Justice Department wags finger at Apple and publishers over alleged E-book pricing cartel

Justice Department wags finger at Apple and publishers over alleged E-book pricing cartel
DoJ has threatened to sue Apple and five major US publishers for what it claims is an agreement among them to jack up the e-books pricing range. Some of the publishers accused are reportedly already negotiating settlements with the government, trying to fend off a lawsuit, but others are not yet onboard with the program.

If all sign settlements, the e-book prices might go down, since a real competition might be introduced to the electronic reading market. Simon & Schuster, Hachette Book Group, Penguin Group (USA), Macmillan and HarperCollins Publishers Inc. are five of America's biggest publishers, so it will be interesting to see what an eventual agreement would mean for e-books.

All of it reportedly started with Amazon undercutting the traditional retailers like B&N that got books from publishers at about half the cover price wholesale, and were free to set whatever price they liked, even lower than the cover one. Then Amazon swooped in with its $9.99-a-bestseller strategy, aimed to entice people into buying its Kindle reader.

Fearing a margin squeeze, the publishers gladly accepted Steve Jobs' offer to introduce the agency model in order to fight Amazon's looming dominance. Apple's founder offered them to sell the books for reading on the iPad and other company gadgets at a 30% cut for Apple, making it up with slightly higher prices for the consumer. 

The publishers could then go to Amazon, tell them about the agency model they are using with Apple, and force them to accept the same conditions. As Steve Jobs was quoted saying in his autobiography:
The thing that worries DoJ is the so-called "most favored nation" clause in such agency agreements, which prohibit the publishers from offering the titles for less to other retailers, thus hinting at a cartel agreement designed to keep prices artificially high. The Justice Department has had some bad experience with the same type of clauses that led to choking the competition in the health-care industry. The EU is also looking into the matter, but Apple moved to dismiss the case saying that it hasn't been in price coordination with any of those publishers.

source: WSJ

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8 Comments

1. ilia1986 unregistered

Oh please sue them!! Please do!

2. andro.

Posts: 1999; Member since: Sep 16, 2011

It just typical Apple!

3. roscuthiii

Posts: 2383; Member since: Jul 18, 2010

Sleazier and sleazier. According to Steve Jobs' quote, that would be an admittance to price fixing with a little extortion thrown in at the end.

4. roscuthiii

Posts: 2383; Member since: Jul 18, 2010

http://en.wikipedia.org/wiki/Price_fixing http://en.wikipedia.org/wiki/Extortion (Tried to give different links but when I clicked on them to check them they didn't want to seem to work... so Wikipedia it is since it actually seems to work.)

5. love_android_o

Posts: 2; Member since: Mar 08, 2012

I really hope DOJ will kick apple ass for doing bad business practice. As for me, is another reason to hate apple, and another reason to NOT using apple product at all. I really hope that's SJ book could really bring down apple.

6. AbsentbebniM

Posts: 21; Member since: Feb 09, 2012

So, what you're all saying is that Apple is the bad guy for agreeing to the agency model that the publishers really wanted. Makes sense to me. I mean, if I had an eBook store and those publishers came to me saying that they weren't exactly happy with the agreement they had with Amazon and that if I agreed to the agency model, they'd work with me... boy oh boy, I would so say no. I mean, why would I want to accept their multi-million/billion dollar business under their terms? I'd rather let my store disappear. I'd like to point out that the quote in no way implies that Apple was in cahoots with the publishers. Apple wanted their business, asked them what it would take to get it, then agreed to their terms. It's the publishers that then went to Amazon and said, "Here... look at the agreement that Apple signed with us. If you want to continue working with us, these are the terms you'd have to agree to." Of course, leveraging one big business against another is bad business. I mean, where would this country be if corporations wanted to make money? Get real people. I can't see why Apple was even dragged into this. It's the individual publishers that appear to be in cahoots with each other and are pushing the "agency model or nothing" on retailers.

8. roscuthiii

Posts: 2383; Member since: Jul 18, 2010

Yeah... because you forgot something: the Consumer. Businesses may try different models to achieve profits, that's all well and good. But the consumers are supposed to determine what's viable and what's not. Steve Jobs' was trying to remove the consumer from the equation by pushing all businesses to offer the same model or they wouldn't have the product to sell. Well, not the consumer's money - just the consumer's choice. That is price fixing by collusion and extortion.

7. ZayZay

Posts: 571; Member since: Feb 26, 2011

Apple will just pay off DOJ and raise prices higher. Profit baby!

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