The U.S. Department of Justice (DOJ) accused Apple and five publishers of colluding to fix ebook prices, which Apple wanted to sell for viewing on its iPad. The publishers settled with the DOJ and Apple was found guilty in 2013. Apple’s standard arrangement with book publishers and others who sell apps for the iPad is that Apple keeps 30% of the revenue. Compare the equilibria in the following scenarios: (1) publishers act as a cartel and sell directly to final consumers, and (2) Apple sells to consumers and keeps 30% of the revenue.
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