What Is This Apple Price-Fixing Business Anyway?

Apple and and several major publishers are involved in a lawsuit that was filed by the U.S. Department of Justice (DOJ) this morning for e-book price fixing.

The weakened publishing industry has been revamped thanks to new media viewing platforms, including tablets and Apple’s iPad App Newsstand.  Apple’s “agency pricing” model, which the company has been transparent about implementing since its inception, seems to be the main point of contention in the lawsuit. According to the model, publishers determine the price of their content and Apple gets 30% of the profits. The publishers also agree to not allow for a lower price with a competing service.

The problem is the rules get broken, as illustrated by the late steve Jobs in an excerpt in his biography, pointed out by Mashable:

“Amazon screwed it up. It paid the wholesale price for some books, but started selling them below cost at $9.99. Publishers hated that — they thought it would trash their ability to sell hardcover books at $28. So before Apple even got on the scene, some booksellers were starting to withhold books from Amazon. So we told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’

“But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’ …

“We were not the first people in the books business. Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”

As Lance Ulanoff of Mashable points out, it does look a lot like price-fixing between Apple and its publishers. The fact that publishers went along with it is a clear indication of just how desperate they were to break the stranglehold Amazon had on the ebook business.

Less than a full day has passed  and already Hachette, Harper Collins, and Simon & Schuster have agreed to settle with the DOJ.

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