It’s Time to Wield Antitrust Against The Publishing Industry
The industry’s concentration doesn’t just have economic costs. It’s a disaster for our culture and it needs to be fought.
DECEMBER 1, 2001,Theamericanconservative.com
GEORGE LIEBMANN
The proposed acquisition of Simon & Schuster by the international media conglomerate Bertelsmann, treated as a foregone conclusion by most of the press, strikingly reveals the limitations of the “consumer welfare” theory of antitrust popularized by the late Robert Bork and embraced by too many credulous judges. The merger would reduce the number of major U.S. book publishing entities from five to four.
The assumption of the theory is that antitrust laws have a purely economic purpose, and that the appropriate economic theory to be applied is one that disregards information costs and transaction costs. The economists whose teachings are followed are those who treat mathematics as economics’ nearest neighboring discipline, not those who look to history and social psychology for economic lessons. Economic man, for them, is a person who reacts instantly to any change promising a lower cost.
The classic manifestation of this syndrome is former Judge Richard Posner’s response to Robert Ellickson’s suggestion that insights drawn from psychology and sociology might have a role to play in economic analysis: “that would stop the analytic engine in its tracks.” Not for him is Isaiah Berlin’s emphasis on “the crooked timber of humanity, by which nothing straight was made.”
The application of simple-minded antitrust principles to the book publishing industry has had consistently malign effects. For book publishing, the paramount public interest is in the proliferation of diverse opinions and insights. Where books are treated as a fungible commodity, like nickel or wheat, the result is a tendency toward fewer and more uniform products appealing to a lowest common denominator.
In the United States and Britain, the application of antitrust laws to the book trade has centered on the permissibility of resale price maintenance. Publishers and author, left to their own devices, generally would prefer a regime in which they can set the minimum price of each book, on the theory, espoused by Justice Brandeis, that “the whole world will be drawn into the field,” i.e. that there will be a proliferation and multiplicity of booksellers. Price maintenance was forbidden in the American book trade by the Dr. Miles decision in 1911 involving drugstore products over the lonely protest of Justice Holmes: “the most enlightened judicial policy is to let people manage their own business in their own way, unless the ground for interference is very clear … I cannot believe that … the public will profit by permitting knaves to cut reasonable prices for some ulterior purpose of their own and thus to impair, if not to destroy, the production and sale of articles which it is assumed to be desirable that the public should be able to get.”
American publishers were permanently traumatized by an antitrust judgment against them several years later secured by Macy’s department store in New York, whose president later admitted that “best-selling” books were the ideal loss leader since they appealed to persons of better-than-average income and were not big-ticket items. Price wars in bookselling were not relieved until an N.R.A. code forbidding price-cutting was promulgated with the support of President Roosevelt at the instance of the copyright lawyer Morris Ernst, later supplemented by the Miller-Tydings and Maguire fair trade acts.
These were eviscerated by the courts in the 1950s over the protests of Justices Frankfurter and Black, leading to the concentration of American book retailing in Amazon and Barnes & Noble; the concomitant concentration of publishing led to ever-greater advances for a handful of books and the virtual disappearance of unsubsidized mid-list titles. The result was that sale of especially controversial books, including a novel by Salman Rushdie, was essentially suppressed in the United States by the fears of two or three executives of bookstore chains.
When the Supreme Court finally retreated from its doctrine barring resale price maintenance, it was perpetuated in the book trade by an ill-advised judgment by Judge Denise Cote forbidding publishers of ebooks from suppressing price cutting by Amazon.
In England, price maintenance for books was defended in the 19th century by Sir Alfred Marshall, the most distinguished economist of his time, whose Principles of Economics was the first book to be price maintained. It was further upheld by two public inquiries, one in the 1920s of which John Maynard Keynes was a member and another in 1949. When new antitrust legislation was enacted, book trade price maintenance was challenged in the Restrictive Practices Court and upheld in an eloquent judgment in 1962: “there may not be many mute inglorious Miltons about, but there may be some, and we think the chances of their muteness would be increased if publishers were constrained to be less adventurous than they are today.” Finally, after new legislation, price maintenance for books was eradicated in 1997 by a judge who had been a former antitrust prosecutor; within two years, half of Britain’s independent booksellers had disappeared. Price maintenance—and bookstores—survive in France and Germany.
The most notable American case recognizing the relevance of extra-economic considerations in antitrust adjudication was the decision of Judge Learned Hand in the Associated Press case in 1943 curbing exclusionary practices of a near-monopolist: “[the newspaper] industry serves one of the most vital of all general interests: the dissemination of news from as many different sources and with as many different facets and colors as possible. That interest is closely akin to, if indeed it is not the same as, the interest protected by the First Amendment; it presupposes that right conclusions are more likely to be gathered out of a multitude of tongues than through any kind of authoritative selection. To many this is, and always will be, folly; but we have staked upon it our all.”
In the later Alcoa case in 1946 Judge Hand sitting with two colleagues in place of a disqualified Supreme Court adverted even more clearly to the partly noneconomic purposes of the antitrust laws: “We have been speaking only of the economic reasons which forbid monopoly, but, as we have already implied, there are others, based upon the belief that great industrial consolidations are inherently undesirable, regardless of their economic results. Senator Sherman himself … showed that among the purposes of Congress in 1890 was a desire to put an end to great aggregations of capital because of the helplessness of the individual before them.”
When the Associated Press case reached the Supreme Court, Justice Frankfurter, speaking only for himself but echoing the majority’s rejection of first amendment arguments against antitrust prosecution, observed: “A public interest so essential to the vitality of our democratic government may be defeated by private restraints no less than by public ownership … the restrictions are unreasonable because they offend the basic function which a constitutionally guaranteed free press serves in our nation.”
The desire of the heads of large aggregates to avoid giving political offense is present in book publishing as in all industries. The concentration of the industry in four companies cannot pass a calculus of reasonableness.
George Liebmann, president of the Library Company of the Baltimore Bar, is the author of various works on law and politics, most recently America’s Political Inventors (Bloomsbury, 2019).
Posted in: Culture Wars, Economic Regulation, Education, Judiciary and Legal Issues, Markets and Privatization