Chris Sagers’s book on antitrust is not like most of the others you may have seen lately.
It does not begin with an incident of a customer being outrageously mistreated, like Jonathan Tepper’s and Denise Hearn’s The Myth of Capitalism: Monopolies and the Death of Competition. Nor does it try to interest laymen in competition law through generalisations about rising concentration and a quick walk through US antitrust and 1930s German history, like Tim Wu’s The Curse of Bigness. But it also does not sing the praises of laissez-faire capitalism in which Big Is Beautiful, as Michael Lind and Robert Atkinson would have it.
Instead, Sagers begins with a single antitrust case – the United States v Apple of the book’s title – that he thought was straightforward but drew surprisingly mixed reactions from purportedly pro-enforcement observers. After thinking through this seeming paradox, he reaches a few conclusions that have little in common with the polemics noted above. They include: “Markets in their ordinary operation are machines for producing pain,” as competition in the market displaces less efficient competitors, and competition for the market displaces entire industries.
Sagers spoke with GCR editor Pallavi Guniganti about his book, United States v Apple: Competition in America.
I remember when you were first talking about writing about this book. It seems like there was an evolution from the book just being about US v Apple to being about so much more, like US v Apple was just a little window to look out on the full landscape of antitrust. Tell me about how the book evolved.
That’s pretty true, except that it always was surprising even from the very beginning that the case seemed straightforward to antitrust lawyers – if the facts alleged were true, then the government was going to win – but many other people found the case very controversial. That was true right in the beginning, when the complaint came out. I don’t think people really knew very much about the case, but then the complaint came out and it was a blockbuster. Initially everybody was like, “Oh my god, how did [the publishers] do this, they’re all going to prison.”
But then after a few days people came out from all across the ideological spectrum, very critical of the government for doing this. That was inherently interesting. Within a month or two, I wrote this short little piece about that. It was like, “Why does everybody hate the case so much? If we believe in competition, you’d expect people to like it.” Really the kernel of the thing was there even in that short paper.
But yes, as you say I started writing about it and thinking, “Gee this would be an interesting paper.” It just kept getting bigger and bigger and bigger, and before long I was writing about Thomas Aquinas and water and diamonds and stuff. Obviously, too, it became big because so much of all of our talk about competition now surrounds big tech, digitisation and the online economy and that was just beneath the surface of this case.
Speaking of diamonds and water, one of the things that I thought was interesting as I was reading the book was there’s so much about marginalism and how important that is. Could you talk a bit about that?
I don’t want to come off as some doctrinaire neo-classical economics guy. What was important enough to talk about marginalism and modern evolution of the theory really had more to do with the fact that the theory seems to have explanatory power and seems useful. But it so often seems the theoretical claims themselves can seem too clever, too cute by half, and often to serve perhaps inappropriate interests.
This is all very familiar now. People say antitrust is dead, antitrust has just been made into this tool to serve the wealthy, because conservatives realise that economic theory prescribes certain outcomes that are actually antithetical to the interests of protecting average people.
That was fascinating to me and it was important for me to say, “Look, we can actually have an antitrust informed by this theory because it’s extremely useful without it turning into conservative ideology.”
How do you see that playing into the way that technologies have changed sectors and the response of antitrust to that?
Something I tried to stress in the book a lot is that particular times of technological change – like the one that we’re in – seem like they must really be special and call for special treatment. It doesn’t really differ in and of itself from any other competitor pressure. It manifests as a cost advantage or some other advantage for certain firms in a market and they use that advantage to hurt other people. That doesn’t sound good when you say it like that, but it’s the nature of competition itself.
Technological change goes to the broader theme of the book, which is: competition actually kind of sucks, from any number of quite reasonable perspectives, but we have to make peace with the ways that it causes pain or dislocation if we’re going to get the benefit of it. And I think we ought to try and get the benefit of it.
One of the comparisons you make that I found interesting is of books to sailing ship technology, with the sails being something of great cultural importance and history and meaning – connecting Herman Melville’s whaling ships to Homer’s Odyssey.
But part of what aroused so much concern about the e-books case is that books aren’t just seen as objects for which we have affection like sails on a ship. They are themselves what’s carrying our history and culture. It’s like news journalism and the anxieties about losing advertising revenue to Craigslist, Google, Facebook. Books and news are perceived as necessary to the continuation of our society and our culture and our liberal democracy. In terms of that particular anxiety, where do you see antitrust being able to address – or maybe not being capable of addressing, and instead what else should be – if we’ve got these special things?
Fundamentally my point is, it’s certainly understandable that people see a threat to books as being a threat to the culture itself, but I really try to stress in the book that that’s actually quite wrong. I get it but you’re making a mistake that’s ultimately going to be self-defeating to you.
The threat is not to culture; it’s to the technology that happens to be transmitting that culture. The culture is going to persist just like other values do generally even though we have vigorous competition. What will change are the physical devices or the other means by which the culture is preserved and transmitted. Because those things change, just like any other technological change, streams of payments to people who own the technology will change too.
There are losses when things change. But I’d say to critics who feel that way, you’ve got to think more carefully about who actually suffers the losses and what the losses actually are.
What’s the relationship of antitrust? In principle, antitrust to me seems to have a pretty simple job, which is not to decide whether we have physical books or electronic books or even to decide who gets to distribute the books. The job of antitrust is just to keep markets healthy because markets are going to decide those things. I don’t think the solution in the end is just the kind of free market fundamentalism that it might sound like I’m espousing.
Just a little bit.
I get it, but I think it’s a mistake to react to people who want antitrust by saying “Wow, you’re just Robert Bork,” because there are real problems markets themselves don’t solve. But what’s critical to me is to say the way to address those problems is not to end the competition or to limit antitrust so that it doesn’t always encourage competition. That is treating a real problem with the wrong medicine.
Persistent losses of income for lower-class and middle-class people, for example, persistent unemployment because of technological change. Those seem like pretty poignant problems that someone ought to address. But they aren’t antitrust problems. Even if you want to see them as antitrust problems, you’re not going to make them better by giving firms protection from competition.
We need progressive fiscal policy, we need welfare policies, we need a social safety net. But however real the problems are that you perceive, you’re not going to make them better by authorising cartels among publishers or doing other things that limit competition.
It seems to me with both book and news publishing there’s been a private ordering where you have a cross-subsidisation of the things that at least some part of our society sees as valuable, but not so easily financially supported. Like having trade publishers use the profits from genres such as romance and science fiction novels to cross-subsidise what’s seen as higher quality literature. Or with newspapers doing investigations of city hall and having that cross-subsidised by the ad revenues from other stuff.
In terms of how that private ordering has happened in our society, and how technology is upsetting that private ordering, do you have any predictions on how that’s going to shake out?
I definitely think you’re right that people believe that there’s private ordering that works out for the social benefit. We hope that if we give publishers or news organisations or whomever some protection from the most vigorous price rivalry, they will have the freedom to protect other values that we care about. I hear that a lot. That obviously was a huge criticism of the US v Apple case.
It’s like the dumbest thing I ever heard. It isn’t true. Publishers aren’t going to take a whole bunch of extra revenue from the higher-priced books that they’re able to sell and use it to fund poetry. If people want to believe they do it, instead of speculating about it, they ought to do some research and see what kinds of books the major trade publishers are publishing. It isn’t stuff that doesn’t have commercial value. It’s campaign memoirs by Sarah Palin.
Likewise with news. There’s no question the news industry has had a real bad few decades. But the newspapers have had a big antitrust exemption for almost 50 years. The Newspaper Preservation Act was justified on all these same arguments. We’re going to give newspapers, metro dailies, protection from head-to-head competition with each other by allowing them to enter into these agreements that are basically like price-fixing deals and the idea is they will then preserve editorial independence. Lots of cities will be able to preserve multiple papers with different editorial points of view.
It was a colossal failure. People who study this in communications from a whole ideological spectrum say this was a big failure. It was a failure because the assumption was that the owners of these news organisations are somehow different than other businesses, so they’re going to take excess revenues and do good things with them instead of just giving the revenues to their shareholders. But the truth is, businesses don’t do that. Whether they happened to have some public mission or not, they take money and they give it to their shareholders.
In the book, you got into the peculiarity of Apple’s business model for distributing e-books. Instead of what Amazon was doing, which was the traditional model of buy wholesale and sell retail at the price at which the retailer wants to sell, Apple offered this agency model where publishers got to control retail prices and Apple would take a cut. While Apple’s agency model was seen as a godsend to the content people back then, it’s now causing upset with Apple doing that with apps and music and so on now. This model seemed like such a great thing to the people who create the content, whether it’s a book or an app. At the time of Apple coming into the market, it seemed so awful and problematic for content creators for Amazon to be controlling prices rather than the app creators or books or music publishers getting to do so. Apple has stuck to that model. As an app developer you can decide whether to sell your app for nothing, in which case Apple also gets nothing. You could choose to sell it for more and then Apple takes that 30% of that more. Google doesn’t come up a lot in your book, but it’s adopted similar agency model as Apple on that.
What did you see as important or different, and potentially its implications for antitrust, in that change of model from traditional retail to agency?
In the book publishing case, there’s a very peculiar, special economic circumstance which explained, I believe, the publisher’s interest in having control over retail price. They weren’t necessarily interested in having control over retail price per se. What they found critical was to have control over the retail price of e-books and that’s because they’re in the particular circumstance of publishing highly differentiated physical products that sell at very large mark-up. New release hardcovers sell at a big mark-up. They’re also then facing competition from themselves in the form of this other technology, e-books that are way cheaper.
What was crucial to them was not what they talked a lot about – the agency model and it’s crucial to us to have control over prices blah, blah, blah. The publishers’ motives in the e-book case had to do with nothing else except the fact that e-books were hurting their more profitable hard copy products.
The app developers obviously are in a very different situation. They only sell one product, which is the software product. Again I tend to think that they wouldn’t particularly care so much what the terms are under which their prices are set. They just are frustrated that Apple and Google happen to be distributors with a lot of market power over the chain of distribution.
[Herbert] Hovenkamp says there are two basic facts in life: you don’t want to sell to a monopolist and you don’t want to buy from a monopolist. Everybody is in a chain of distribution, and oftentimes the chain will have some person who’s got some market power, and if that’s not you it kind of sucks. Though we spend a lot of time talking about these distinctions and the economic theories supposed to explain them, I tend to think the real fights in these cases aren’t so much about the details of the contractual relationships. It’s just that people are frustrated when somebody else has market power.
You mentioned Apple’s early attempt to divide the digital content market with Amazon where Apple would stick to music, coming off the iPod, and Amazon would stick to books. Not long ago, Apple and Amazon agreed to end an exclusivity agreement where Amazon’s Audible was the only seller of audio books inside iTunes. How do you see these types of agreements in relation to the overall claim that the big tech companies like to make – especially when they are in congressional hearings – that they are competing hard against each other?
I think they’ve done probably quite a lot of stuff to avoid competition with each other, as firms do. I don’t think we should be too surprised as events unfold in the next couple of years to find out the extent to which that’s true. We already know some cases like this in which they haven’t behaved very much like competitors. I think they are fearsome competitors in the sense that they would absolutely kill each other if they could. They aren’t friends.
But like other powerful firms in oligopoly markets – I am using that term a little bit loosely; these firms aren’t exactly easily described as oligopolies only because they each have complicated businesses. They do lots of things and lots of their businesses don’t compete with each other directly.
But they are like oligopolies in the sense that in any particular sector they deal in, there is this initial question. Distribution of music for example, is Apple going to own that, is Amazon going to own it, are the record companies somehow going to figure out how to do it themselves and they can own it? It’s like in all of their sectors, absolutely, they would and will compete with each other if they have to. But they have a strong incentive to avoid competition and I think they’ve probably done it quite a lot. If they go over to Capitol Hill and say “Look, you don’t have to worry about us, we are competing with each other, I am just Amazon and I have to compete with Google and Facebook and Apple,” it adds a lot of crap.
Another thing that you discussed in the book that I liked hearing about, because I feel it doesn’t get enough play, is the popularity of the Supreme Court’s Leegin decision and resale price maintenance among both sorts of people. Conservatives who like the idea of allowing the private sector to determine how it’s going to handle these things if they are not overtly horizontal price-fixing conspiracies, and also then on the left among folks like Barry Lynn who see resale price maintenance as a way to protect the traditional downtowns and the bookstores against low-cost discount competition. Of course Leegin was an important part of Apple’s defence as well. How do you see that playing out? We’ve now had 12 years of Leegin, and how effective has that been in what at least folks on the left hope resale price maintenance can do for us?
The first thing to observe is that nominally RPM can still be illegal, and in a couple of states, it’s still per se illegal under state law. But as a practical manner it is per se legal; it’s almost never challenged. It’s only challenged in Maryland and California. I know lawyers who counsel distributors and manufacturers, and they counsel those clients, “You can do RPM. It’s effectively not illegal. The only thing you have to do is make sure you do a Colgate policy for your sales in California and Maryland.”
We’ve had per se legal RPM for a decade and the question is if RPM is going to be a boon to small manufacturers or retailers who are higher-priced retailers, which has been the progressive argument since the Great Depression. My question is, why hasn’t it worked? We’ve had this for 10 years now, why aren’t they doing it, anybody who wants an RPM deal can get it. One way that I don’t think it’s going to play out, is that free RPM is not going to help any weak sellers or retailers.
A different way you might wonder how it will work out is, if RPM is in fact harmful as I think it might be, are we ever going to revert to an older law, more strictly regulating it? I don’t think so. I’m not very optimistic about antitrust unfortunately, not because I have a problem with antitrust law itself, but because politics just hasn’t worked out well for antitrust. I don’t think a conservative majority is going to permit us to have meaningful antitrust in our lifetimes.
Even after Apple v Pepper? [The judgment was written by Justice Brett Kavanaugh, who was appointed by President Donald Trump but joined the four Democratic appointees in ruling for the plaintiffs to be able to sue Apple as direct purchasers under federal antitrust law.]
Kavanaugh clerked for Kennedy and Pepper was the other shoe dropping several years after Kansas v Utilicorp, which was a Kennedy decision. It was almost logically mandated by Kansas v Utilicorp, and it’s not related to the substance of the plaintiff’s claims. Those plaintiffs are going to lose and it won’t go back to the Supreme Court. If it did, Brett Kavanaugh is not going to look for liability for the defendants.
I don’t think we are going to have meaningful RPM enforcement before I die. But what we might see is increasing empirical proof that in fact it’s harmful. The study I cited in the book, it’s very tentative but these two economists in Chicago found market power effects from RPM. It doesn’t really do much good and it just makes prices go up. We might see more of that.
The only thing I am very hopeful about in antitrust is that sort of thing. Over the next decade or two, I think we are going to see more and more and more persuasive empirical evidence that in fact traditional views about the value of competition were actually pretty realistic, pretty correct, and the Chicago School has led us to a relaxation of antitrust that is damaging. It’s going to take a longer time for that to ripen into change in policy, if it ever does change policy. I personally think that there’s this very basic mistake, which is that people think what really matters in antitrust is ideas – if we just find the right ideas, everybody will be persuaded, and we will have that policy. But I don’t think that’s really true.
You have a specific sentence that says: “this book’s central claim is that antitrust has frequently failed because Americans doubt markets extensively.” It is playing out with all of these things – the concerns about technology replacing old business models, the harms to small players and so on. This feeling of extensive doubt towards markets while simultaneously believing that there has been an American tradition of believing in markets and especially believing in competition and the ability, the thing that the Europeans like to say these days of everyone having space to breathe, everyone having a chance to be the next big thing. How do you see that fitting into our politics, which you are saying are really what’s driving what’s going to happen in antitrust?
It probably has a lot to do with me just being sort of bleak as a person, so take this with a grain of salt. But I do fear that the difficulty of supporting some coherent vision of how markets work, it’s always been a problem for antitrust and I see it persisting.
I am optimistic that there is quite a lot of empirical evidence coming out right now, empirical evidence like we really haven’t seen before. You can’t just have three firms, contestability is not realistic, you do actually have to have un-concentrated markets it appears – and when you’ve got them and you have vigorous quality-adjusted price competition, good things seem to follow. Hopefully that body of evidence continues to grow and hopefully it can be translated both into an argument that the public can get behind, and probably more important than anything, an argument that the federal judiciary can get behind.
Public support matters because if elected officials and members of Congress don’t support the policy it probably won’t be enforced. But really most importantly of all is that the judiciary has to be convinced that strict rules are what Congress wants and that strict rules are good. If that could happen again, which may occur a fair time from now, then I am optimistic that something good might happen. A basic point in the book was, a reason that I am sad and sceptical about those good things happening is that it’s just really hard to look at markets in operation and think “This is what we should want.”
Tim Wu noted a little bit of a rush on antitrust book publication lately, with enough of them coming that you can have a book fair just about antitrust. But some of the other ones he noted along with his, like Tepper’s book, Matthew Stoller’s book that’s coming out this fall, are pretty much on the “big is bad” end of the spectrum, which yours is not so much. How do you see yourself as a product differentiation in this particular market?
I’m in this difficult position. Honestly, even if I sound like I’m critical – and I suppose I haven’t kept it to myself all that well that the “big is bad” people frustrate me personally – as a matter of my own substance of work, I don’t think that my real goal or my real need is to attack “big is bad.”
I do think that big is in fact bad for the most part, but that’s on the basis of a really elaborate empirical case that economists have developed through empirical study. Minimum efficient scale in most markets is small. You don’t have to have a four-firm oligopoly to have efficiency. You’ve already exploited all efficiencies from many mergers before you get to that point, so there’s no good reason to have these big firms. I think there’s plenty of reasons to think that they are in fact bad, namely that I think the old literature on structure-conduct-performance may have had its problems, but I think that conclusion ultimately was right. It’s being increasingly corroborated now. So big is bad and in particular concentration is bad.
On the other hand, if the only thing you have is “big is bad” – if you are just looking at this ideologically and saying “monopolies are bad, rich people are bad, we got to protect the poor with antitrust, we got to protect democracy with antitrust” – trust me, I get it and I’m sympathetic. But you are going to get cases wrong and you are going to get fooled into supporting policies that are ultimately bad and we are seeing that in lots of specific cases.
This Cicilline bill is going to allow newspapers to negotiate collectively with the online platforms. We’ve tried this before. It doesn’t work. When we do these exemptions, they either don’t have any effect at all or they cause affirmative harms. I can give you several dozen examples if you want them. My ultimate thing is, it’s not that it’s wrong to think that “big is bad”; it’s just if that’s all you have, you are going to get cases wrong.
The book is on sale September 17 from Harvard University Press. What about the e-book version?
I think it comes out on the same day. It will eat all of my [hardcover] revenues and I will regret everything.
People will say you asked for it.
Listen, if the e-book is sold cheap and more people read the book, that’s all I could possibly want in the universe.