THE APPLE E-BOOKS CASE: WHEN IS A VERTICAL CONTRACT A HUB IN A HUB-AND-SPOKE CONSPIRACY?

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 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. This was accomplished with joint Publisher threats of Amazon to window (delay) the release of new e-book titles, which imposed a significant potential cost on Amazon in the face of Apple's scheduled entry with access to all new release titles without delay. It is demonstrated that Apple economically facilitated the Publisher conspiracy solely through its entry, not through any of its iBookstore contract terms. Specifically, contrary to the court, the MFN and maximum price terms in the Apple contracts had no effect on facilitating the Publisher conspiracy. In fact, if Apple had entered without these contract terms, e-book prices would have been substantially higher. Apple's contracts therefore should not have been evaluated under a per se standard.