How Apple made e-books anti-competitive
A court ruling that Apple colluded with other e-book retailers to fix the prices of books sold to the public might open the door to substantial more legal woes for the tech giant. Last year, Apple settled with the European Commission on an antitrust case over e-book pricing without admitting wrongdoing. The commission was looking into the possibility that Apple conspired with these publishers to restrict competition in the e-book market in the European Union.
Apple found guilty of rigging e-book market
Apple, who thought that it had the advantage over Amazon when it comes to hardware sought to set prices uniformly across the market through its use of a “most-favoured nation” clause. The clause basically guarantees that if a publisher offers an e-book at a lower price to one retailer, the book will cost the same in Apple’s e-book store. By eliminating price competition for e-books, the accusation levied against Apple by the Justice Department was that Apple thought they could win the war against Amazon by putting the iPad in a straight-up head-to-head competition against Amazon’s Kindle.
The outcome, according to the Justice Department, was Amazon being forced to respond to the way it priced its e-books. This was alleged to have caused a negative effect on competition. Apple used the agency model meaning publishers rather than retailers had to set prices when entering the e-book market. Apple would grab a 30 per cent commission and then publishers would have to lower their prices to match Amazon’s prices. Publishers who thought Amazon prices were too low entered into agreements with Apple allowing for higher pricing on new releases and best sellers. The result was price bumps for the everyday consumer of $12.99 and $14.99, respectively.
Last year, in settlement with the European Commission, Penguin and other publishers ended their agency relationship with Apple. The settlement allowed Amazon and other retailers to set e-book pricing. For the next two years, this will be the industry standard as long the value of the discounts offered does not exceed the value of the sales commissions the retailer receives from the publisher.
Apple plans to appeal the court ruling.