Bilateral Monopoly, Two-Sided Markets, and the E-Books Conspiracy

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Antitrust law


Professor Kirkwood has gone well beyond providing an analytically coherent account of the “E-books Conspiracy.” Amazon purchased e-books from the major e-book publishers and resold them at a deep discount in order to promote the sale of their Kindle readers. Allegedly concerned about Amazon’s market power, the publishers then entered into a conspiracy with Apple. Using this case study, Professor Kirkwood analyzed the circumstances under which a cartel should be excused from antitrust liability on the basis of creating countervailing power. In the presence of monopsony power, collusion among sellers creates a countervailing power that improves both the sellers’ profits and social welfare. Collusion among sellers is ordinarily a per se violation of § 1 of the Sherman Act, but an argument can be made for an exception when a cartel faces a lawful monopsonist. Professor Kirkwood provided an analytical framework for evaluating such a defense of collusion in response to monopsony. In Part II, we provide a simple analytical model of countervailing power and link this exposition to that of Professor Kirkwood. In Part III, we explore the limitations of countervailing power as a defense and revisit the limitations described by Professor Kirkwood. In Part IV, we re-examine the structure of the e-book market. Part V provides some concluding remarks.