribution platforms, that means more money for Amazon, too. Everyone benefits, except for consumers.

“They’re going to do the same again,” said Sagers. Or, he said, “even if they don’t do the exact thing, they’ll figure out a different way.”