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Apple in the dock for e-book price fixing?

The U.S. Justice Department has cautioned Apple and other leading e-book publishers against alleged price collusion. The six publishers apparently were in cahoots for hiking the prices of the e-books they sold.

Apple's iBooks app (via Wikimedia)

The publishers in the dock include the Hachette Book Group (owned by Lagardere SCA), Simon & Schuster (CBS), Penguin USA (Pearson PLC), Macmillan (Verlagsgruppe Georg von Holtzbrinck GmBH), and Harper Collins Publishing (News Corp.). According to sources, some of these prominent names have held talks for out-of-court antitrust settlements to avoid what could prove to be a costly legal battle.

The crux of the matter lies within a fundamental change brought about by Apple in the publishing industry. The traditional model of book selling relied on wholesale book purchases by retailers from book publishers. There would be a recommended cover price, half of which would be charged by publishers to retailers, and the rest would be add to the revenues of physical book retailers. But when Amazon Inc. entered the e-book reader market with its Kindle, it offered e-books at heavy discounts compared to their physical versions. This set about a paradigm shift among publishers, who certainly didn't want customers to start shunning expensive, physical books altogether.
Apple came into the picture after that. Then-CEO Steve Jobs tried to incentivize the use of the iPad as an e-book reading tablet for both customers and publishers. This was done by allowing publishers to set their own prices for the titles they sold, while giving Apple a 30% cut, which appeased every party involved. This 'agency model' (as Apple called it), led to publishers forcing the likes of Amazon to accept it too.

The U.S. Justice Department opines that Apple Inc. was trying to collude with publishers to effectively raise book prices, as it would get a greater price cut of the proceeds, while also forcing cheaper retailers like Amazon to raise their e-book prices. If found guilty, Apple and the accused publishers could be indicted for multiple federal antitrust violations. Moreover, in what is a rapidly growing market, there could also be huge price cuts for e-book buyers across the board, should the allegations be found to be true.

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