Consumer Group: E-book Price Fixing Costs Big Bucks

[gb18]

 "The sellers of information goods seem to think that because consumers were willing to pay a high price for their physical products in the past, they can keep the price high for digital products and pocket the cost savings as increased profit."

http://www.pcworld.com/businesscenter/article/253465/consumer_group_ebook_price_fixing_costs_big_buc...

[flyingtoastr Scribe]

Look, another post that completely missed the point of why agency pricing was instituted.

[bobstro]

Whether they think they have a really good reason or not, the publishers best comply with the law. These investigations aren't over the logic behind the price fixing. They're about the legality.

[doncr]

The Agency publishers have increased profits at the expense of the consumer by getting together to set the minimum retail price.  How can that be anything but illegal?

[deesy58]

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bobstro wrote:

Whether they think they have a really good reason or not, the publishers best comply with the law. These investigations aren't over the logic behind the price fixing. They're about the legality.

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doncr wrote:

The Agency publishers have increased profits at the expense of the consumer by getting together to set the minimum retail price.  How can that be anything but illegal?

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The law means little if it is not enforced.  When was the last time that the US Department of Justice took an enforcement action under the Sherman Antitrust Act? 

[Doug_Pardee Distinguished Bibliophile]

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doncr wrote:

The Agency publishers have increased profits at the expense of the consumer by getting together to set the minimum retail price.  How can that be anything but illegal?

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Setting minimum retail price is legal. Colluding ("getting together") is not, but that has yet to be proven. Personally, I don't think the big publishers are stupid enough to have colluded, or at least not to have left sufficient evidence that they did.

The question is whether Apple's actions resulted in a de facto collusion. Personally, I think it did, but I'm not at all confident that the charges can be made to stick. Apple wrote up a contract that set forth the conditions on which it would carry e-books. Publishers were free to take it or leave it; the same terms were offered to all publishers, and no exceptions were made to anybody. Most publishers refused, but seven agreed, five of whom are named in the legal actions. Two of the first seven backed out early on. Later, two more publishers agreed to Apple's contract.

In my mind, the two vulnerable points are the Most Favored Nation clause and Apple's dictating of e-book pricing tiers, which, taken together, means that Apple is setting e-book prices at other e-book sellers. The dictation of prices hasn't been mentioned in either the DoJ investigation or the class-action lawsuit, so I don't expect it to factor in.

[Fred011]

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gb18 wrote:

 "The sellers of information goods seem to think that because consumers were willing to pay a high price for their physical products in the past, they can keep the price high for digital products and pocket the cost savings as increased profit."

http://www.pcworld.com/businesscenter/article/253465/consumer_group_ebook_price_fixing_costs_big_buc...

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Thanks for the link:very interesting.

It's not just that publishers were increasing profit, not an evil or illegal goal.  It's how they are increasing profit that is alleged - "Collusion between firms to set minimum prices is 'slam dunk' illegal, especially when one of the first effects of the price fixing, after increasing consumer cost, has been to raise publisher profits."

Bad for the consumer is when you have an "increase [in] profits even as revenue is flat."

[TnTexas]

I find it interesting that publishers apparently made more per book under the wholesale model than the current agency one. 

From http://blog.nathanbransford.com/2012/03/why-dojs-potential-lawsuit-over-agency.html :

At the time Amazon kicked off the modern e-book market with the introduction of the Kindle, e-books were sold according to the traditional wholesale model. Essentially, publishers set a cover price and they got half, the bookseller got half. If a book was listed at $25, publishers got $12.50 on an e-book sale, the bookseller got $12.50.

Problem was from publishers' perspective, Amazon was selling some e-books at $9.99 and taking a loss on those sales, all the while locking readers into their proprietary format. Not only did this devalue what consumers felt a book "should" cost, publishers were worried that competitors wouldn't be able to enter the e-book space because they wouldn't be able to compete with Amazon's prices. No competitors would mean a virtual monopoly for Amazon, and publishers were presumably concerned about Amazon's ability to then dictate terms.

Along comes Apple and the iPad. Steve Jobs talked the publishers into the agency model - publishers set their own prices and they get 70% of the proceeds.

The irony is that the agency model actually meant publishers received less money per copy sold. Napkin math for wholesale: $25 cover price, they got $12.50. Agency: Price that e-book at $14.99 and they get $10.50.

Publishers then turned around and imposed that agency deal on Amazon, which is the subject of the DOJ investigation. The end result: There really is more competition in the e-book world, but prices are higher than they likely would be if Amazon and others were able to discount as they saw fit.

[Fred011]

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Doug_Pardee wrote:

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doncr wrote:

The Agency publishers have increased profits at the expense of the consumer by getting together to set the minimum retail price.  How can that be anything but illegal?

---

Setting minimum retail price is legal. Colluding ("getting together") is not, but that has yet to be proven. Personally, I don't think the big publishers are stupid enough to have colluded, or at least not to have left sufficient evidence that they did.

The question is whether Apple's actions resulted in a de facto collusion. Personally, I think it did, but I'm not at all confident that the charges can be made to stick. Apple wrote up a contract that set forth the conditions on which it would carry e-books. Publishers were free to take it or leave it; the same terms were offered to all publishers, and no exceptions were made to anybody. Most publishers refused, but seven agreed, five of whom are named in the legal actions. Two of the first seven backed out early on. Later, two more publishers agreed to Apple's contract.

In my mind, the two vulnerable points are the Most Favored Nation clause and Apple's dictating of e-book pricing tiers, which, taken together, means that Apple is setting e-book prices at other e-book sellers. The dictation of prices hasn't been mentioned in either the DoJ investigation or the class-action lawsuit, so I don't expect it to factor in.

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You pointed out, "Most publishers refused, but seven agreed, five of whom are named in the legal actions. Two of the first seven backed out early on. Later, two more publishers agreed to Apple's contract."

Did those "agreeing" (possibly colluding?) publishers and Apple constitute a large enough market share to have created a de facto anti-competitive environment under Sherman Anti-Trust? Since, according to Sherman, the purpose of the Act was ""To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer."

Also, the Supreme Court (in Spectrum Sports, Inc. v. McQuillan 506 U.S. 447 (1993)) found that "The law directs itself not against conduct which is competitive, even severely so (emphasis mine), but against conduct which unfairly tends to destroy competition itself."

Is the agreement "designed to, or tend to, advance the cost of goods to the consumer" in a less than competitive arena? IMHO it does!

[patgolfneb]

This discussion illuminates the limitations and weaknesses of relying on laws to promote market fairness. Inevitably the myopic perspective and adversarial process results in unbalanced decisions lacking in true fairness. Amazons activities are unlikely to be addressed. The use of DRM and proprietary formats to lock in consumers, denial of fair use rights for consumers, numerous other related issues will be ignored. We need to ask why? It may well be that this minor issue with limited long term impact, and our focus on short term price allows the real factors limiting market freedom and pressuring prices upwards long term to be ignored. I would be thrilled to see our consumer watchdogs both elected and self appointed working with a broader focus instead of the simplistic reliance on laws created for the abuses of 100 years ago. I am confident that the business community is well aware of how inept, even irrelevant these responses are to market abuses.