Books and Olive Oil: Why Antitrust Must Deal with Consolidated Corporate Power

Abstract

Following an epic battle in the marketplace between Apple and major book publishers, on one side, and Amazon, on the other side, the United States Department of Justice and thirty-three states filed an antitrust lawsuit against Apple and the publishers, alleging that they had conspired to fix the prices of ebooks. Both the district court and a divided panel of the United States Court of Appeals for the Second Circuit decided the case in the government’s favor. This Article argues that government regulators and the courts took the wrong side in the dispute and did so because of fundamental flaws in current antitrust policy. Adhering to the standard approach, regulators and the courts ignored unique aspects of the industry and treated books just as they would have treated cans of olive oil. Focusing exclusively on consumer welfare—that is, consumer prices and total industry output—regulators and the courts ignored critical social, cultural, and political ramifications of the dispute. Moreover, the widely accepted view that business firms are rational profit maximizers led regulators and the courts into making serious factual misjudgments. Although there are many calls for antitrust reform, most are limited to calls for more rigorous application of existing doctrine. This case study demonstrates why that is inadequate and a paradigm shift in antitrust policy is required.