Initially, Amazon set prices at whatever level they wanted because they had a distribution model with publishers. This means the publisher would charge a set price to Amazon and Amazon could then charge whatever it liked to end-consumers. Amazon engaged in low pricing to build market share.
Apple and publishers didn't like this because lower book prices meant lower revenues and sales for them.
Discussions were had and publishers then collectively went to Amazon to demand a switch to the agency model. In the agency model, the publisher sets the end retail price and the intermediary (Amazon) takes an agreed cut.
The lawyer argues that the above one-time step by the publishers against Amazon was necessary to correct the anti-competitive action of Amazon in engaging in pricing at a level which would reduce competition over time.
Effectively, the rise in prices resulting from the agency model was justified because without the reversion to the agency model, Amazon's continued low pricing would eventually lead to monopsony effects in terms of Amazon being able to control publishers.
The lawyer goes on to say that what is important is not the price level, but its effectiveness in terms of encouraging competition. In the short term, consumers benefit from a low price, but if one actor becomes the only provider, it is likely to have a detrimental effect on the ability of upstream providers to compete.
Which model ended up benefiting the consumer the most, though? I thought that's what antitrust is all about.
Sure, we could make theories all day long about how 10 years from now Amazon will increase their prices, but that's highly improbable, as I think Amazon would like to make book prices even lower if they could. That's why they are allowing self-published authors to sell books even for $2.99, and singles for $0.99. They are working in the same time to disrupt the traditional publishing model. And that's a good thing.
I was hoping Google would be the more innovative company with Google Books, and try to disrupt Amazon with new models of selling books (or free/ad-based, promote self-publishing more, etc), but they've disappointed me in doing that, and honestly I have no idea why they even bothered entering the book market, if they weren't going to be serious and do something radical and disruptive to gain market share from Amazon.
I'm not even a fan of Amazon, and I'll never forgive them for what they voluntarily did to Wikileaks, but so far Amazon has proven time and time again to be the most innovative company in the book industry.
It is of course very difficult to forecast into the future and that is the problem with intervention into free market matters.
I do think it is interesting to note the German approach in terms of protecting publishers, and how there appear to be many more book stores in Germany catering for niche areas of publishing owing to the fixed pricing arrangement for the sale of books.
I just feel so confused.