On Feb 13, 2014, at 9:01 PM, "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx> wrote: > > Dumping? Says who? My bad. I used the wrong term. The correct terminology under section 2 of the Sherman Antitrust Act is predatory pricing. Dumping is effectively the same thing, but describes the actions of a foreign competitor, or government to undercut the pricing of domestic competitors. Wiki says this about predatory pricing: Predatory pricing (also undercutting) is a pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The predatory merchant then has fewer competitors or is even a de facto monopoly. There is much discussion about the validity of predatory pricing as it relates to anti-trust enforcement. Competitive pricing lies at the very root of capitalism, and price wars are not illegal per se. We all take advantage of "loss leaders," products sold below cost to get us into stores. The real test for a predatory pricing antitrust enforcement action is when a company drives out competitors to create a monopoly and THEN raises prices. Certainly Amazon has been disruptive in the retail sector because it has demonstrated the ability to drastically reduce overhead relative to brick and mortar stores. There's nothing illegal about this! The problems occur when predatory pricing is used to obtain a monopoly, which one can argue Amazon has done with e-books (I'm not saying they did or did not). What we can say with some degree of credibility, is that selling books below cost was a major factor in the demise of brick and mortar book stores. This was not limited to E-books, which eliminates the cost of printing and distribution; Amazon began by selling popular printed book below cost, before they helped to create the market for E-books. This is a major reason that the brick and mortar stores were crushed. The shift to downloadable E-books was the final nail in their coffin. What Amazon did to the publishers, was a great cause for concern in the industry. Some of this probably needed to be disrupted, as the fundamental economics of publishing were disrupted by the Internet. Who is to say what the fair price of the hits that represent magazines, book, music and video/film should be? There is little if any incremental cost to sell ten million versus 10,000 books; as volume increases, one can argue that profit margins should decrease. In this area Amazon is less than transparent. They may sell a popular title below cost to pull in new customers, while simultaneously raising prices on specialty titles to make up for loses in other areas. Nobody fully understands the pricing algorithms Amazon uses, however, there have been many complaints suggesting that now that Amazon has a monopoly position in the sales of both printed and E-books, they have significantly raised prices for less popular titles. Apple entered a market that was in turmoil, with the publishers desperately looking for a way to set a floor under pricing to prevent Amazon from being their only customer; a customer with the power to dictate price. The agency model they proposed is used extensively in other industries, rather than the wholesale model that allowed Amazon to sell below cost. Moving to the agency model where the publisher sets the price and the seller gets a commission (typically 30%), does not stop the seller from giving up some or all of that 30%, or even selling below cost. The Agency model is working, and has for many decades, in similar industries such as music and packaged media sales (TV shows and movies). And it has been very effective in the new App economy; last October Apple announced it had sold 1 Billion Apps, and paid developer more than $13 Billion. Where Apple got into antitrust trouble was asking for a contract provision, that would allow them to match the price of any competitor that sold below their cost. They lost the first round against the government, but most legal analysts believe they have a good chance of winning the appeal because of bias on the part of the presiding judge, who essentially said - before the trial - that she believed Apple to be guilty. But the real issue is why the case was brought in the first place. If anything , the government should have been looking at Amazon, not Apple. Ironically, the industry did move to the Agency model, and prices for consumers have come DOWN. Yet the states are suing Apple now to recover what they claim are price increases that the public suffered. All of this was simply to point out that the government is now very active in picking winners and losers in what is supposed to be a competitive marketplace. And to point out that the politicians and regulators have no problem propping up industries that are considered friendly to their agendas. > Not sure what you're referring to. But as you already know, I have a thing > about conflict of interests. If Apple was looking to create some walled > empire of hardware and content, I know that once upon a time even you would > have been vociferously opposed. Apple was trying to restore competition in a market that had been disrupted and was now moving toward a monopoly seller. They had no intention of trying to wall up content, or trying to compete with Amazon on price. Apple is in business to make money. Amazon is in business to dominate markets and grow WITHOUT PROFITS. They are the perfect role model for the new American progressives, who consider profits to be the root of all evils. You keep forgetting that Apple is just a store, not a walled garden. You have as much access to iTunes content on your PC as I do on a Mac or my iDevices. Yes Apple uses the App store to attract consumers to their hardware. Amazon does exactly the same with the Kindle E-readers and their proprietary tablets; they even created a proprietary fork of Android. Google uses Android to drive customers to their search cash cow and Google Play. My wife has a Kindle and an iPad and can seamlessly move between the two when reading books she buys from Amazon using the Kindle App on her iPad. The only exclusivity that Apple offers in the iOS ecosystem is that their devices are considered best of class in quality of build, they are easy to use, and most developers create Apps first for iOS because that's where the money is. Yet even Apple, with all their money, and customers who spend far more than the masses who use PCs and Android devices, is powerless to tear down the walls of the real walled gardens operated by the media conglomerates. So now it looks like they must cut deals with the media conglomerates to offer walled garden content alongside the OTT service they wanted to create. Regards Craig