If you’re an avid ebook reader, you probably know all about the long-running lawsuit involving Apple and five major publishers, who conspired to fix the prices of ebooks at an artificially high level. Apple was recently found guilty of the USA’s federal antitrust law, and in July District Court Judge Denise Cote in Manhattan said the computing giant played a “central role” in a conspiracy to eliminate retail competition.
In case all this is new to you, here’s a summary of the case. In April 2012, the US Justice Department and 33 US states brought a civil action against Apple and the publishers HarperCollins, Macmillan, Penguin, Simon & Schuster and Hachette. The suit claimed that the defendants, seeing Amazon’s policy of price discounting as a threat to their business models, colluded to adopt an “agency model” that would allow them to fix prices, in violation of antitrust laws.
This situation arose partly because of Amazon’s pricing policy. Amazon routinely sells ebooks at a loss, a policy that led to it controlling 90 per cent of the ebook market at one time – particularly as it also owns the Amazon Kindle, now a common feature even in traditionally bricks-and-mortar institutions like Waterstones. The five publishers involved were worried that this practice would cut into sales of hardback and physical books, and Apple appeared to offer a way to fight back against Amazon’s dominance.
Books are traditionally sold wholesale – ie, the publisher sets a cover price, book shops pay a lower negotiated price and then set their final price to the customer. But when approached by Apple to find a solution to the “Amazon problem”, the publishers recommended an agency model. This means the publisher sets the price to the customer at the outset and takes a set percentage of the prices: in fact, it’s exactly the same way Apple’s App Store works.
The agency model is not illegal by itself, but the terms of the agreement – when brokered between a major computing giant and the publishers that control nearly half of the book industry – began to look suspiciously like an attempt to create a monopoly. Especially as the publishers then went to Amazon to demand the same treatment and Amazon, while unhappy, couldn’t do anything about it. Ebook and hardcover prices began rising, with Amazon charging more than 40 per cent more for New York Times bestsellers just two weeks after the switch. The lawsuit followed shortly afterward.
Of course, arguably none of this would have come about it if weren’t for Amazon’s aggressively low pricing strategy, which could be interpreted as controlling the market by other means. If you think it’s Amazon who really looks like the villain in this story, read the Apple-ified viewpoint over at Cult of Mac.
