Well, the e-book case that began in 2012 when the US government accused Apple of price-fixing finally ended yesterday when the Supreme Court declined to hear Apple’s appeal. That left the original ruling intact, meaning that Apple is officially guilty of anti-competitive behavior and will have to fork out $450M in compensation.
There’s no doubt in my mind that the correct result was reached in law. Apple did deliberately set out to fix prices, it did strike secret deals, and it did intend to manipulate the e-book market. Emails from Steve Jobs confirmed the government’s claim that Apple struck the deals in the belief that consumers would end up paying more for e-books.
Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99. [Up from the typical $9.99 at the time.]
So far, so good. If you’d brought that evidence to me at the time Apple did the deals, I’d have agreed with the government that the company’s behavior was both illegal and morally wrong. But I’d argue that by the time the case was finally brought to court, it was already abundantly clear that it was not in the public interest to pursue it …
Let’s start with a brief recap. E-books were, at the time, sold on what’s known as the wholesale model. Publishers sold e-books to retailers in exactly the same way that companies sell widgets. If you wanted to retail e-books, you told the publisher how many e-books you wanted to buy, they gave you a wholesale price and you could resell them at any price you liked. Whether you made a profit, broke even or sold them at a loss was entirely up to you.
That was the model under which Amazon purchased e-books. Because the company was more interested in building market share than it was in making a profit, and because it reckoned that ten dollars was the maximum most people were going to be willing to pay for an e-book, it sold most of them at $9.99 regardless of what it cost the company to buy them. In many cases, Amazon was making a loss.
So before Apple entered the market, consumers were getting a good deal. They were paying significantly less for e-books than publishers wanted to charge.
Then along came Apple. What Apple wanted was to change the pricing model to what’s called the agency model. There, the publisher sets the retail price for the book, and the wholesale price is a percentage discount from the retail price. This is, of course, the same model Apple uses in its App Stores. The likely result of that deal was that consumers would end up paying the price publishers wanted to charge – typically $12.99 and up at the time – and Apple would take a 30% cut.
So far, so what. Apple could try to sell e-books for $12.99 or $14.99 if it wanted to, but consumers could still buy them from Amazon for $9.99.
Uh-uh, said Apple: if you want to do a deal with us, Mr. Publisher, you have to switch to the agency model with everyone else. This was the claim that Apple initially denied but which was shown to be true by those emails from Steve.
So Apple did break the law, it did try to force prices up, and for a time it succeeded in doing so. That was bad for consumers – in the short term.
In the longer term, however, what Apple did was break Amazon’s near-monopoly on the e-book market. While the company may have started out with loss-leaders, the universal pattern with monopolistic suppliers is that, in the long-run, they force prices higher. Breaking monopolies, and increasing competition, is a good thing.
And that’s what Apple has – to some extent – done. Before Apple entered the market, Amazon’s market share was around 90%. Today, Amazon is still the dominant player, with around 70% of the market, with Apple’s slice amounting to around 12%. Amazon is still an enormously powerful player in the market, but Apple has opened up the market, and other players – like Google Play Books, though tiny now, will increase their share. Slowly, Amazon’s market dominance will decline.
Sure, there are some publishers who still stubbornly price their e-books higher than their paperbacks. But there are many others who don’t. There are now e-books available at every price level. The increased competition Apple created has been good for consumers. It’s been good for indie authors too, giving them multiple markets to choose from, rather than just one (something in which I have a vested interest or two).
So yes, what Apple did was wrong in theory – but right in practice. The company effectively ended up doing the right thing for the wrong reasons.
Now, you can argue that shouldn’t matter. The company still broke the law, and did appear to be aiming to make you and I pay more for our books. But the judicial system has a public interest test. We don’t just consider the black-and-white position of the law, we also consider whether it is in the public interest to prosecute. Given that the end result was good for consumers, good for authors and good for publishers, I’d argue that in this case it wasn’t – and that fact was obvious long before the government brought the case to trial.
FTC: We use income earning auto affiliate links. More.
This is far better explained than how others have typically decided to tackle the subject (like Gruber has done) by saying “Amazon should be investigated too!”.
You clearly aren’t an author or publisher.
I know I had a hard time believing Amazon was wrong in the beginning…I mean, as consumers Amazon was giving us a better deal – how could that be a bad thing. But then I thought more on the subject and realized Amazon, by selling at a loss, was effectively putting the smaller companies out of business and when that happened, there was no competition and the prices could increase. So, in the beginning, all seemed great with Amazon’s loss-leader approach, until you realize what the outcome will eventually be.
Exactly. You see it now. Amazon used to be the price leader but now only lowers its price when price matching a competitor.
Yeah. I saw before this article but this one is nicely written to explain the “why shouldn’t we be happy with a cheaper price settlement” and how that affects other avenues of sale.
If amazon wanted to sell at a loss, how is it their fault…apple wanted to change the model by claiming they were putting the power in the publishers hands, but instead it was about evening the market so that apple could compete while maintaining their profits — if they were to compete with amazon by selling at a loss (something apple will never do again after the early years of doing that) they wouldnt make a good profit and therefore not beneficial for them…
Why on earth should i be paying 12.99 for a book that sells for 9.99 elsewhere… and i probably could find a second hand paperback for 2.99
Why this headline is clickbait. News at 11.
There is a difference between clickbait, and a good headline. This is a good clear headline.
why is it click bait??? it clearly says it’s an opinion relating to recent news… the title is ideal for the post
this is why there are pirates among the internet users, I have no problem paying an artist or author for their work, but for apple to and others to gouge you in price to make a couple more bucks when they already make billions in prophet of their hardware macs and iOS devices this is just ridiculous.
Well, Apple, Google, Amazon, etc do process the credit card transactions, house the apps in their data centers, cover the download bandwidth. Should the not get a cut?
Has anyone ever complained about how the price of digital movies, both purchase and rentals, are the same for Amazon, Apple, and Google? Sure, there was a collusion with eBooks, but what about movies and TV shows? Is the FTC going to do something about this?
No, because there is nothing wrong there. The content providers set the price.
so if the content providers set the prices, why is it wrong for apple to encourage publishers (the content owners of books) to do the same???
Amazon werent doing anything wrong… Apple were trying to even the market…Publishers would have benefited in the long run… Apple just went about it the wrong way and try to force the publishers.
It would be nice to alter the movie market… theres no way that i should be paying the same or more for digital content as a physical version — the physical version i can play on any compatible device (whether it’s mine or someone else’s) i can resell it, pass it on, lend it to a friend… and if i forget my password etc i still own the DVD and can watch it…plus the dvd costs more to make, ship, package etc — digital content should be half the price of a DVD, yet DVDs are often a lot cheaper…even games are a lot cheaper…CDs well, they vary.
No, that isn’t how laws work. You don’t get to pick which law you are allow to break without penalty by merely showing ‘some good came out from it’. That’s a really weak argument.
It is indeed how the law works: “But the judicial system has a public interest test. We don’t just consider the black-and-white position of the law, we also consider whether it is in the public interest to prosecute.”
Exactly right. Companies and individuals often will break one law to uphold another. Apple was “colluding” in order to break a monopoly that was, and still is, damaging the publishing industry. The unfortunate part was that the DOJ didn’t see it from Apple, and the publishers, point of view. I still feel that within a few years, five, ten at the most, the DOJ will be going after Amazon for predatory and monopolistic behavior.
Of course there is a public interest test, but I don’t think just merely showing *some* people benefited from it is ‘public interest’.
If you read the article carefully, the only ones *actually* benefited *from the price fixing* were the publishers and Apple. All the other benefits to the *public* were from Apple breaking the monopoly, which Apple could be done without the price fixing.
Basically the author is trying to mix the two issues into one, when the case itself is about the price fixing, not the monopoly.
No, the author is saying it was theoretically right to prosecute Apple because it did price-fix, but practically not in the public interest because we’ve all benefited from lower ebook pricing.
It actually is how our legal system works because of a thing called prosecutorial discretion. There are limited resources with which to prosecute cases, and so prosecutors, from lowly district level attorneys all the way up to the Department of Justice have to decide which cases to bring and which cases to ignore, and this is based on both a political calculus as well as how their choices can best achieve their stated mission of serving the taxpayers. There is also the entire range of alternatives to prosecution, such as plea bargains, settlements, etc., which involve a similar calculus of spending resources vs. achieving an optimal result under the letter of the law.
Unfortunately people think of the price but they never ask what the consequence of having a low unsustainable price over the long term. We’ve already seen what the result has been when it comes to apps where there is a small handful raking in the cash at the top and everyone else either barely making enough or the iOS platform is becoming a complimentary version to the desktop version. There was a documentary done not too long ago into Amazon’s business practices – lets not delude ourselves that it was Amazon taking the ‘hair cut’ when they put downward pressure on the price of ebooks – Amazon still made a tidy profit but ultimately screwed over authors and publishers in the process. We as consumers might benefit in the short term with cheaper prices but long term the industry becomes unprofitable, new authors won’t enter the market because publishers won’t be able to absorb the cost of building up the authors brand etc. basically we all end up losing out in the end.
1. Well that was a quick write-up; good for you Ben!
2. Hehe, it’s a tie between Google and Other.
I wonder how much the government investigators for this case were “fired up” by the findings in the wage and poaching case. In both cases, some pretty damning smoking guns in emails from Jobs…you just get the feeling that SOMEBODY had had enough and was aiming to stick it to Apple. And, FTR, I think Apple got what it deserved in both cases. Jobs had a bad habit of thinking rules didn’t apply to him, and often acted accordingly. In this case, Apple would have done FAR better to “collude” to set the FLOOR at Amazon’s prevailing pricing, rather than to try to jack up prices. At least publishers would have had some semblance of lower-price-point stability vs Amazon; but no, Jobs/Apple went for RAISING prices. Difficult to see how that benefitted consumers, much beyond ensuring a healthy increase for Apple’s cut and to the publishers take. If Amazon had dumped pricing from there then the publishers, and Apple, would have had a MUCH stronger claim of action against Amazon on monopoly grounds. Instead, they all look like greedy jerks.
For the record, I applaud Apple for what they were trying to do (well, mostly). However, rule of law is rule of law. The judicial branch’s responsibility, once it gets to them, is to judge the case based on existing law. Perhaps the prosecution should have let the case drop before it got there. Perhaps the law in question should have been legislatively changed if possible. Perhaps Apple should just accept the legal/monetary consequences for what it did and sleep easier knowing their consciences are clear (mild sarcasm). But, there was no other right way for the courts to rule on this given the parameters. Also, fwiw, the Public Information Test you refer to seems to be a British aspect of prosecution following the Evidential Test. That was informative for me as we don’t really have that codified over here. Our Public Information Test is much more centered around the Freedom of Information Act.
‘Legality’ is determined by the intent of the action, not the result. While there is no doubt that Amazon holds the monopoly on eBooks today, there was clear intention from Apple to control prices. Now, the DOJ should go after Amazon IMHO.
Apple could have easily matched Amazon’s price discounting as a method for breaking the monopoly. How much money do they have in the bank? How much money were they making on each iPad sold to read those ebooks?
That would have continued the saving of money by consumers, reduced Amazon’s control, and meant that Apple wasn’t breaking the law.
“The company still broke the law, and did appear to aiming to make you and I pay more for our books.”
There should be no other statement than this. Final. End.
They broke the law. Period. Full stop.
Apple’s mistake was that told the publishers they must use the same agency deal with the other companies…
Apple kinda got greedy though… they made it a huge thing about supporting education for all and trying to reach out to the poorer areas BUT this resulting in them continuing to get 30% of the money, which pushing prices up above competitors — rather than reduce prices and get a better deal with publishers and take a smaller percentage (considering it was meant to support disadvantaged kids) they decided to try and force other companies to put their prices via publishers changing how they do pricing…
If other companies were already charging $9.99, apple should have matched that or lowered the cost — if they couldnt do either, they shouldnt have entered the education market… at the end of the day they increased the cost of books for students and schools in poor areas… just so they could keep their profit margins.
Why is there no one questioning the publishers on this one – since when is the e-book version of print material worth equal to, much less more, than the paper version?
And by the way, the judicial systems responsibility is to enforce the law AS IT EXISTS – there is no public interest test – that is purely a Congressional prerogative to change the law to suit the times, not the job of the judicial branch. Far too many people think the judicial system exists to make life fair, and that IS NOT ITS JOB – it is a referee – if you don’t like results of what is a catch or not a catch is the rules committee job, not the referee’s to fix.
A great many cases do not proceed because they fail a public interest test despite it being clear that the law had been broken.