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Abstract

Amazon’s main rival, Apple, went to great lengths and took major risks to enter the e-book market. Why did Apple simply choose not to compete on the merits of its product and brand equity (the iPad and iBookstore) as it does with its other products? Why did Apple decide not to continue to rely on its earlier success of situating its products differently in the market than other electronics and working hard to be different and cutting-edge with its e-book delivery? This Note argues that the combination of Amazon’s 90% market share, network externalities, and an innovative technology market creates an environment that highly incentivizes a dominant firm to exclude potential rivals for as long as possible. Accordingly, when cases like United States v. Apple Inc. arise, there must be serious concern for not only price increases for consumers, but also diminished innovation in the market, which further harms consumers. This Note attempts to show that the market structure for e-books failed in some respects, which created an incentive for Apple—being a sophisticated and very large firm—to take highly risky steps to enter the e-book market. This Note also explores the theory that entry could not occur without an increase in price and, further, without entry, harm to innovation would result over time.