Ebook pricing

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01.Apple on trial

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In a case that raises some complicated questions about the market for ebooks, Apple recently lost a trial on ebook price fixing, with the judge finding Apple conspired with publishers to raise the price of ebooks.

The tech giant was hit with a number of penalties, but has signalled it will appeal the ruling.

Apple’s price negotiations

In the lead-up to launching the iPad and iBookstore in 2010, Apple made agreements with five major publishers – Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. These agreements, known as the agency pricing model, allowed the publisher to set retail prices. This was a change from the system at the time.

Amazon and retail price competition

Prior to this:

  • Ebook retailers such as Amazon could determine ebook prices, known as the wholesale pricing model.
  • This system allowed retailers to compete by reducing ebook prices.
  • Amazon would lower the price of new-release and best-selling ebooks it sold at $US9.99.
  • Many other retailers would similarly discount their prices to compete.

Apple’s defence: more competition?

Prices went up after Apple’s agency pricing deal came into effect.The US Department of Justice (DoJ) viewed Apple’s agreements as anti-competitive and argued that Apple colluded with publishers to set prices.

Apple chose to defend the pricing arrangements by going to trial. (The five major publishers with which Apple had agreements were also accused, but reached a settlement before trial with the DoJ.)

Apple defended itself by arguing it wanted to break Amazon’s monopoly in the ebook market and create more competition. Apple has said it wants publishers to set prices in order to limit large retailers, such as Amazon, from selling ebooks at a loss to take sales away from other retailers that can’t sustain ongoing losses on ebook sales.

The penalties

The penalties imposed by the court restrict Apple’s price-setting arrangements:

  • Apple must now allow price competition by modifying its agreements with the five major publishers initially included in the case.
  • It’s prevented from entering into new agreements with ebook publishers.
  • It must employ monitors to ensure any future agreements don’t breach anti-trust laws in relation to pricing agreements.

Round Two: Apple appeals

Publishers and booksellers want ebook prices to be fair and profitable in the long term, but many are worried their current pricing will hurt the industry. Some have also argued this decision has re-instated Amazon’s power to heavily discount. The Apple appeal should be heard in 2014, so time will tell if the ebook pricing system changes again.

CHOICE supports competition

While CHOICE acknowledges that discounting is a good thing for consumers, selling at a loss can potentially lead to less choice and competition if it creates one or two dominant retailers in a market.

It remains to be seen how the ebook market will develop and whether smaller retailers and publishers will look at new, innovative ways to attract consumers other than by price alone.

For more tech stories, head to Computers and online. See also our latest ebook reader review.

 
 

 

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