According to lawyers for the U.S. Justice Department, when Apple needed to overcome the challenge created by Amazon’s Kindle pricing strategy—in which customers could get Kindle books for $9.99—it did so by colluding with publishers. And the publishers, according to the court filings, were only too happy to work with Apple to increase prices, but to the detriment of consumers.
When e-book readers entered the market, book buying changed. Rather than spending upwards of $20 for a hard-cover copy of the latest bestseller, consumers downloaded the text onto their Kindles or other devices, often for less than half that cost. Amazon dominated the market, and Apple was forced to play catch up when it entered the book-selling market in 2010.
The recent allegations indicate that to take a leading role over Amazon, Apple entered into agreements with five of the biggest publishing houses in the world. In this agreement, e-book prices would be set at $12.99 or $14.99, depending on the publisher’s choice. Apple took 30 percent of the proceeds from the sale.
After signing the contracts, the publishers allegedly used this deal to renegotiate their contracts with Amazon, which meant no more lower priced books available to consumers. In addition, according to the Justice Department, it has e-mails that show that Apple and executives in the publishing houses kept all the players aware of each step in the negotiation processes between the various parties.
Apple plans to defend its actions. It describes the actions that the Justice Department calls collusion as tough negotiations. It also points to its similar tactics in fields in which it already leads the market, such as digital music sold through iTunes. Furthermore, Apple asserts that e-book sales increased and prices decreased after it entered the market, compared with the situation when Amazon held a nearly monopoly position.
Source: Joe Palazzolo, “Apple Accused of Rallying Publishers on Prices,” The Wall Street Journal, June 3, 2013