Apple, Publishers Sued Over E-Book Pricing

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Late Tuesday night, a lawsuit was filed alleging that Apple and five publishers — HarperCollins, Hachette Book Group, Macmillan, Penguin, and Simon & Schuster — “colluded to increase prices” on e-books, according to an article at CNET.

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The issue at the heart of the lawsuit is the agency model that lets publishers set their own e-book prices. Traditional print publishing uses the wholesale model, in which publishers set retail prices and retailers are free to determine their own prices. The filing claims that Apple worked with the five publishers to “boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.”

The plaintiffs are seeking class action status in their filing, which seeks not only restitution and damages but also a determination that the agency model is illegal. Their attorney, Steve Berman, was quoted as saying: “Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple. We intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader.”

Comments

FlipFriddle

As a publisher of print books, I am happy to not have to sell e-books or print books only through Amazon and their pricing model, because of how Amazon treats publishers: you have to sell them your book at the wholesale price which they then sell at whatever retail price they feel like, giving you a portion of that amount that you have no control over. Generally they are able to undercut every other brick-and-mortar store that you are trying to sell to, eventually making you beholden to Amazon. I wonder who the “plaintiffs” are?

mlanger

As both an author and a reader, I think ebook prices should be lower. But I also think this lawsuit is bullshit. The market will adjust pricing over time. Personally, I won’t spend more than $9.99 on any ebook.

Lee Dronick

Where is most of the cost of a printed book? Is it in the research writing, editing, and layout, or is it in the actual printing and binding plus distribution? There are certainly differences.

What I am driving at is if most of the cost is in the physical side, the printed product, then digital prices could be lower.  Of course some hack pumping out another pulp has different costs than a historian doing research for a biography or something much more involved than this.

Nemo

Gentlemen:  I think that this will turn on whether the agency model is legal or whether it is a combination or agreement in restraint of trade.  First, there is, I think, nothing wrong with Apple offering an agency, nor with individual publishers independently deciding that they would rather sell through an agency model.  To find an antitrust violation, plaintiffs will need to show collusion among the publishers or Apple and the publishers or both to adopt the agency model to restrain competition.  Or they must try to persuade the court that the agency model is a new per se violation of antitrust law that inherently involves restraint of trade.

I think that will be a high hurdle.  To begin with Apple, as far as I know, simply offered the agency model for those publisher wishing to accept it, and the publishers who accepted it did so, as far as I know, individually and independently, because they thought that the agency model allowed them to get better terms than the wholesale model that Amazon was using.

Moreover, it can be argued that the agency promotes competition.  Before Apple offered the agency model, Amazon was having things all its own way, as the dominant seller of both books and e-books.  And Amazon effectively set prices for those books, with Amazon able to offer e-books and books as whatever price it chose, including selling books as a loss-leader.  The agency model has simply moved the ability to set price back to the publisher, rather than the wholesaler, and each publisher can now set its own price for each of its e-books.  After all, there is no requirement to sale to a wholesaler, as one can always choose to sell his products himself, which is what a manufacturer does when wholesaling doesn’t offer any value. 

And, of course, the agency model has established both Apple, Google, and others as formidable competitors to Amazon in the market for e-books on the retail level.  Without the agency model that competition would probably not exist.

So, if the publishers’ decision to adopt an agency model for e-books was and is an independent, arms-length business decision, not done in collusion with Apple or among the publishers to restrain competitive trade, and given that a person may decide to sale his products himself or through his agent rather than through a wholesaler, and given that the result has been still vigorous competition both at the publisher and retailer levels, I don’t think that there is an antitrust violation arising from the use of agency model, where the retailer is an agent to sale a publisher’s e-books rather than being a wholesaler.

That Apple offered an agency model because it believed, apparently correctly, that publishers would like it better than the wholesale model and that would benefit its iOS devices businesses, even if true, does not constitute a violation of antitrust law, as a firm may offer a competing business model in the market.  That is competition, not the restraint of it.

AKP

@FlipFriddle If you’re so concerned, raise your wholesale price.

Wholesalers (which includes publishers) shouldn’t get to dictate how the business prices products.

If I choose to buy 100 widgets for $100/ea, shouldn’t it be my choice to even give them away if I want to?

You publishers all seem to forget that Amazon, and by extension all of us, are your customers. You don’t encourage us to purchase your products by whining that retailers are selling them too low.

Clearly, Amazon had a pricing model that had people buying hardware and BOOKS. Now they sell fewer books, because frankly your prices are ridiculous. Why not let the market dictate prices?

Ebooks are far cheaper for you to produce, and make only more money over time (it’s Amazon’s bandwidth, not yours)

So get off your high horse and allow “cheap” books to come to the masses. You won’t regret it.

Nemo

Dear AKP:  There is no requirement that a publisher or any other manufacturer must sale its goods through a wholesaler.  A publisher look a its alternatives and only uses a wholesaler if that model offer its superior value to its alternatives.  Now, that Apple has offered publishers the agency model, which all, including Amazon, have adopted, publishers can chose whichever model, agency or wholesale, best suits their business interest, as long as they are colluding in restraint of trade.  Publishers have, for the most part, chosen the agency model.

So the market is dictating.  It dictates the agency model, where publisher sell their own e-book through an agent, because publishers find more value in that model for their e-books.  Short of collusion in restraint of trade, there is no requirement that publishers use a wholesale model for e-books, even if that might mean that you can buy e-books more cheaply.

mhikl

Where is the Nightmare that is Bosco in all this?

John Dingler, artist

Using the same rationale, I suppose that the same litigator could go after gas stations, potato chip companies, HMOs, PC OEMs, and countless other companies whose pricing is similar to their competitors’.

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