I post this as an open question because I don’t actually know the law well enough to answer it. Perhaps someone will have the low down and give us all a clearer picture on how this works.
The recent uproar over the DoJ’s suit against the big publishers has a lot of rhetoric about competition, predatory pricing, and monopolies. The gist of the publisher’s reasoning behind the agency model is that they did not want to let Amazon develop a monopoly over the ebook market. Their fear is that left to their own designs, Amazon could use it’s discounting ability and the resources to eat profits and make it impossible for any other retailers to compete, driving them out of business and effectively giving control of the market to Amazon.
The definition of predatory pricing is the act of setting low prices in an effort to drive out competition. The presumed result of this would be that they would then be free to set prices at whatever level they want because there would be no other competition. A monopoly exists when a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products. Again the laws here are situated against business being able to drive prices up and putting consumers at a disadvantage.
Ok, so how does this all play out with anti-trust laws when prices are driven down and stay that way? Technically, Amazon could gain a near total control of the market by using their power and resources to drive out all competition. Nobody could enter the market because they could not afford to. They couldn’t make any money. So, if a business drives out competition and gains total control over a market, but keeps prices low, are they then in violation of the anti-trust laws? Is the DoJ going to go after a company that has taken over a market and improved things for consumers? It’s kind of an odd possibility when I think about it.
Let’s face it, Amazon doesn’t need to raise prices if the gain control. They aren’t in the book business to make money. They are in the book business to drive consumers to their services which in turn make them money. At best, they want to operate the book industry as a zer0-sum game, because the lowest book prices bring in the most readers who in turn spend their money on other more profitable items. It’s in their best interest to keep the market as low as possible, where the product is kept directly in the hands of the producers (authors) and sold directly to the consumers (readers). This is the ultimate game of eliminating the middleman. It sucks for those currently involved in the industry, but in the end, is it actually illegal? I honestly don’t know.