U.S. Threatens Apple With E-book Antitrust Suit

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E-book Antitrust Suit

The Justice Department has warned Apple and an association of book publishers that it plans to sue for alleged e-book price fixing. See here a video report from Newsy:

Embedded Video Source by Newsy.com

Transcript by Newsy

BY EVAN THOMAS

ANCHOR BLAKE HANSON

Apple can add another potential lawsuit to its stack: the U.S. Justice Department says it’s prepared to sue Apple and book publishers for colluding to inflate e-book prices, thus violating antitrust laws.

According to the Wall Street Journal, the Justice Department is taking issue with the agency model that Apple brought onto the e-book scene. Before the iPad and other e-readers, publishers used to sell books for cheap to physical retailers like Borders and Barnes & Noble.

“Traditionally, publishers sold books to retailers for roughly half of the recommended cover price. Under that ‘wholesale model,’ booksellers were then free to offer those books to customers for less than the cover price if they wished. Most physical books are sold using this model.”

Amazon took it a step further. When it was building up its market lead with the Kindle, it introduced a loss-leader model and sold e-books for even less than wholesale price. Publishers didn’t like losing out, and The Justice Department alleges they went to Apple to put a stop to Amazon’s tactics.

Under Apple’s model, publishers set a book’s end price and Apple takes a 30% cut. Forbes points out there are problems with both sales models.

“Within the economics of it all there’s not really a ‘right’ answer. You can create models where either system has the potential to be abused against the interests of the consumer. So which is better for said consumer is really a matter of judgement about how things are at any one time in any one market.”

The Justice Department is worried the whole apparatus is suppressing competition, specifically against Amazon’s loss-leading practices. But Apple argues — how can Apple be against competition when Amazon can use the iPad to make money? The Verge quotes the court filing.

“‘…if Amazon was a ‘threat’ that needed to be squelched by means of an illegal conspiracy, why would Apple offer Amazon’s Kindle app on the iPad? Why would Apple conclude that conspiring to force Amazon to no longer lose money on eBooks would cripple Amazon’s competitive fortunes?’”

If it does come down to a suit, Wired says Apple and co. can probably come up with a workaround that lets them keep their arrangement mostly intact.

“Wholesale pricing is no wholesale fix. Nor is it by any means certain that this would be the outcome. Agency pricing can be technically altered to meet whatever legitimate antitrust issues the DOJ may raise.”

But whether Apple and publishers settle or take the matter to court, GigaOM says the bottom line is good news for consumers.

“While the outcome of this case is not certain, one thing seems fairly clear: E-book prices are headed downward, whether publishers like it or not.”

The Wall Street Journal reports only some of the publishers accused have approached the settlement table so far. Apple has declined to comment further.

Transcript by Newsy.

(Image source: newsy, The Huffington Post)

Sources: The Wall Street Journal Amazon Forbes The Verge Wired GigaOM

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