The economic effects of vertical price-fixing are complex, but economists generally agree that at least some vertical price-fixing could be efficient and pro-competitive.
State-mandated and state-supervised vertical price-fixing schemes such as state price controls on auto insurance or on hospital charges are immune from federal antitrust prosecution under U.S. law.
But "vertical" price-fixing (between a retailer and a manufacturer) may not be a violation, depending on such factors as the companies' motives and the outcomes of their actions.
As such, there was no need for Cote to consider arguments, made by Apple's lawyers, about the company's intentions and the effects of its actions, which might have been used to justify vertical price-fixing.
"This was industry-wide vertical price-fixing," Mr. Pitofsky said at a news conference, adding that the case was a classic illustration of the differences in antitrust enforcement between the Clinton administration and the Reagan administration in the 1980's, when officials had a different view of antitrust law.
Vertical price-fixing arrangements include agreements by manufacturers to set minimum or maximum resale (i.e., retail) prices for their products.
My assumption is that the Justice Department is investigating whether this agency pricing model violates restrictions on vertical price fixing and whether the way it was deployed by multiple publishers reflects some form of horizontal price fixing.
A long-held tenant of antitrust law is that vertical price fixing (an agreement between the manufacturer and the retailer to sell a product at a specific price) is often illegal.
(Note: In recent years, the Supreme Court has adopted a more flexible approach to the issue or vertical price fixing, adopting a "rule of reason" test, but it remains a central area of antitrust policy).
"Such maximum price-fixing agreements create the risk that the maximum prices will become minimum or uniform prices," the department said in a business review letter signed Oct. 1, 1993, by Anne K. Bingaman, then the assistant attorney general in charge of the antitrust division.
