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Apple and five book publishers were using an agency sales model that raised the prices of e-books

The U.S. Department of Justice (DOJ) is planning to launch a lawsuit against Apple and five U.S. publishers for allegedly conspiring to raise e-book prices through an agency sales model.

Last December, the European Commission opened a formal antitrust investigation into whether five international e-book publishers had been practicing anti-competitive tactics with the help of Apple and its e-book store iBooks. Shortly after, the U.S. Justice Department climbed aboard the investigation as well.

After investigating the suspicious tactics, the DOJ has now warned Apple and the five book publishers that it plans to sue them for raising the prices of e-books. The five book publishers involved are Hachette Livre (Lagardère Publishing France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp., U.S.A.), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany).

Traditionally, publishers sell physical books to retailers for about half of the cover price, which is considered a wholesale model. Retailers then had the power to sell those books to customers for a lower price if they wanted to.

However, the e-book industry rocked this model and rubbed publishers the wrong way. Amazon started selling best sellers for as low as $9.99 in an effort to encourage Kindle sales. When Apple came along with iBooks, publishers were worried that the tech giant would take over the book industry the way it did the music industry with iTunes.



Apple then struck a deal with publishers in 2010, where they'd settle on an agency model instead. The agency model allowed publishers to set the price of the book and Apple would receive a 30 percent cut. However, publishers were not allowed to let rivals sell the same book for a lower price.

According to the DOJ, Apple and the five publishers did this to raise the prices of e-books, which violates federal antitrust laws. The publishers reacted to these claims, saying that the agency model was used to "enhance" competition in the e-book industry by helping e-book sellers to make some money out of the deal.

The DOJ isn't buying this excuse, though. The government is wondering how competition could have increased when prices were increasing.

Apple, the publishers and the DOJ are currently in talks regarding e-book prices. While the DOJ warned Apple and the publishers that it plans to sue them for allegedly conspiring to raise prices, some publishing executives associated with the talks have said that a settlement is being considered. Some solutions that have been passed around included the idea to keep the agency model, but allow booksellers to offer some discounts.

Apple has jumped heavily into the book selling and publishing business with the recent launch of iBooks 2, which is the sequel to the iBooks app that provides students with books they need as well as study features, and iBook Author, which is Mac software that allows textbook writers and publishers to create textbooks for the iPad.

Undoubtedly, e-books are an essential part of the iPad experience, and with the announcement of the iPad 3 release just yesterday, Apple likely wants to get this DOJ business figured out quickly.

Sources: Reuters, The Wall Street Journal



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Umm...
By MrBlastman on 3/8/2012 10:34:45 AM , Rating: 5
I don't think this article is exactly about raising prices, but instead about how Apple was using its size as leverage towards enforcing anti-competitive practices.

quote:
However, publishers were not allowed to let rivals sell the same book for a lower price.

According to the DOJ, Apple and the five publishers did this to raise the prices of e-books, which violates federal antitrust laws. The publishers reacted to these claims, saying that the agency model was used to "enhance" competition in the e-book industry by helping e-book sellers to make some money out of the deal.


I'm glad the DOJ has jumped all over them for this if it is the case. The only way it would not be anti-competitive is if Apple signed an exclusivity agreement with the publishers, thus limiting the books only to Apple's platform, which they didn't... and couldn't because what publisher in their right mind would do so?

You aren't enhancing competition if you are restricting the price floor to one large retailer--instead, you are giving the retailer a competitive advantage through economies of scale rather than letting the small guys compete creatively to niche themselves some business. The reality is though most of the time the small guys can't charge less... but, in the online marketplace, the smaller guys might agree to a smaller cut of the revenues in turn for a lower price and higher volume.

This stinks much like the Nintendo price fixing back in the early 90's.




RE: Umm...
By NellyFromMA on 3/8/2012 1:01:32 PM , Rating: 2
A trivial detail, but if these businesses are colluding with one another to set prices, and are bound to not allow rivals to price lower the same items for sale, this has effectively raised the price.

That's my interpretation anyways.


RE: Umm...
By The0ne on 3/8/2012 2:36:07 PM , Rating: 2
You're already at 5 so can't +rep you :) I agree with your comments. As someone who reads plenty yearly I would hope that this gets shutdown really fast. It does nothing good for the consumers like me. I would never go to Apply because of how they run and sell their products. I think it's rotten and shameful, to be nice.

I have the same worry about Google when they garner more market-share in everything that they are trying to dominate. Free and open source can only last so long when greed comes a-knocking. It's only a matter of time before Google snaps.


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