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roustabout
Posts: 3,571
Registered: ‎03-31-2011
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The DoJ thinks it has a case against the Agency model

[ Edited ]

The wall street journal and Cnet are both reporting that the Agency pricing model is being actively pursued by the DoJ against Apple and the publishers who converted to the model in concert with one another. 

 

http://online.wsj.com/article/SB10001424052970203961204577267831767489216.html

 

http://news.cnet.com/8301-1023_3-57392980-93/apple-book-publishers-face-e-book-antitrust-lawsuit/

 

The DoJ is in receipt of depositions asserting that Agency model makes for a more competitive market, despite the fact that ebook prices went up, not down, after it's introduction - and that one of the principals in the conversation laid that out as one of the goals. 

 

Price rises  tend to be the result of a more cooperative - perhaps even collusive - market rather than a a competive one. 

 

Particularly entertaining is Apple's response about delivering a captive audience via the iPad being helpful, despite the statement by Jobs to his biographer.

 

When the WSJ is explaining what happened as it does in this article, it makes it understandable that at least some of publishers are looking to settle - the Journal has a dog, Harper Collins, in the fight, and still this is how the article outlines Apple's role.

 

From the WSJ article: 

 

As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an "agency model," under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price.

 

"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,'" Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

 

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' " Mr. Jobs said.

 

The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.

 

- end of WSJ quote.-

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draksig
Posts: 125
Registered: ‎07-04-2010

Re: The DoJ thinks it has a case against the Agency model

About time!

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Htom_Serveaux
Posts: 145
Registered: ‎03-13-2010

Re: The DoJ thinks it has a case against the Agency model

[ Edited ]

Not necessarily a good thing. Remember, Amazon will be the one (and likely only) winner here. Mr. Bezos can and will use Amazon's tremendous piles of cash to sell e-books at a loss for as long as it takes to shut down every other source. Then, with one seller basically controlling the whole industry, it won't be pretty.

 

Proprietary formats, control of what is and isn't sold, control of what prices authors can get for their works. The Agency model sounds evil, and may well be, but I'm not sure the alternative is all rainbows and unicorns.

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bobstro
Posts: 3,523
Registered: ‎01-01-2012

Re: The DoJ thinks it has a case against the Agency model


Htom_Serveaux wrote:

Not necessarily a good thing. Remember, Amazon will be the one (and likely only) winner here. Mr. Bezos can and will use Amazon's tremendous piles of cash to sell e-books at a loss for as long as it takes to shut down every other source. Then, with one seller basically controlling the whole industry, it won't be pretty.


Won't that only be the case if the publisher makes an arrangement with Amazon? Sure, Amazon could sell at a loss, but don't the publishers have to agree to terms to start with? They can still guarantee their profits, though maybe not at the ridiculous pricing we have today.

 

It seems to be that we'd be better off if B&N and other publishers earned customer loyalty by putting out a better set of products rather than being protected against competition by the government:

 

1. Produce a better quality reader. Arguably, B&N's are already somewhat better, but there's LOTS of room for improvement. Make me want to use B&N because using their reader is the best experience. This means things like a functional shelving system, multi-device synchronization and backup. Make the NOOK bulletproof to use and hard to lose data on. Quit thinking of it as just a shovel to cram media down my throat.

 

2. Produce better quality ebooks. As it stands today, there's not a hell of a lot of difference between an ebook from one source over another. Yet the epub standards are evolving. Use the enhanced capabilities of newer standards and make darned sure your reader supports it. This goes hand-in-hand with #1, above. Make reading B&N material best on a B&N reader.

 

3. Produce enhanced "other stuff". B&N's got me hooked with their enhanced magazines (e.g. Wired), imperfect though they are. I like the subscription delivery system.

 

4. Move to watermarking and away from DRM that makes it difficult to use my devices as I see fit. Make it clear to consumers that purchased content is identifiable with them, but don't artificially impose limitations on how consumers view content they have paid for.

 

Finally, as a consumer, angst over these issues makes me very leery of buying a device from anybody BUT Amazon. I think B&N would be well served by opening up the Android Market and letting consumers choose what to run on their devices, including the Kindle app. Knowing that I can read anybody's ebooks on my device makes me more comfortable dropping the bucks on it. Yes, they will lose some of my purchases to Amazon, but they will keep the rest. The alternative is that I buy a Kindle, and B&N sees none of my purchases.

flyingtoastr
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Re: The DoJ thinks it has a case against the Agency model

@bobstro

 

There's no "agreements" when we default back to wholesale pricing. The publishers get a specific price for each copy of the book (usually around $13 for a new release) and then the retailer can sell it at whatever they want. Amazon can and will loss-lead, which no other company can maintain (outside of Apple, but they don't seem too interested). Then the other ebook vendors like BN or Kobo will be forced to raise prices just to try and maintain some sort of cashflow, and slowly bleed customers to Amazon until they can't maintain themselves any more. It won't be instantaneous, but Amazon's predatory pricing will eventually run everyone else out of business, just like they're doing in every other industry.

 

As for you other points:

2. BN doesn't produce content - and if Amazon is gaining back market share with it's "low costs" publishers will have even less of a reason to grant BN any exclusives.

 

3. Same as #2.

 

4. The reason you can't read BN books on a Kindle is entirely on Amazon's shoulders, not BN's. The beta for ADE 1.8 unlocks the BN social DRM, which means you can officially read BN ebooks on everything except Amazon's closed garden. Bring it up with Bezos if you don't like proprietary lockin.

 

I'm glad Bezos' lawyers... sorry, the DOJ... are looking out for the interests of customers. That's what lobbying is for!

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patgolfneb
Posts: 1,717
Registered: ‎09-10-2011

Re: The DoJ thinks it has a case against the Agency model

[ Edited ]

My normal bias is that business seeks to find ways to manipulate the market, often with questionable ethics. I do find it odd that Amazons tactic of selling below cost in pursuit of a near monopoly is not worthy of government interest, but agency pricing is? The propriety DRM process is part of this also. Why not link these issues? Amazon signs a consent decree and stops routinely selling books below cost and publishers end agency pricing. Watermarking or universal DRM is agreed to. Amazon, Apple, Google, BN can then compete in a proper market. Addressing agency pricing alone ignores the real issue. Differentiation in e books is dependent on authors. MP3 and music or blue ray and movies, are good comparisons. Film and music firms success depends on delivering the right artists. Find the right authors success follows. Proprietary formats, predatory pricing, agency pricing are all attempts to protect firms from the risk of failing to deliver competitive products and all should be addressed.

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Sun_Cat
Posts: 788
Registered: ‎12-03-2011

Re: The DoJ thinks it has a case against the Agency model


flyingtoastr wrote:
There's no "agreements" when we default back to wholesale pricing. The publishers get a specific price for each copy of the book (usually around $13 for a new release) and then the retailer can sell it at whatever they want. Amazon can and will loss-lead, which no other company can maintain (outside of Apple, but they don't seem too interested). Then the other ebook vendors like BN or Kobo will be forced to raise prices just to try and maintain some sort of cashflow, and slowly bleed customers to Amazon until they can't maintain themselves any more. It won't be instantaneous, but Amazon's predatory pricing will eventually run everyone else out of business, just like they're doing in every other industry.

This wouldn't necessarily be the case. Not if the DOJ wants to go after a comprehensive solution. I think patgolfneb has a good idea. It would be perfectly possible for the DOJ, using threats of very aggressive prosecution, to enforce an out-of-court settlement that includes an end to the agency model as well as an agreement from all the retailers not to engage in predatory pricing, based on specific criteria.

 

Historically in the U.S. it's been very difficult to get the courts to side for plaintiffs in predatory pricing cases. The Supreme Court in the 1980s and '90s made it difficult (references below). All the more reason why the time could be ripe for a comprehensive settlement that gives retailers more flexibility than they have now while also pre-emptively preventing future predatory pricing.

 

Here are a couple of studies of the law as applied to predatory pricing. (I don't pretend to have read all of them by any means. My remarks are based on a very light skimming and some general knowledge of how federal law can be wielded by government agencies.)

 

  1. The Perverse Effect of Predatory Pricing Law
  2. Predatory Pricing: Strategic Theory and Legal Policy

 

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keriflur
Posts: 6,184
Registered: ‎01-05-2010

Re: The DoJ thinks it has a case against the Agency model

It seems that a possible solution would be to allow publishers to set a minimum price, but not a fixed price. Thoughts?
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Sun_Cat
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Re: The DoJ thinks it has a case against the Agency model


keriflur wrote:
It seems that a possible solution would be to allow publishers to set a minimum price, but not a fixed price. Thoughts?

I'm not sure that's the ideal direction to take. If the agreement were to include the ability for retailers to hold deeply discounted loss-leader sales for limited timespans and limited titles, I think that would be a win for all stakeholders, consumers, retailers, and publishers.

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MacMcK1957
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Re: The DoJ thinks it has a case against the Agency model

Retailers have always had the freedom to sell below cost.  Most common traditional example is grocery stores selling cheap milk and eggs ("loss leaders") to bring people into the store.

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Sun_Cat
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Re: The DoJ thinks it has a case against the Agency model

[ Edited ]

MacMcK1957 wrote:

Retailers have always had the freedom to sell below cost.  Most common traditional example is grocery stores selling cheap milk and eggs ("loss leaders") to bring people into the store.


Yes, but only up to a point. See my previous post about predatory pricing.

 

And as we all know, the agency model totally eliminates this freedom.

 

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MacMcK1957
Posts: 2,095
Registered: ‎07-25-2011

Re: The DoJ thinks it has a case against the Agency model

Interestingly, selling below cost (aka "dumping") is illegal under all international trade agreements, but perfectly legal domestically.

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Sun_Cat
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Re: The DoJ thinks it has a case against the Agency model

[ Edited ]

MacMcK1957 wrote:

Interestingly, selling below cost (aka "dumping") is illegal under all international trade agreements, but perfectly legal domestically.


Well, not perfectly legal. My impression from a quick look at the sources I mentioned in the previous post is that if pricing that's well below cost goes on for an extended period and has results that are demonstrably anti-competitive, the courts have sometimes sided with the plaintiffs who claim predatory pricing.

 

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Sun_Cat
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Re: The DoJ thinks it has a case against the Agency model

[ Edited ]

Another report, this one from the NY Times. Link courtesy of Farcry's post in the Community Room.

 

Interesting that there's no hint in any of the published reports that the settlement talks might include any provisions to mitigate predatory pricing on Amazon's part.

 

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Spijder
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Re: The DoJ thinks it has a case against the Agency model

Bottom line it's a good thing because it will answer the question of whether or not laws have been broken, which is the only thing that at least the DoJ is and should be concerned about.

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doncr
Posts: 492
Registered: ‎12-29-2010

Re: The DoJ thinks it has a case against the Agency model

All I can say is that it's about time this happened.  Finally my tax dollars are being used on something that I agree with.  You should be able to sell something for whatever price you like, lower or higher than your competitors.

 

There's no agency price model for selling DTBs, and that market hasn't shifted to totally Amazon.com.  Why don't you think the same thing would happen with eBooks?

 

 

 

 

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keriflur
Posts: 6,184
Registered: ‎01-05-2010

Re: The DoJ thinks it has a case against the Agency model


doncr wrote:

All I can say is that it's about time this happened.  Finally my tax dollars are being used on something that I agree with.  You should be able to sell something for whatever price you like, lower or higher than your competitors.

 

There's no agency price model for selling DTBs, and that market hasn't shifted to totally Amazon.com.  Why don't you think the same thing would happen with eBooks?

 


Amazon isn't selling DTBs at a loss.
**This is not to say that I don't agree with free market competition.  I do. I also believe that if the agency model is lifted, Amazon will do its best to drive out all competition by selling bestsellers at a loss, just like it used to do.  While free markets tend to work out the best for consumers, I'm not sure that will be what happens in this situation.
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gb18
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Re: The DoJ thinks it has a case against the Agency model


keriflur wrote:

doncr wrote:

All I can say is that it's about time this happened.  Finally my tax dollars are being used on something that I agree with.  You should be able to sell something for whatever price you like, lower or higher than your competitors.

 

There's no agency price model for selling DTBs, and that market hasn't shifted to totally Amazon.com.  Why don't you think the same thing would happen with eBooks?

 


Amazon isn't selling DTBs at a loss.
**This is not to say that I don't agree with free market competition.  I do. I also believe that if the agency model is lifted, Amazon will do its best to drive out all competition by selling bestsellers at a loss, just like it used to do.  While free markets tend to work out the best for consumers, I'm not sure that will be what happens in this situation.

Why don't they?

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keriflur
Posts: 6,184
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Re: The DoJ thinks it has a case against the Agency model

Dunno.  Maybe it's too large a section of their business.  Maybe because Walmart could match them for as long as they needed to.

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Tim40744
Posts: 519
Registered: ‎07-07-2010

Re: The DoJ thinks it has a case against the Agency model

 


Amazon isn't selling DTBs at a loss.
**This is not to say that I don't agree with free market competition.  I do. I also believe that if the agency model is lifted, Amazon will do its best to drive out all competition by selling bestsellers at a loss, just like it used to do.  While free markets tend to work out the best for consumers, I'm not sure that will be what happens in this situation.

Why don't they?



There's no DRM on a DTB. Since there's nothing to keep customers from shifting loyalties on future purchases, there's no good reason for a seller to take a loss on a DTB. There's a good reason why Amazon only pushed the $9.99 price for NY Times bestsellers. If you are shopping for an ereader for the first time, most people price compare books among the different vendors. Many, if not most, will focus on the bestseller prices. Amazon would have the advantage. Once inside the walled garden, most people will stay there because of the DRM.