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The Apple E-Books Case: When Is A Vertical Contract A Hub In A Hub-And-Spoke Conspiracy?

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  • Benjamin Klein

Abstract

Apple's economic role in the Publisher conspiracy to increase Amazon's below cost pricing of e-books is examined in a hub-and-spoke conspiracy framework. The five major e-book publisher defendants (“the Publishers”) conspired because of their concern that Amazon's low prices would adversely affect physical book demand and prices and also create an Amazon retail monopoly under which Amazon would negotiate substantially lower wholesale e-book prices. The Publisher conspiracy successfully moved Amazon to an agency relationship and gained control over e-book retail pricing. The Publishers accomplished this by jointly threatening Amazon with windowing (delaying the release of new e-book titles), which imposed a significant potential cost on Amazon in the face of Apple's scheduled entry without windowing. Apple therefore economically facilitated the Publisher conspiracy solely through its entry, not through any of its iBookstore contract terms. Contrary to the court, the most favored nation (MFN) and maximum price terms in the Apple contracts had no effect in facilitating the Publisher conspiracy. In fact, if Apple had entered without these contract terms, e-book prices would have been substantially higher. Consequently, Apple's contracts should not have been evaluated under a per se standard.

Suggested Citation

  • Benjamin Klein, 2017. "The Apple E-Books Case: When Is A Vertical Contract A Hub In A Hub-And-Spoke Conspiracy?," Journal of Competition Law and Economics, Oxford University Press, vol. 13(3), pages 423-474.
  • Handle: RePEc:oup:jcomle:v:13:y:2017:i:3:p:423-474.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhx021
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    Cited by:

    1. Schlütter, Frank, 2022. "Managing Seller Conduct in Online Marketplaces and Platform Most-Favored Nation Clauses," LIDAM Discussion Papers CORE 2022026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Silvi Berger & Morten Hviid, 2019. "Who Should Set Book Prices?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2019-07, Centre for Competition Policy, University of East Anglia, Norwich, UK..

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