Apple Guilty of Price Fixing

[Asher]

Yep.

http://gizmodo.com/apple-guilty-of-price-fixing-730018979

Apple Guilty of Price Fixing
U.S. District Judge Denise Cote has found that Apple is guilty of colluding with five book publishers to fix ebook prices artificially high on Amazon and other online booksellers. There's no word yet on how much cash money Apple will have to fork over in injunctive relief, but beyond the punishment, hopefully it will serve as a warning to stave off other online retail conspiracies.

In April 2012 the DOJ filed an anti-trust complaint against Apple the five book publishers alleging that the companies "conspired to raise, fix, and stabilize the retail price for newly released and bestselling trade e-books". Apple went ahead with a non-jury trial last month, and today, the court ruled that Apple had indeed colluded by suggesting that they should all charge prices such as $12.99 and $14,99 rather than the standard ebook price of $9.99.

According to the trial record pieced together from obtained emails, depositions, and testimony, the story, of collusion begins back in 2009 when Apple SVP Eddy Cue started studying the ebook market in advance of the iPad's release. Low and behold, they realized that the market of ebooks was potentially huge and that their main competitor was Amazon.

Cue—which the record goes out of its way to paint as a "master negotiator"—and his team knew that publishers didn't like Amazon's rock-bottom $9.99 pricing for ebooks, and that as a whole the publishers were hoping to drive that price up.

Indeed, Judge Cote is unequivocal in her decision:

The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country’s antitrust laws. Apple is liable here for facilitating and encouraging the Publisher Defendants’ collective, illegal restraint of trade. Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.

In other words, the collusion between Apple and the publishers artificially raised the prices beyond what the retailers would have set themselves, and presumably, higher than the natural price. Which is bad for you because you shouldn't have to pay more money just because executives want to wring more cash out of your wallet.

[Imran Siddiqui]

Quite obvious slam dunk here. I am glad that we can return to the days of majority $9.99 e-book prices!

[snoopy369]

I find that statement pretty silly. The $9.99 arbitrary price for hardcover e-books was Amazon trying to (and to a large extent succeeding at) price-fixing on its own, and not particularly for the good of the public... I hope we get, someday, to a point where (e)book prices are market-determined, and not artificially fixed by either Amazon or the publishers. E-book prices ought to fluctuate far more than they do now. Some books should be well over $9.99, and some should start out less - and almost all of them should drop in price far more frequently than they do now. The potential for benefiting from the reverse auction is something publishers have absolutely no comprehension of, despite doing so with three tiers for years. The more tiers in a reverse auction the better for the seller (and buyer), and ebooks have the potential for infinite tiers.

(Also, it's not like this is going to have any impact on things - all 5 publishers already signed pleas/consent decrees, so this only impacts Apple. Any changes you see have already started taking effect, expect perhaps Macmillan who was the last to sign.)

[Asher]

Quite obvious slam dunk here. I am glad that we can return to the days of majority $9.99 e-book prices!

Check out the incredulous responses on appleinsider.com's forum.

[Imran Siddiqui]

I find that statement pretty silly. The $9.99 arbitrary price for hardcover e-books was Amazon trying to (and to a large extent succeeding at) price-fixing on its own

Um... buying the rights to books and then deciding what amount you are going to sell them at ain't really price fixing. And where do you think I buy the vast majority of my e-books?

[Imran Siddiqui]

Check out the incredulous responses on appleinsider.com's forum.

Thank you for this

[The Mad Monk]

I find that statement pretty silly. The $9.99 arbitrary price for hardcover e-books was Amazon trying to (and to a large extent succeeding at) price-fixing on its own, and not particularly for the good of the public... I hope we get, someday, to a point where (e)book prices are market-determined, and not artificially fixed by either Amazon or the publishers. E-book prices ought to fluctuate far more than they do now. Some books should be well over $9.99, and some should start out less - and almost all of them should drop in price far more frequently than they do now. The potential for benefiting from the reverse auction is something publishers have absolutely no comprehension of, despite doing so with three tiers for years. The more tiers in a reverse auction the better for the seller (and buyer), and ebooks have the potential for infinite tiers.

(Also, it's not like this is going to have any impact on things - all 5 publishers already signed pleas/consent decrees, so this only impacts Apple. Any changes you see have already started taking effect, expect perhaps Macmillan who was the last to sign.)

Hardcover e-book?

[Sava]

Apple sucks. But that's just a fact of life. No need to cream your pants over this.

[Docfeelgood]

Quite obvious slam dunk here. I am glad that we can return to the days of majority $9.99 e-book prices!

told you they were ripping us off

[snoopy369]

Um... buying the rights to books and then deciding what amount you are going to sell them at ain't really price fixing. And where do you think I buy the vast majority of my e-books?

When you're the single dominant market player, attempting to set the price across the entire market to a single price that is unsustainable over the long term is effectively price-fixing. No other retailer could realistically price e-books at the same price (sometimes $9.99 was actually losing money, which is clearly misbehavior on Amazon's part). Amazon was trying to accomplish two things - one, becoming the monopolist in the e-book market (either on the hardware side, or the software, or both); and two, force suppliers to lower their prices across the board. The latter wasn't necessarily a bad thing, but the fact that the prices needed to be lowered doesn't inherently make Amazon's anticompetitive actions okay.

I don't really know where the best solution is, long term. Hopefully Amazon has lost their monopolist position, but it's possible they reacquire that position if they price most/all new ebooks under $10. I'm not sure if B&N or Apple will race them to the bottom; but even if they do, I think it's a terrible thing for independent book sellers everywhere. No independent book shop could compete with this pricing level; so we'll be down to a few ebook sellers, and start losing independent physical book outlets (like with MP3s). That's going to happen eventually no matter what, but that should be up to the market, not up to Amazon - which is what it will be if they're able to sell ebooks at a loss.

[snoopy369]

Hardcover e-book?

Eh, whatever you want to call 'ebook that is available in hardcover as well, but not yet in paperback'.

[Dinner]

Quite obvious slam dunk here. I am glad that we can return to the days of majority $9.99 e-book prices!

Truthfully, $9.99 is still too high as most of the costs in the book business were in printing, distribution, and warehousing. None of those things apply to ebooks so logically ebooks should be radically cheaper than paper books in a competitive market.

[PLATO]

Apple guilty of price fixing? SHOCK!

[snoopy369]

Truthfully, $9.99 is still too high as most of the costs in the book business were in printing, distribution, and warehousing. None of those things apply to ebooks so logically ebooks should be radically cheaper than paper books in a competitive market.

This sort of statement is why conversations about ebooks never go anywhere useful. Do you actually have any idea about where the costs in the book business were? No, you clearly do not, since most of the costs have nothing to do with any of the above.

Take a hardcover. $26, retailer buys it for $13. So half of the costs are going to the retailer; certainly some of those costs are in your 'warehousing/distribution', but not really all that much (most of the retailers' costs are the store itself). But fine, let's discount all of that - those $13 go out the window, to be replaced with a placeholder 'Amazon Profit' (because it costs them nothing to host the site or process transactions with credit cards, right?).

Of the remaining $13, only $3 or so have anything to do with physical books (distribution, warehouse, whatnot). Let's say this is a distributed book via Ingram; they probably paid $11 and change for it. That means under $2 goes to them for warehousing/distribution/profit. A major book at a major bookstore chain wouldn't have this, because Penguin/etc. would sell directly to the bookstore, but we're being generous here. Another $1 goes to the physical book printing (unless it's a Robert Jordan book ) and shipping to the distributor. The rest is marketing, editorial staff, cover art, and that big chunk (15% or so of cover price) that goes to the most important person - the author. That's around $4, and will actually be higher with best sellers from major authors.

$26:
$13 = retailer
$2 = distribution
$1 = printing
$4 = author
$1 = marketing
$5 = publisher net (covering editing, typesetting, cover art, etc.)

That $9.99 ebook has a similar breakdown:

$10:
$-1 = retailer
$1 = ebook formatting and typesetting
$1 = marketing
$4 = author
$5 = publisher stuff (editing, cover art, etc.)

That seems unlikely to me, that retailers will be willing to cover $1 of the costs and make no profit on their ebooks for very long... and while perhaps the publisher part could come down some, in order to get anywhere near the 30% Amazon takes from the agency model ($3 here) it seems like that publisher part would go away entirely - which is not reasonable (editing alone is quite expensive, not to mention professional cover art and such.)

http://www.nytimes.com/2010/03/01/bu...pagewanted=all does a good breakdown of these costs. It's certainly the case that some of these costs that are fixed costs (editor is paid the same no matter how many books are sold) will decrease as a proportion of the books' prices if significantly more ebooks are sold than hardcovers were; and at the lower initial pricepoint that may eventually be true. However, that's not true yet. I totally agree that the market should have some say in these prices, but starting your argument with "Ebooks should be way cheaper because all these things cost a lot" is not the way to go.

[snoopy369]

Also, the competitive market just doesn't exist currently, and that has nothing to do with Apple. Apple's deal probably improved the competitiveness of the market (not that it was legal or right, totally agree there). Amazon's 9.99 rule was a massive loss leader that was intent on keeping everyone else out of the market; at least now there are several competitors in the marketplace, and Amazon can't just dominate it unilaterally the way Apple did the MP3 market for years (and they, at least, weren't taking a loss on things to drive out competition). Publishers need to work with retailers to figure out the best way to end up in a competitive market; and currently they're far behind other media in doing so.