DOJ Looks into e-Book Price Fixing

by Holly Shoemaker

The Wall Street Journal has reported that the U.S. Justice Department (DOJ) may sue Apple and five U.S. publishers, Simon & Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins for anti-trust violations related to price fixing of e-books.

Overview of Issues

At the center of the complaint is how Apple charged for e-books when it launched the iPad in 2010. Apple employed the "agency model," where publishers set the price for an e-book and Apple received 30 percent of the profits. This is the same as Apple’s education strategy. Apple also said publishers could not let rivals sell the same book at a lower price. This is the point that I see difficult to enforce and one that does conjure up concerns.

Prior to this launch, publishers sold books to retailers for half of the typical cover price. This allowed sellers to discount books for less than the cover price. Book publishers did not respond well when Amazon sold new best sellers for $9.99 to boost sales of its Kindle devices. Amazon also forbid publishers to offer discounts to other retailers. Those who accuse Apple of price fixing have some legitimate reasons to conclude Amazon did the same. The issue is whether it is legal or not, and that answer is, "It depends."

Publishers have also said that retailers such as Barnes & Noble would not have the ability to compete with discounting, like Amazon does. However, Amazon agreed to raise prices.

Concluding Thoughts

E-books operate differently than regular books. There has to be some leeway to ensure all parties get their fair shares, this includes consumers. Apple and other companies have the right to come to contractual agreements. The issue is sorting out if those agreements did violate anti-trust laws. On the surface it appears price fixing occurred, but the issue is also one of capitalism and honoring agreements - if they are legal of course.

Reports have circulated that some of these major publishers are in talks to settle this case. No matter the outcome, consumers keep benefiting. Consumers have already spent money on tablets, smartphones or e-book readers. They will expect to receive e-books at a cheaper cost. This could mean that e-books will become even cheaper for consumers.