ALL
POV: Have Gun, Will Nudge
by Ayn Rand | March 1962
It's Not the Unions — It's the Labor Laws
by Doug Altner | March 19, 2014
Regulatory Strangulation
by Steve Simpson | March 13, 2014
Obamacare creates a new class of free riders
by Rituparna Basu | January 23, 2014
Obamacare Is Suffocating An Already Sick Health Insurance Patient
by Rituparna Basu | January 22, 2014
The Broken State of American Health Insurance Prior to the Affordable Care Act: A Market Rife with Government Distortion
by Rituparna Basu | January 21, 2014
Obamacare is Really, Really Bad for You, Especially If You're Young
by Rituparna Basu | August 21, 2013
Justice Department should let US Airways & American Airlines merger proceed
by Tom Bowden | August 16, 2013
Why Is Apple Inc. On Trial? For Good Behavior, It Turns Out
by Tom Bowden | June 20, 2013
The Forgotten Man of the Minimum-Wage Debate
by Doug Altner | June 19, 2013
Why Delivering Beer Isn’t Easy
by Doug Altner | June 11, 2013
What Explains GM’s Problems With The UAW?
by Doug Altner | May 20, 2013
What Are The Search Results When You Google ‘Antitrust’?
by Tom Bowden | April 18, 2013
To Protect the Defenseless, We Must Abolish the Minimum Wage
by Don Watkins | March 27, 2013
I’ll Buy My Own Contraception, Thanks
by Rituparna Basu | November 13, 2012
Why The Glass-Steagall Myth Persists
by Yaron Brook | November 12, 2012
Why Ayn Rand’s Absence From Last Thursday’s Debate Benefits Big Government
by Yaron Brook | October 15, 2012
Changing the Debate: How to Move from an Entitlement State to a Free Market
by Don Watkins | July 02, 2012
3 Things Everyone Needs to Know About the Apple Antitrust Case
by Don Watkins | April 10, 2012
What's Really Wrong with Entitlements
by Don Watkins | February 21, 2012
The Entitlement State Is Morally Bankrupt
by Don Watkins | September 13, 2011
How Important Is the Obamacare Litigation?
by Tom Bowden | August 12, 2011
Atlas Shrugged: With America on the Brink, Should You “Go Galt” and Strike?
by Onkar Ghate | April 29, 2011
The Road to Socialized Medicine Is Paved With Pre-existing Conditions (Part 3)
by Yaron Brook | April 06, 2011
The Road to Socialized Medicine Is Paved with Pre-existing Conditions (Part 2)
by Yaron Brook | March 10, 2011
In Defense of Finance
by Yaron Brook | February 15, 2011
The Road to Socialized Medicine Is Paved with Pre-existing Conditions
by Yaron Brook | February 10, 2011
The Avastin Travesty
by Tom Bowden | December 12, 2010
Apple Now Targeted for Success Like Microsoft Was in the 1990s
by Tom Bowden | October 04, 2010
The Un-American Dream
by Don Watkins | August 27, 2010
What About Private Health Emergencies?
by Tom Bowden | April 08, 2010
What’s Really Driving the Toyota Controversy?
by Don Watkins | March 26, 2010
Anti-Smoking Paternalism: A Cancer on American Liberty
by Don Watkins | March 06, 2010
Apple vs. GM: Ayn Rand Knew the Difference. Do You?
by Don Watkins | March 02, 2010
Smash the Labor Monopolies!
by Tom Bowden | September 15, 2009
America’s Unfree Market
by Yaron Brook | May 2009
Atlas Shrugged and the Housing Crisis that Government Built
by Yaron Brook | March 2009
The Green Energy Fantasy
by Keith Lockitch | February 25, 2009
Stop Blaming Capitalism for Government Failures
by Yaron Brook | November 13, 2008
The Resurgence of Big Government
by Yaron Brook | Fall 2008
The Government Did It
by Yaron Brook | July 18, 2008
From Flat World To Free World
by Yaron Brook | June 26, 2008
How Government Makes Disasters More Disastrous
by Tom Bowden | April 29, 2008
Life And Taxes
by Yaron Brook | April 17, 2008
War On Free Political Speech
by Yaron Brook | March 21, 2008
To Stimulate The Economy, Liberate It
by Yaron Brook | February 14, 2008
Exploiters vs. Victims in the Grocery Strike
by Elan Journo | January 30, 2004
Prescription Drug Benefits Violate the Rights of Drug Companies
by Onkar Ghate | July 24, 2002
Drop the Antitrust Case Against Microsoft
by Onkar Ghate | March 17, 2002

MORE FROM THE BLOG:

Government And Business in Voice for Reason
Government & BusinessRegulations

3 Things Everyone Needs to Know About the Apple Antitrust Case

by Don Watkins and Yaron Brook | April 10, 2012 | Forbes.com

Just when Apple was introducing its latest iPad, the government announced that Apple was among six companies being investigated over ebook pricing. As that investigation appears to be nearing its conclusion, here are three things everyone needs to know about the case.

1. The government is targeting voluntary agreements

What is the offense these companies are accused of committing? Apple pioneered an agreement with five leading book publishers to change the way ebooks are priced.

The old pricing model allowed sellers such as Amazon and Apple to set ebook prices. Apple suggested that the publishers switch to a so-called agency-pricing model: the publishers would set the price and Apple’s ebook store would take a 30 percent share. The one condition that Apple put on the agreement was that the publishers could not sell their ebooks for less elsewhere. (In other words, the publishers had to convince companies such as Amazon to agree to the same deal.)

So what’s the problem? It’s true that these agreements limit the pricing options of companies such as Amazon. But all contracts involve limitations and restraints. The salient issue is that Apple couldn’t force the deal on the publishers, the publishers couldn’t force the deal on other ebook sellers, and no one could force customers to pay higher prices. We’re talking about free, voluntary contractual arrangements that the government has no business interfering with.

It’s also true that ebook prices have risen somewhat since the deal. Who cares? Traditional books may be made from trees but they don’t grow on trees — and ebooks and ebook readers such as the iPad definitely don’t grow on trees. These are amazing values created by publishers and by companies such as Apple. Those companies have a right to offer their products for sale at whatever prices and on whatever terms they choose. They cannot make us buy them. (If they could, why would they charge only $15? Why not $50? Why not $1,000?)

There is no mystically ordained “right” price for ebooks — the right price is the one voluntarily agreed to between sellers and buyers. Sure, some buyers may complain about ebook prices — but they are also buying an incredible number of ebooks.

What in the world entitles a bunch of bureaucrats who have created nothing to interfere with these voluntary transactions and declare that they get to decide how ebooks should be priced?

2. The government isn’t protecting competition — it’s punishing it

Competition, in the simplest terms, is business rivalry: it’s the actions businesses take to outdo each other in the production of wealth. It requires only one thing from government: the freedom to compete.

Under freedom of competition, companies engage in all sorts of competitive actions in order to maximize their profits: they strive to innovate, to improve customer service, to lower production costs, to engage in strategic alliances with other producers, to experiment with pricing strategies.

Take the agreement that’s under fire in this case. When the companies agreed on certain pricing arrangements, this was not a limitation on competition but a form of competition. They judged that, all things considered, they could maximize profits by having publishers rather than booksellers set ebook prices.

At no point was anyone’s freedom of competition limited. No one is barred from competing by the ebook arrangement. Any publisher or distributor who chose not to sign the agreement is free to charge whatever it wants for ebooks, and any consumer is free not to buy from those who did sign.

No private action can interfere with this competitive process; the only thing that can is government force. It is only government that can stop us from engaging in free, voluntary trading relationships.

And this is precisely what antitrust laws do: they restrict freedom of competition. They stop companies from engaging in perfectly legitimate, perfectly voluntary competitive actions, such as the sorts of pricing agreements that have come under fire in the Apple case.

3. Antitrust laws punish great companies

Because antitrust laws are vague and contradictory, practically any successful business can be targeted for enforcement.

Just take the issue of pricing. Apple and the publishers are in trouble for “colluding” — setting prices in concert with each other. But antitrust also punishes setting prices “too low” — that’s “predatory pricing.” And it also punishes setting prices “too high” — that’s proof of “monopoly power.”

If the government tried to apply antitrust laws consistently, it would amount to the abolition of business. In practice, what it does is go after the most successful companies. That’s why the annals of antitrust read like a who’s who of great businesses: Standard Oil, Alcoa, GE, IBM, Microsoft, Intel, Google, Apple.

The effect of being put in the antitrust crosshairs should not be taken lightly. Throughout the eighties and nineties, Microsoft was one of the most innovative companies in the world. But over the last decade? Not so much. Joe Wilcox, managing editor of BetaNews, places the blame heavily on antitrust:

Windows innovation stagnated during the last decade, as Microsoft backed off the so-called middleware categories covered by the antitrust case and withheld integrating new technologies into the operating system that should have kept the platform vital and created more opportunities for third-party developers.

The mere prospect of an investigation is enough to rattle and discourage businessmen, even if the government never takes the case to court.

In a September 2010 interview, Whole Foods CEO John Mackey was asked about his company’s merger with the Wild Oats grocery chain. “[I]t’s been great,” said Mackey. “Our Wild Oats same-store sales were up like 16 percent in the second quarter.” But when asked whether he would do the merger again, Mackey answered with an emphatic “No.”:

We’ll never do another merger that requires FTC approval. It was the worst experience of Whole Foods’ corporate life. All my e-mails were examined by the FTC. The thirty million dollars in legal fees. . . . For what? To prove we weren’t a monopoly? Everyone knows we’re not.

Treating productive businessmen this way is a profound injustice, and the price paid — by them and us — is incalculable. Innovators such as Apple deserve thanks and they deserve freedom — not the shackles of antitrust.

About The Authors

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

Yaron Brook

Chairman of the Board, Ayn Rand Institute