UNITED STATES V. APPLE – Author’s Reply

Vol. 10 No. 1 (September 2020) pp. 15-19 

UNITED STATES V. APPLE: COMPETITION IN AMERICA, by Chris Sagers.
Harvard University Press, 2019. Pp. 336, Hardcover, $29.95. 

A Reply to Shubha Ghosh 
By Chris Sagers¹ 

I was glad to read Shubha Ghosh’s generous review of my book on the Apple eBooks litigation, and happy to write this response, which I hope will clarify a few things. I was pleased by his characterization of the book’s breadth, as its philosophical aims go pretty far beyond the one lawsuit it uses as a case study. I was also glad for the book to be reviewed for IP readers, because innovation always seemed like such an important part of the story, and I was glad that he liked my history of American publishing. I very much appreciate his recommendation of the book to other readers. 

My need is much less to dispute his views or rebut criticisms, than just to clarify some ways that I think he mistook me. He seems to have misunderstood my point of view in a fundamental way. The fault is probably mine for not explaining myself better, but without understanding these issues, assessments of the book will be pretty misleading or inapt. 

Professor Ghosh states what I take to be his own view that antitrust should not focus single-mindedly on prices. “The Apple litigation,” he says, “shows why [an] abstracted view of competition” preoccupied with prices “is limiting and misleading.” That sort of thing is now a standard criticism of antitrust and the conservative ideology that has made it what it’s come to be. Other social values are at stake, the argument goes. In a case like Apple, they include the interests of authors, independent booksellers, literary culture, and more, all of which could be imperiled by a preoccupation with price competition alone. 

He’s entitled to his own opinion, but the problem is that he seems to think I share it. I was troubled enough by that that I re-read the entire book to see how fairly I could be taken that way. I’ll take the blame, I suppose, and I chalk it up to the effort I made to be fair to conflicting views in the fraught, complex, long-fought struggle over issues of competition and social values. If you spend too much time trying to give each argument its due, you risk your own view getting lost in the mix. In any case, I cannot stress enough how much Professor Ghosh has mistaken me, and a lesson for this author in future will be to cut to the chase a little more quickly and with less caution.

Professor Ghosh apparently took the book to argue that Apple was wrongly decided, or at least poorly reasoned, for not considering values other than low retail prices. He thinks I “want[] to expand the normative criteria that currently inform antitrust analysis,” and to “dissect[] the Second Circuit’s logic,” because the court “should have considered benefits to authors from the Apple agreements” or “the importance of book publishing to developing a literary culture.” I guess he thought I included brief digressions on German historicism and the early American Institutionalists to demonstrate how I think antitrust should be done: that in individual cases, we may need to conduct in-depth, particularized histories of the markets in question, to see if anything about them requires special legal treatment. We can’t just ask whether given conduct caused prices to go up or down and decide on that basis whether it was desirable or not. He does not really say this explicitly, but as a practical matter, if we take that approach we imply that some markets are not suited to vigorous price competition, and as far as antitrust policy goes, the only reason to imply it is one specific policy prescription. If there really are markets like that, then maybe firms within them should be allowed to engage in things that antitrust would otherwise make illegal. If price competition itself can sometimes imperil important social values, then firms should be permitted to dampen that competition with trade-restraining contracts, exclusion of competitors, or market-concentrating mergers. So far as I can tell, Professor Ghosh took me to argue that this is how we should do antitrust. 

My point is diametrically, emphatically, overwhelmingly the opposite. The whole reason for writing the book was to argue the opposite. Its driving force is that we should generalize, with simplified legal rules, and we should not try to make allowances for idiosyncrasies that might suit particular markets poorly to price competition. The book argues that, despite how things may superficially seem, idiosyncrasies don’t create special cases, hardly ever. Notwithstanding the lamentations of every defendant who ever set foot in court, few markets are actually special in antitrust-relevant respects. The problem is not that some markets are special, but that all competition is painful when it works as it’s supposed to, but it’s still the system we’ve got and we don’t get better results by restraining it. I’ve studied such things a lot in prior work, including in a few whole books and several articles asking whether the dozens of exemptions we’ve had over the life of antitrust, designed to address purportedly special market circumstances, were really justified. The overwhelming evidence is that they were not.² So not only do I not think the Apple opinion was wrong or poorly reasoned. I think the prevailing caselaw identifies its normative criteria in a way that is pretty okay, so long as “price” competition is understood the way I think it should be. A preoccupation with prices seems bad only if “price competition” is understood according to the caricature favored by some conservatives and by their left-leaning critics. Professor Ghosh repeats that caricature here in his own criticism of mainstream antitrust.³ Instead, price competition means comparatively numerous, autonomous units vying non-cooperatively for the same customers, on the basis of quality-adjusted price. Accordingly, I think that simple, pro-enforcement antitrust rules, applied pretty generally and across the board, are the way to go.

In other words, the problem in antitrust is not that the law fails to account for non-price values, as was alleged by the many critics of the Apple eBooks litigation. It is that the broader public fails to appreciate why and how thoroughly the law doesn’t have to. 

I should clarify one point of technical antitrust doctrine. While I believe in price competition, and, like Hovenkamp, take it that in antitrust we are mostly marginalists now,⁴ none of this means that courts should actually measure prices. This actually reflects a point of common confusion. Antitrust courts in fact almost never do that. Except in certain narrow circumstances, antitrust is a tort-style law enforcement regime that measures conduct and not prices, and that’s how I want it.⁵  5 It’s just that I think that those conduct rules must be designed to encourage vigorous competition on the basis of quality-adjusted price, meaning that it should bar trade-restraining conspiracy, unilateral exclusion, and merger that generates concentration or strategic advantage. Defendants don’t then need the opportunity to turn cases into graduate social-science seminars, à la institutionalism or historicism, because what we find on extended consideration is that their markets never really need the special clemency they think they’ve got coming. Publishing is just another in a centuries long series of examples proving it. 

And so, ironically enough, the reason I included the part of the book that Professor Ghosh liked best—several chapters on the history of American publishing—was the opposite of defending case-specific institutionalism. I should probably have been much more clear about that too. My point was to show that if we just go ahead and do what institutionalist critics want, and look at particular cases with in-depth care, we won’t actually get different results than theoretical abstraction would lead you to expect. I said, in effect, “fine, let’s have a look. As I predicted before we even started arguing, we will find that the behavior, motivations, and outcomes are pretty much what price theory would have predicted.” For as long as there has been publishing, publishers have argued that they cannot cope with price competition, and as long as there has been an independent bookselling sector, both publishers and booksellers have argued that maverick retailers must be constrained, or else the sky will fall. Since at least the early 19th century, they’ve been organizing price cartels with both horizontal and vertical components, largely indistinguishable from the eBooks conspiracy of 2010-2012. Those conspiracies have usually been initiated and coordinated from downstream, as one expects in RPM arrangements meant to enforce retail collusion. And in that history, the publishers and booksellers have provided a nice little natural experiment. British bookselling was governed by a legalized, industry-wide RPM consortium for nearly the entire twentieth century, but American bookselling never was, and both had comparable experiences. 

So when Amazon introduced a radically price-cutting innovation in bookselling in 2007—almost single-handedly creating the new eBooks sector and selling new-releases for a third of their hard-cover price—the industry complained that they needed collusion to constrain very novel, technologically unprecedented circumstances. But they were lying. They dealt with an old problem in the same way they’d done for 200 years.

Anyway, I then did what I would think any good institutionalist would demand, and attempted to generalize this observation with case-specific comparisons to other industries. And it turns out that cartels with vertical components were not unique to publishing and bookselling. They followed essentially the same pattern throughout mass retail, all throughout the 19th and early 20th centuries. That was the point. It was not that publishing must be understood only according to its own idiosyncrasies, or that we actually need in-depth historical studies in order to apply the law. It was to prove that we don’t need to keep doing them, routinely, every time some defendant says their market is special. There has never been a defendant in antitrust that didn’t think its market was special, but we just really haven’t found, in the hundreds or thousands of times that we’ve given them the benefit of the doubt, that they were right. 

Finally, the book clarifies at some length that I don’t think these things because markets are magic or because they were sent here for our benefit by God. I point out specific ways in which markets do in fact seem problematic, and the particular macro and dynamic respects in which they fail us severely. But the argument that follows is just a simple point of policy. Those ways in which markets fail would not be well addressed by the one policy correction that could possibly be relevant to antitrust law: allowing private firms to solve them through arrangements that reduce price competition. It hasn’t worked when it’s been tried, and it won’t work going forward. Instead, as I say several times in the book, we should let competition do what it does well, and solve other problems with solutions that could actually address them. Trying to address them by restraining market-by-market price competition is treating real sickness with the wrong medicine.   

Suggested Citation: 10 The IP Law Book Review 15 (2020).

© 2020 Chris Sagers

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1. James A. Thomas Professor of Law, Cleveland State University, c.sagers@csuohio.edu.
2. Am. Bar Ass’n, Section of Antitrust Law, HANDBOOK ON THE SCOPE OF ANTITRUST (ABA Pub’g 2015) (Chris Sagers, editorial chair); Am. Bar Ass’n, FEDERAL STATUTORY EXEMPTIONS FROM ANTITRUST LAW (ABA Pub’g 2007) (Chris Sagers, editorial co-chair); Chris Sagers, Much Ado about Possibly Pretty Little: McCarran-Ferguson Repeal in the Health Care Reform Effort, 28 Yale L. & Pol’y R. 325 (2010) (health insurance); Chris Sagers, The Demise of Regulation in Ocean Shipping: A Study in the Evolution of Competition Policy and the Predictive Power of Microeconomics, 39 Vand. J. Transnat’l L. 779 (2006) (ocean shipping); see also Chris Sagers, Platforms, American Express, and the Problem of Complexity in Antitrust, 98 Neb. L. Rev. 389 (2019) (“platform” markets); Chris Sagers, “Rarely Tried, and . . . Rarely Successful”: Theoretically Impossible Price Predation among the Airlines, 74 J. Air L. & Comm. 919 (2009) (passenger air carriage).
3. Professor Ghosh’s description of the price-preoccupation that he criticizes, and that he thinks I criticize too, feels like one such caricature. I do not believe and I don’t think it is widely accepted that “if prices are low” (emphasis mine), then “competition is functioning.” That is, low prices are not their own goal, unless one understands “price” to mean quality-adjusted price, defines “low” to mean “least margin above cost,” and requires that the “prices” that are supposed to be “low” in this sense are all prices, and not just end-use retail price. Even then, price is only instrumental. The goal of encouraging low quality-adjusted price is not to have low prices or to favor retail end-users. It is to secure a range of social benefits, which only begin with static allocational efficiency. The benefits might also include dynamic innovation, better distributional equity, reduction of concentrations of undue political power, and so on.
4. See Herbert Hovenkamp, Progressive Antitrust, 2018 U. Ill. L. Rev. 71, 75.
5. Antitrust courts directly consider prices actually charged only in challenges to price predation under §2, price discrimination under the Robinson-Patman Act, or in which the plaintiff attempts to prove market power through direct evidence of effects on price or output. Each of those cases is unusual and not that often litigated.