On July 10, in U.S. v. Apple, Inc., the United States District Court for the Southern District of New York found that Apple Inc. had engaged in per se illegal horizontal price fixing. According to the court, Apple coerced publishers into dealing with Amazon only on an agency basis, and as a result, the publishers were able to raise the price of e-books to consumers.

The decision is incorrect. By virtue of adopting the agency model, the publishers eliminated a destructive, free-riding internet discounter. Amazon's below-cost pricing devalued the publishers' products and siphoned sales from bricks-and-mortar stores that made meaningful investment in the development of the publishers' properties. While the publishers may have agreed to place books within certain pricing tiers, the publishers were free to place a book in whatever tier they wanted or not to sell it at all. The MFN is designed to protect a distributor from the negative reputational and revenue effects of undesired, steep discounting. If a publisher wanted to reap the benefits of Amazon's below-cost pricing, it simply would not have to make the book available through Apple. Or it could internalize the losses Amazon was incurring and sell it though Apple at the discounted price. But there was nothing in the agreements that compelled these outcomes.

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