Apple Holds Firm As Publishers Settle With DoJ Over e-Book Pricing 129
Nerval's Lobster writes "The U.S. Department of Justice has just settled with book publisher Macmillan in an ongoing case over the price of e-books, bringing its number of settlements with big-name publishers up to five. Justice claims that those five publishers, along with Apple, agreed to 'raise retail e-book prices and eliminate price competition, substantially increasing prices paid by consumers.' Apple competes fiercely in the digital-media space against Amazon, which often discounts the prices of Kindle e-books as a competitive gambit; although all five publishers earn significant revenues from sales of Kindle e-books, Amazon's massive popularity among book-buyers — coupled with the slow decline of bricks-and-mortar bookstores — gives it significant leverage when it comes to lowering those e-book prices as it sees fit. But Justice and Apple seem determined to keep their court date later this year."
Re:Of course Apple are going to take it to court. (Score:1, Informative)
apple entered into an agreement with the publishers to fix prices of ebooks and kill their competition's business model. That's the issue at hand.
It was worse than that (Score:2, Informative)
They were agreeing on a set agency pricing.
See normal pricing is wholesale, meaning that I decide what I need to charge for a product, and I sell it to stores for that much (usually with quantity discounts). Then the retailer is free to price it as they wish. They can mark it up a ton and try to make big unit profits, they can sell it at a loss as a loss leader. I am happy either way because I am getting what I want per copy.
Agency pricing is different. Here the manufacturer tells the retailer what price they must sell the final unit for. They not only set the price the retailer must pay them, but the price the retailer must charge customers.
Agency pricing is pretty scummy period in my opinion, and is fairly rare. Here not only was it being done, but as a collusion.
Then, to make matters worse, it was done due to the request of a retailer. Apple wanted agency pricing so they didn't have to compete with Amazon on price. They were having their high margins enforced on all retailers, at the expense of the consumers.
Re:Of course Apple are going to take it to court. (Score:5, Informative)
You are right – but you are also missing the point.
There are 3 major players: the publishers, the distributors (Apple or Amazon), and the customers.
Amazon’s Kindle used a distributor’s model. Amazon would buy the book at a fixed price from the publisher but would set the retail price. They could, and did, sell books at a loss, to promote the Kindle.
Apple uses an agency model. The publishers set price and then negotiates the percentage the retailer (Apple) keeps. It is alleged that Apple and the publishers colluded to break Amazon’s near monopoly.
The agency model shifts power away from the distributors to the publishers. As you say this model has been around for a long time – so why care?
What makes it a Federal case is that (allegedly) this raised prices for consumers. Why? Because now all bookstores sell the same book for the same price, so bookstores are no longer competing on price. It shifts power away from customers to the publishers, resulting in higher prices.
Re:Of course Apple are going to take it to court. (Score:3, Informative)
That's why there is such a "to do" about this. It's not the way things normally work and that's why the DOJ has brought the lawsuit about.