Apple Sued by DOJ Over Price-Fixing Plot

Michael Convente April 11, 2012 0
Apple Sued by DOJ Over Price-Fixing Plot

Apple, along with two well-known book publishers, were sued today by the U.S. Department of Justice (DOJ) over an alleged price-fixing scheme involving e-books.  The lawsuit alleges that Apple and five major book publishers – Simon & Schuster, HarperCollins, Hachette Book Group, Pearson, and Macmillan – colluded with each other to set the price for e-books significantly higher than Amazon’s demanded $9.99 price.  Apple, with the agreement of the aforementioned publishers,  set a price point of $12.99 for e-books on the iBookStore, hoping to push Amazon to allow for price increases.  To the benefit of the publishers, three days after the making the e-books available on the iBookStore, Amazon allowed publishers to raise prices on e-books, which according to the DOJ, “drove up e-book prices virtually overnight”.

Collusion between companies to prevent price competition is an antitrust violation, thus the reason for the DOJ’s lawsuit.  And just recently revealed, 16 states have joined the DOJ in their efforts.

Publishers HarperCollins, Simon & Schuster and Hachette have all settled with the DOJ for an undisclosed amount of money.  However, Apple, Pearson, and Macmillan all plan to fight the lawsuit.

Now shifting to my own commentary – I’m intrigued as to why the book publishers would entertain this agreement with Apple in the first place.  It’s well-known that Apple keeps 30% of revenues generated from their Apple marketplaces (iTunes, App Store, and now the iBookStore).  30% of $12.99 is $3.90, leaving $9.09 for the book publisher.  Even if math wasn’t your best subject in school, it’s pretty easy to see that $9.09 is less than $9.99.

Now I know that Amazon gets a cut as well, but the reason for this alleged price-fixing scheme in the first place is that publishers claimed they were selling e-books at a loss at Amazon’s $9.99 price.  I can’t imagine that the publishers would be making that much more money at $9.09 an e-book with Apple than whatever they were making at Amazon after the company received their own cut.  Unless the companies felt that the extra money they would be making from Amazon selling e-books at $12.99 would be quite profitable, it seems like the publishers would be entering into a high-risk, low-reward venture.

Remember, the reason the companies believed Apple was powerful enough to get Amazon to allow price increases in the first place was due to the emergence of the iPad as a very competitive e-reader device to Amazon’s Kindle.  Which meant that more people would be purchasing e-books from Apple than Amazon, limiting the amount of extra money the publishers would get from e-books sold at Amazon for $12.99.

Overall, it seems like this plot was doomed to failure from the start.  Of course, these types of ventures are often attributed as a “cost of doing business”, legalities be damned.

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