Amazon used to buy all their eBooks on the wholesale model; the same one used for print books. They would buy the books from the publisher at a fixed price (say $10 each), and then sell them at whatever price they wanted. Amazon often sold the books at/below cost to get people to buy Kindles.
So when Apple decided to start the iBook store, all the publishers decided to use that as an opportunity to band together and force Amazon to use the agency model, which is how Apple sells apps (publishers set the price, Apple gets a cut).
The had the effect of causing book prices to go up (because, again, Amazon often sold at or below cost). Because Apple was the new player whose contracts caused this, they got in trouble.
Many people find this quite questionable. Prices will go up with this settlement because publishers get more control. Amazon had a de facto monopoly, which Apple actually broke up. Also, this wasn't Apple's idea, it was the publishers.
Of course, Apple was more than happy to take advantage of the situation, so they weren't exactly innocent.
Why do people keep bringing Amazon into this? It's like asking a criminal on his philosophy to life. It simply doesn't factor into the law. Amazon is not a party to the case, and it is not a defense.
They fixed prices, and theres no situation where this yields a upside to customers. And in fact, it didn't. That's why they had to pay up, and Apple, failing to come to terms with the DOJ, will now have to pay much much more dearly for ever bringing this into a court.
It's funny that you can monopolize a market as long as you lose money doing it. I wonder what would happen if Amazon then raised ebook prices to 19.99.
What's wrong with publishers getting more control? Don't they pay authors? We're not talking about scientific journal publishers here. Who's forcing them to reduce their prices?
TL;DR version, the court found "that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy."
Traditionally, book publishers sell to stores at a wholesale price. Stores then mark up the price a bit and sell it to the end consumers.
Amazon then started selling books for prices below the wholesale price, deliberately taking a loss.
The publishers got scared that this would destroy all non-Amazon channels, giving Amazon inordinate power over them.
So they got together with Apple and set up a scheme where the publishers would all use the "agent" model. Instead of selling the books to Apple for a fixed wholesale price, they would set the prices however they liked, and Apple would take a cut of 30%.
The publishers would then all refuse to sell to Amazon unless Amazon switched to the agent model.
That, however, is pretty straight-forward collusion and against the law.
How many non-intrinsically expensive ebooks had reasonable wholesale prices above $10?
What I've read is that the "below the wholesale price" didn't happen a lot until publishers started raising that price after Amazon created the market. Now, maybe the latter discovered they couldn't afford below $10 wholesale prices, but the method they used to deal with the problem as, as you noted, "straight-forward collusion", and as I add, that harmed the consumer; add the two together and you get a slam dunk anti-trust case.
In very brief, Apple and a half dozen publishers engaged in a white line price fixing conspiracy, all the publishers pled guilty, and naturally their counterparty was found guilty. A price fixing conspiracy that causes damage to consumers is white line illegal in the US; in this case, the prices of many ebooks went up by quite a bit.
Which leads straight to all but one of the remedies, like terminating all those deals with the publishers and for 5 years refraining from striking any vaguely similar deal with publishers. And extending this sort of thing to other media, seeing as how they are now a convicted (and unrepentant) price fixer.
As for the remaining remedy ... don't know about the legal basis for it, but Amazon was the main target of all the parties in the price fixing conspiracy.
MBCook|12 years ago
So when Apple decided to start the iBook store, all the publishers decided to use that as an opportunity to band together and force Amazon to use the agency model, which is how Apple sells apps (publishers set the price, Apple gets a cut).
The had the effect of causing book prices to go up (because, again, Amazon often sold at or below cost). Because Apple was the new player whose contracts caused this, they got in trouble.
Many people find this quite questionable. Prices will go up with this settlement because publishers get more control. Amazon had a de facto monopoly, which Apple actually broke up. Also, this wasn't Apple's idea, it was the publishers.
Of course, Apple was more than happy to take advantage of the situation, so they weren't exactly innocent.
It's a really a strange case.
revelation|12 years ago
They fixed prices, and theres no situation where this yields a upside to customers. And in fact, it didn't. That's why they had to pay up, and Apple, failing to come to terms with the DOJ, will now have to pay much much more dearly for ever bringing this into a court.
coldcode|12 years ago
jolohaga|12 years ago
dragonwriter|12 years ago
TL;DR version, the court found "that the Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy."
rverghes|12 years ago
Traditionally, book publishers sell to stores at a wholesale price. Stores then mark up the price a bit and sell it to the end consumers.
Amazon then started selling books for prices below the wholesale price, deliberately taking a loss.
The publishers got scared that this would destroy all non-Amazon channels, giving Amazon inordinate power over them.
So they got together with Apple and set up a scheme where the publishers would all use the "agent" model. Instead of selling the books to Apple for a fixed wholesale price, they would set the prices however they liked, and Apple would take a cut of 30%.
The publishers would then all refuse to sell to Amazon unless Amazon switched to the agent model.
That, however, is pretty straight-forward collusion and against the law.
hga|12 years ago
What I've read is that the "below the wholesale price" didn't happen a lot until publishers started raising that price after Amazon created the market. Now, maybe the latter discovered they couldn't afford below $10 wholesale prices, but the method they used to deal with the problem as, as you noted, "straight-forward collusion", and as I add, that harmed the consumer; add the two together and you get a slam dunk anti-trust case.
hga|12 years ago
Which leads straight to all but one of the remedies, like terminating all those deals with the publishers and for 5 years refraining from striking any vaguely similar deal with publishers. And extending this sort of thing to other media, seeing as how they are now a convicted (and unrepentant) price fixer.
As for the remaining remedy ... don't know about the legal basis for it, but Amazon was the main target of all the parties in the price fixing conspiracy.
There's a bit more detail here: http://en.wikipedia.org/wiki/Apple_Inc._litigation#eBook_pri...
jolohaga|12 years ago
But no one was coerced into buying those books. Where's the crime?