How Apple's Agency Model for Publishers Fails to Merit Collusion Charges

[sha4000]

There is always a chance that they are all innocent but the arguments being made for that are just astounding at times. It seems that most seem to just hate Amazon or the government. I like Apple for their PCs and OSX but I also like Amazon because when I'm looking for things they are usually the cheapest place to buy. I have actually bought college textbooks from other online vendors bcuz they were a lil cheaper than Amazon. When I'm spending MY money I spend days looking for the best bargain when ALL things are relative and whoever has that will get my money.

 

[Rocketman]

A remarkably vague yet misleading and insulting argument. It's refreshing to hear your definition of what it means to be a patriot. Or not. Mostly not. The accuracy and applicability to anything actually under discussion here being impossible to determine. As intended, I presume.

Take it how you will, but this site has the word "news" right in the masthead. The difference between "news" and "opinion" is clear to me, but perhaps less so to you. Hint: an outlet that represents itself as a news source does not post pure opinion pieces and consider that their propagandist approach is balanced by allowing readers to comment.

Interesting arguments. It will not surprise you I take issue with some of them.

As a "Rumor" site I think we can agree this is not a "hard news only" site. It also is not a "commentary only site". It is probably more comparable with People magazine in online forum format. Albiet with even less verified claims. At least we have paparazzi!

Vague, misleading, insulting. That is a characterization!

My comments about patriots and the constitution applies because one might think from a reading of the constitution essentially everything the government does now is in violation of it. The Anti-Trust law is not within the enumerated powers. It was intended the Federal government powers be small and narrow. States were to have wide authority. So essentially everything currently allowed by "legal precedent" to be within the Federal commerce clause is unconstitutional. That might be true, but as we both well know that is not the reality we live under. I presume you also happen to disagree with me.

Everything I ever say is opinion. The whole thing.

Rocketman

 

[macUser2007]

...With competition they can tell Amazon what they can sell their books for....

LOL.

I guess you don't see the irony in this statement....

In addition, it is also a logical nonsense.

 

[Swift]

Should this exception apply only to Apple or all companies that try to gauge the consumers?

It does apply to everyone but Apple, apparently. In every consumer market where government restrictions don't apply -- like Medicare's payments to doctors, or regulated prices of necessities, power, etc. -- the creators are allowed to charge what they think the traffic will bear. If they're wrong, they won't sell it.

 

[BaldiMac]

Are you referring to Apple in the tablet market?

It was actually a hypothetical example. I was using iTunes as an analogy to the ebook market sans iBooks and agency deals.

This scenario is totally fine, as long as it is an open market where others can jump in and compete. Particularly in the case of ebooks

If it's an open market, competition will take care of any attempts to manipulate prices.

But, if the market is manipulated by price floors, or by MFN clauses, or by any kind of price collusion, then it is only beneficial to consumers to have the government step in and ensure that the free market works.

Yep.

And that's exactly what is happening to Apple.

It's a different situation in that Apple entered these agreements with no market share. And still has minimal market share after 2 years. But, as pointed out several times, horizontal price fixing is illegal regardless of market share.

The discussion of monopolistic market share levels was more about Amazon's position in the ebook market prior to the release of the iPad and iBooks. And hypothetical concerns if they were able to maintain that market share to the present day through predatory pricing in the absence of Apple's agency deals.

 

[Swift]

Apple's terms for dealing with the publishers included that they were required to give Apple the lowest price (retail, not "list). That means that, combined with their agency-only policy, they were effectively pricing everything on Amazon's website, or anyone else's website, if they wanted to play ball with Apple's new store.

That gives publishers two options: Raise prices to other parties (amazon, B&N, etc), or stop selling their products with apple.

It is a very clever way of leveraging the sort of power a monopoly would wield without actually having a monopoly.

This would be like Wal-Mart telling Apple that they will stop selling iPods unless Apple changes the MSRP (and enforces the new one) to match or exceed Wal-Mart's iPod price.

Of course, Apple would just stop selling iPods at Wal-Mart, but imagine a situation where Wal-Mart is selling so many iPods that Apple has to comply, or face such a loss of business that they couldn't effectively recover. That's the threat of a retail monopoly, and with their record selling various iThings, Apple has created a mental monopoly of sorts. Companies are afraid to cross them. Afraid to tell them "no."

Bull. Apple has a "mental" monopoly only for the mental. Apple was exerting pressure on Amazon's low, low, prices. They were also giving the publishers some leverage in negotiations with Amazon, which was then 90% of the ebook market.

Doing business with Amazon is very much like doing business with Wal-Mart, which sets prices with an iron fist. I remember reading an account of how Wal-Mart sold huge quantities of Vlasic's pickles. They set a price which made profit almost impossible unless the company trashed their labor agreements, cut costs every conceivable way, and even then ended up losing money and going through bankruptcy. Wal-Mart represents everything evil in American capitalism over the last 30 years.

I remember a "60 Minutes" during the '80s when they took Wal-Mart's then-ubiquitous "Made in America" signs and showed a high degree of fraud -- most of their goods were made in Mexico, or other low-cost labor market. That's what Wal-Mart does: lie, cheat and steal, and underpay everyone but the owners. That's what their retail model does to a country. It's no bargain. The warehouse model is no bargain, either.

 

[macUser2007]

... Apple was exerting pressure on Amazon's low, low, prices. They were also giving the publishers some leverage in negotiations with Amazon, which was then 90% of the ebook market.
...

Let's see..., at the time when it had 90% market share, Amazon was the only major ebookseller with a popular and well designed and integrated ereader. They made it easy to purchase, at low prices (lower than Sony, which had the only other competitive ereader, but a poorly designed estore and high ebook prices).

I was an early adopter and I have tried perhaps a majority of all the ebook sellers around. Some did have lower prices than Amazon, and I did make a number of purchases from them.

The agency model, coupled with Apple's MFN contract clauses has done nothing, but raise prices for consumers. Jobs was perfectly happy to screw all of us to promote his new product. The iPad sucks as a reader, IMO (I am not fan of backlight displays for long-term reading). But this was not the point -- the tablet needed a reason to exists and ebooks and magazines were part of the package.

The main goal of Jobs was to sell iPads, and that part of the plan worked: the iPad sells like hot cakes. But the ebook/emagazines part didn't work so well.

Nor did the iOS advertising scheme Jobs had such high hopes for (and which was perhaps the main reason to ban Flash from iOS, (in addition to inadequate hardware at the time)).

In the aftermath, Apple made a lot of money of selling hardware, but ebook consumers got screwed.

... I remember a "60 Minutes" during the '80s when they took Wal-Mart's then-ubiquitous "Made in America" signs and showed a high degree of fraud -- most of their goods were made in Mexico, or other low-cost labor market. That's what Wal-Mart does: lie, cheat and steal, and underpay everyone but the owners. That's what their retail model does to a country. It's no bargain. The warehouse model is no bargain, either....

And what does this rant have to do with the price of ebooks? You do know that ALL Apple's hardware products are made outside of the US, right? Even though Apple has by far the highest margins in the industry....

 

[EbookReader]

I guess we just interpret it in different ways. If amazon sells for a dollar, apple gets to sell for a dollar. If amazon sells for a penny, apple gets to sell for a penny.

And it didn't say that the others have to match apple.

I guess I agree to disagree. We'll see how it plays out in court.

Okay. Let's use $1.00 then.

Apple: $1.00 (keep 30%)
Nook: $1.00 (keep 30%)
Amazon: $1.00 (keep 30%)
GooglePlay: $1.00 (keep 30%)

is the same thing as

Apple: $1.00 (keep 30%) - can't discount even if the bookseller want to
Nook: $1.00 (keep 30%) - can't discount even if the bookseller want to
Amazon: $1.00 (keep 30%) - can't discount even if the bookseller want to
GooglePlay: $1.00 (keep 30%) - can't discount even if the bookseller want to


At the end of the day, Apple will get the same RETAIL PRICE as everyone else. Whether it is at $14.99 or $1.00.


Does Best Buy has a "right" to tell Target what to sell their televisions at?

If not, then Apple has no right to tell Amazon what to sell their ebooks at either. (the MFN clause didn't say that but the effect of it is the same thing, and it is what count...the intention/consequence of that MFN clause).


Agency pricing with that MFN clause:

If Apple sell book X at $14.99 (keep 30%), Amazon has to sell book X $14.99 (and forced to keep 30%)

If Apple sell book X at $12.99 (keep 30%), Amazon has to sell book X $12.99 (and forced to keep 30%)

If Apple sell book X at $9.99 (keep 30%), Amazon has to sell book X $9.99 (and forced to keep 30%)

If Apple sell book X at $5.99 (keep 30%), Amazon has to sell book X $5.99 (and forced to keep 30%)

etc...

If you don't see anything wrong with that, that's fine. I believe that Amazon should NOT be forced to keep that whole 30%. I believe the consumers would be better off if Amazon is able to discount some of their 30% commission. If Amazon want to sell a book at $10.49 (0% profit), why can' they? especially since Amazon has consistently been profitable at selling ebooks according to DOJ.

Book x: - $2 loss
Book Y: $2 profit
Book Z: $0.25 profit

= $0.25 profit overall

 

[EbookReader]

There is nothing magical in the digital music market. Guys at Apple can be a little less competitive on price now thanks to the momentum they have and the added value of the ecosystem Apple built which has no equal from any competitor at the moment, but they need to keep being competitive with iTunes otherwise someone soon or later would challenge them and win.

This might be of interest:

Spotify has overtook Itunes in a few countries already.

Spotify 2011 revenue: $241 mil
Spotify 2012 revenue projection: $889 mil

that's a lot of growth

----------

Please post evidence of this. I looked up some articles on this and they don't say what you think they say.

.

A quick google search of

"publishers profit up ebooks"

http://www.teleread.com/ebooks/thanks-to-e-books-publishers-revenues-are-down-but-profits-are-up/
Thanks to e-books, publishers’ revenues are down but profits are up

http://paidcontent.org/2012/03/30/419-thanks-to-e-books-book-publishers-find-flat-is-the-new-up/
Thanks To E-Books, Publishers Find Flat Is The New Up

And CBS’s most recent earnings report shows Simon & Schuster (NYSE: CBS) revenues down by 1 percent for full-year 2011, while “publishing adjusted OIBDA for 2011 rose 28% to $92 million from $72 million for the prior year, reflecting lower direct operating costs” due in part to “the decline in expenses resulting from an increase in more profitable digital sales as a percentage of total revenues.”

 

[BaldiMac]

Okay. Let's use $1.00 then.

Apple: $1.00 (keep 30%)
Nook: $1.00 (keep 30%)
Amazon: $1.00 (keep 30%)
GooglePlay: $1.00 (keep 30%)

is the same thing as

Apple: $1.00 (keep 30%) - can't discount even if the bookseller want to
Nook: $1.00 (keep 30%) - can't discount even if the bookseller want to
Amazon: $1.00 (keep 30%) - can't discount even if the bookseller want to
GooglePlay: $1.00 (keep 30%) - can't discount even if the bookseller want to


At the end of the day, Apple will get the same RETAIL PRICE as everyone else. Whether it is at $14.99 or $1.00.


Does Best Buy has a "right" to tell Target what to sell their televisions at?

If not, then Apple has no right to tell Amazon what to sell their ebooks at either. (the MFN clause didn't say that but the effect of it is the same thing, and it is what count...the intention/consequence of that MFN clause).


Agency pricing with that MFN clause:

If Apple sell book X at $14.99 (keep 30%), Amazon has to sell book X $14.99 (and forced to keep 30%)

If Apple sell book X at $12.99 (keep 30%), Amazon has to sell book X $12.99 (and forced to keep 30%)

If Apple sell book X at $9.99 (keep 30%), Amazon has to sell book X $9.99 (and forced to keep 30%)

If Apple sell book X at $5.99 (keep 30%), Amazon has to sell book X $5.99 (and forced to keep 30%)

etc...

If you don't see anything wrong with that, that's fine. I believe that Amazon should NOT be forced to keep that whole 30%. I believe the consumers would be better off if Amazon is able to discount some of their 30% commission. If Amazon want to sell a book at $10.49 (0% profit), why can' they? especially since Amazon has consistently been profitable at selling ebooks according to DOJ.

Book x: - $2 loss
Book Y: $2 profit
Book Z: $0.25 profit

= $0.25 profit overall

You keep repeating the same thing, but you argument is inaccurate. Apple is not controlling prices. The publishers are. That's the point of the agency model. It's also known as vertical price fixing. It is legal.

Amazon isn't forced to sell at a certain price by Apple or the MFN clause. Because neither Apple nor Amazon set the price. The publishers set the price. Just like developers do in the App Store.

The examples that you repeat over and over again ignore that each individual publisher can raise or lower there price at will. Apple's MFN clause does not force all prices to be the same. Just that Apple has the same or lower prices than anyone else. The publishers can sell their books for more on Amazon.

The real issue is still the question of whether the publishers colluded on pricing and Apple's possible role in that arrangement. From the initial information from the DOJ, it seems pretty likely that at least some of the major publishers colluded. I'm not sure why you keep trying to present the underlying business practices as the primary focus.

 

[drorpheus]

You keep repeating the same thing, but you argument is inaccurate. Apple is not controlling prices. The publishers are. That's the point of the agency model. It's also known as vertical price fixing. It is legal.

Amazon isn't forced to sell at a certain price by Apple or the MFN clause. Because neither Apple nor Amazon set the price. The publishers set the price. Just like developers do in the App Store.

The examples that you repeat over and over again ignore that each individual publisher can raise or lower there price at will. Apple's MFN clause does not force all prices to be the same. Just that Apple has the same or lower prices than anyone else. The publishers can sell their books for more on Amazon.

The real issue is still the question of whether the publishers colluded on pricing and Apple's possible role in that arrangement. From the initial information from the DOJ, it seems pretty likely that at least some of the major publishers colluded. I'm not sure why you keep trying to present the underlying business practices as the primary focus.

Do you have horse-blinder implants? Seriously you spell out what has happened that is illegal yet fail to notice its right in front of your face. OF COURSE Apple's Model forces prices to be the same, its about 99% of what the clause is, stating that you can not sell it for a LOWER PRICE than your selling it through APPLE, what more do you need to prove that's not fixing the price?

Here what you can't seem to open your eyes to, Apple is not a bookstore, so they don't purchase any books to sell they let you sell your book through there kiosk for 30% of the total, they watched Amazon choked them out of the ebook market the same way Apple is choking all the other tablet and phone mfgs out of there markets, by buying up all the available the available components, so Apple decided to try reverse that on Amazon buy having the 6 major publishing houses set higher prices and enforce Apple's Model as the only thing they could do because they contractually signed with Apple. You CAN'T DO THAT.

If Apple wants to buy a million copies of Harry Potter to bring the price down a couple bucks they're more than entitled to, but that sad fact is they're not buying any so they have no basis for setting the price for products they neither make, sell, or buy. If it were Apple published iBooks from iBookApple they could set the price all they want on the titles they have to offer, sadly not for everyone elses release.

 

[bsolar]

I think there is a bit of misconception about the legality of the Agency model and its relevance in the DoJ claims of antitrust violations.

The Agency model is not illegal per-se, but definately gives a lot more power to publishers to control prices. In the case of publishers you have to talk with a handful other peers which control a huge share of the market to enforce a collusion, which is what the DoJ claims happened. That's why the Agency model becomes dangerous: it gives even more control to a restricted group which it's better left without such leverage.

In the case of App developers selling their applications in the App Store the Agency model is much less an issue since there are thousands of them and it's unrealistic to think they can collude to increase the base price for applications.

The obvious objection: "but publishers should have the right to set the price" is fine until they abuse this right. That's why in my opinion the DoJ wants the Agency model to be discarded for ebooks publishing even if perfectly legal: they think the publishers colluded and are not trustworthy enough to set the prices with the freedom and power of the Agency model.

 

[bsolar]

About the fears of Amazon's monopoly, this interesting article explains a much better approach, although I don't know how much realistic. A little excerpt:

[...]
As noted earlier, consumers change e-reader devices frequently. Within 5 years we will be seeing a radically different electronic landscape. Unlocking the readers' book collections will force Amazon and B&N and their future competitors to support migration (if they want to compete for each others' customers). So hopefully it will promote the transition from the near-monopoly we had before the agency model, via the oligopoly we have today, to a truly competitive retail market that also supports midlist sales.
[...]

 

[BaldiMac]

OF COURSE Apple's Model forces prices to be the same, its about 99% of what the clause is, stating that you can not sell it for a LOWER PRICE than your selling it through APPLE, what more do you need to prove that's not fixing the price?

How do you keep missing that prices outside of Apple can be higher? It does not force prices to be the same. Again, Apple does not set the price. The publishers do. If the collude in their prices, that's price fixing. If they don't, it's not. Agency model/MFN clause or not.

Here what you can't seem to open your eyes to, Apple is not a bookstore, so they don't purchase any books to sell they let you sell your book through there kiosk for 30% of the total, they watched Amazon choked them out of the ebook market the same way Apple is choking all the other tablet and phone mfgs out of there markets, by buying up all the available the available components, so Apple decided to try reverse that on Amazon buy having the 6 major publishing houses set higher prices and enforce Apple's Model as the only thing they could do because they contractually signed with Apple. You CAN'T DO THAT.

Sure you can. Apple is no longer a retailer in this model, they are simply an agent of each publisher. Hence the term agency model. The allow the publishers to sell their book on Apple's store for a 30% commission. Just like a real estate agent or app developer. Likewise, MFN clauses are legal. See bsolar's explanation below for why the combination of the two, while legal, is still cause for concern by the DOJ.

If Apple wants to buy a million copies of Harry Potter to bring the price down a couple bucks they're more than entitled to, but that sad fact is they're not buying any so they have no basis for setting the price for products they neither make, sell, or buy. If it were Apple published iBooks from iBookApple they could set the price all they want on the titles they have to offer, sadly not for everyone elses release.

I'm not sure how to say this more clearly. Apple does not set any prices on ebooks. The publishers do.

I think there is a bit of misconception about the legality of the Agency model and its relevance in the DoJ claims of antitrust violations.

The Agency model is not illegal per-se, but definately gives a lot more power to publishers to control prices. In the case of publishers you have to talk with a handful other peers which control a huge share of the market to enforce a collusion, which is what the DoJ claims happened. That's why the Agency model becomes dangerous: it gives even more control to a restricted group which it's better left without such leverage.

In the case of App developers selling their applications in the App Store the Agency model is much less an issue since there are thousands of them and it's unrealistic to think they can collude to increase the base price for applications.

The obvious objection: "but publishers should have the right to set the price" is fine until they abuse this right. That's why in my opinion the DoJ wants the Agency model to be discarded for ebooks publishing even if perfectly legal: they think the publishers colluded and are not trustworthy enough to set the prices with the freedom and power of the Agency model.

Exactly!

 

[macUser2007]

How do you keep missing that prices outside of Apple can be higher? It does not force prices to be the same....

Mewonders how do you keep missing that prices outside of Apple CANNOT be lower...?

The agreements Apple pushed ensure that no ebook seller can compete with Apple by selling titles from the major publishers for LESS than Apple sells.

So, effectively, Apple's agreement sets the (minimum) price for the product and eliminates price competition (and no, the ability for third parties to sell at a HIGHER price does not count for the purposes of competition).

----------

This might be of interest:

Spotify has overtook Itunes in a few countries already.

Spotify 2011 revenue: $241 mil
Spotify 2012 revenue projection: $889 mil

that's a lot of growth
...

Heh, I never figured why anyone would chose Spotify over MOG, as MOG has a generally better selection, at a much higher quality, for the same price. Go figure.

 

[BaldiMac]

Mewonders how do you keep missing that prices outside of Apple CANNOT be lower...?

I'm not missing it at all. That's the whole point of the MFN agreement.

The agreements Apple pushed ensure that no ebook seller can compete with Apple by selling titles from the major publishers for LESS than Apple sells.

That's true.

So, effectively, Apple's agreement sets the (minimum) price for the product and eliminates price competition (and no, the ability for third parties to sell at a HIGHER price does not count for the purposes of competition).

No, the publishers set the price everywhere they choose to sell their product. That's the point of the agency model. They can lower prices whenever they want. No minimum. They can raise prices whenever they want. It switches the price competition from the retailers (who are now only "agents") to the publishers. They can compete with each other on price. The problem is that at least some of the publishers appear to have colluded in their pricing, possibly with the involvement of Apple.

 

[blow45]

Do you have horse-blinder implants? Seriously you spell out what has happened that is illegal yet fail to notice its right in front of your face. OF COURSE Apple's Model forces prices to be the same, its about 99% of what the clause is, stating that you can not sell it for a LOWER PRICE than your selling it through APPLE, what more do you need to prove that's not fixing the price?

Here what you can't seem to open your eyes to, Apple is not a bookstore, so they don't purchase any books to sell they let you sell your book through there kiosk for 30% of the total, they watched Amazon choked them out of the ebook market the same way Apple is choking all the other tablet and phone mfgs out of there markets, by buying up all the available the available components, so Apple decided to try reverse that on Amazon buy having the 6 major publishing houses set higher prices and enforce Apple's Model as the only thing they could do because they contractually signed with Apple. You CAN'T DO THAT.

If Apple wants to buy a million copies of Harry Potter to bring the price down a couple bucks they're more than entitled to, but that sad fact is they're not buying any so they have no basis for setting the price for products they neither make, sell, or buy. If it were Apple published iBooks from iBookApple they could set the price all they want on the titles they have to offer, sadly not for everyone elses release.

Don't waste your time, he gets it perfectly well, and he knows what he's doing perfectly well. He lets the threads on this issue move along dodging the arguments he can't tackle by avoiding to reply and then dominates them with posting at the end so he can have the last word. If this guy doesn't have vested interests I am Obama.

I ll quote him for you from another thread, first bit os his reply to me, the second one is his intitial statement

Are you just being argumentative? Obviously, I was referring to the loss leader sales, not all sales.
Quote:
There is a downside to competing on price alone. (Especially when the market leader is willing to lose money on each sale to drive out the competition.)

He claims now that the competition isn't eliminated it's just switched to publishers competing. But apple's competition isn't publishers, it's other booksellers (if apple with a mere store front and a standard 30% cut on everything can qualify as a bookseller that is). So apple very conveniently would like no competition from b&n, amazon or anyone else and a guaranteed 30% cut for doing close to nothing but maintaining a store front on existing shop infrastructure, with minimal bandwidth costs because it's ebooks, hence the SJ memo along the lines of the customer will pay a little bit more but that's what you want anyway, so through in with apple for $12.99 and $15.99 per book.

Because to begin with apple never wanted to have the extra hassle of functioning as a bookseller and managing a proper bookshop which would mean buying wholesale and then managing prices to be competitive with others across a line of book products. They don't know how to do that, they don't have the personnel or the infrastrure because they are not booksellers. Hence the app store model and the 30% cut and e collusion with publishers. But in the app store for that 30% they have to work to provide the coding tools, the environment, and at least a rudimentary checking of the app, and they cant request the app to not be cheaper elsewhere. In their bookstore they had some audacity to ask for 30%, and require no one should price lower.

At the end of the day the reading public has apple to thank for ebook prices rising considerably over the past few months...

 

[macUser2007]

... The problem is that at least some of the publishers appear to have colluded in their pricing, possibly with the involvement of Apple.

Halleluiah! You got it!

Except that it is almost certain that Apple not only participated in, but in fact instigated and made possible such collusion.

 

[EbookReader]

using 2 bestsellers as an example with current data:

The Witness by Nora Roberts
Penguin Publishing

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)

The Innocent by David Baldacci
Hachette Book Group

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)


If Kindle, Nook, GooglePlay don't want to keep the whole 30%, they instead want to offer part of this 30% to consumers in a form of LOWER PRICES.

But they CAN'T because of agency pricing + MFN clause



Isn't there something wrong with that picture? (if amazon, google want to pass the whole 30% to consumers and price the book at $10.49, why can't they?)

 

[sha4000]

Halleluiah! You got it!

Except that it is almost certain that Apple not only participated in, but in fact instigated and made possible such collusion.

Yeah I guess you can say he's starting to come around.

 

[BaldiMac]

Halleluiah! You got it!

Except that it is almost certain that Apple not only participated in, but in fact instigated and made possible such collusion.

Yeah I guess you can say he's starting to come around.

Come around on what? I said the same thing in my first post on the topic. And multiple times since. I'm not defending Apple. I think at least some of the publishers colluded based on the DOJ's initial presentation. I have no idea if Apple did anything illegal in their negotiations. I've mainly argued against misinformation.

 

[BaldiMac]

using 2 bestsellers as an example with current data:

The Witness by Nora Roberts
Penguin Publishing

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)

The Innocent by David Baldacci
Hachette Book Group

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)


If Kindle, Nook, GooglePlay don't want to keep the whole 30%, they instead want to offer part of this 30% to consumers in a form of LOWER PRICES.

But they CAN'T because of agency pricing + MFN clause



Isn't there something wrong with that picture? (if amazon, google want to pass the whole 30% to consumers and price the book at $10.49, why can't they?)

Why do you keep posting the same argument against a legal business practice? The agency model is legal. Under the agency model, Amazon couldn't lower prices to cut into it's margins regardless of whether or not there was an MFN clause. Because under the agency model, Amazon doesn't set the prices. The publishers do.

The problem with the agency model plus MFN clause in this case, is that the DOJ believes that the publishers and Apple have taken advantage of the model to collude on pricing. That is illegal.

Without collusion, the fact that prices are the same for the same ebook on different stores is not surprising, because the publisher sets the prices for that ebook on every store. They have little reason to favor a specific store with lower pricing.

 

[blow45]

I have no idea if Apple did anything illegal in their negotiations. I've mainly argued against misinformation.

You have no idea if apple did anything illegal in the negotiations? People have been quoting to you Job's and Cues memos "of throw in with apple for set prices of $12.99 and $15.99", Job's MFN clause requirements, Job's saying you have to choose either with us, agency and mfn or amazon with $9.99 and you can "withhold your books from amazon". And you have no idea? Boy what an impartial observer who's so intent to argue against misinformation.

You continue to try to mislead people but, apparently it's not working because you are getting down-voted, and a -3 in a forum sympathetic to apple (-4 plus your vote), means a -40 in any forum unrelated to apple. That should be telling you something but evidently it isn't, because your thinly veiled condescending attitude attests to the fact that you really do believe everyone but you here is an idiot who you can mislead and influence to adapt your opinion.

 

[EbookReader]

In capitalism, retailers want the biggest mark up possible. Competition forces the mark up down. By setting a fixed percentage of mark up (30%), competition is eliminated.

Imagine if the major music labels (Sony, Universal, Warner, EMI etc...) GOT to set the prices of music sold on Itunes and other digital stores back in 2003. In addition, they want to protect their $19.99 CDs business.

Would they price it at $0.99 per song? or $1.99 per song?



------------------------

Take a look at Amazon MP3 and Itunes for best selling songs.

Both buy wholesale at $0.91 per song (Somebody I used to know, We Are young, Glad You Came etc....)

Itunes sell for $1.29 (for 30% mark up)
AmazonMP3 sell for $0.99 (8% mark up)

Competition works. Consumers benefit from lower prices. With agency pricing and MFN clause, a retailer that want to lower its mark up (which benefit consumers in the form of low prices) CAN'T. This retailer is forced to take the whole 30%




---------------------------------------
What if it was the other way around?

Kindle dominate ebooks (selling at 30% mark up). Apple want to challenge Amazon and only charge 8% mark up. Kindle doesn't like this because prices are lower at ibookstore. They forced the publishers to force Apple to raise its mark up from 8% to 30%. Is that a legal?

 

[EbookReader]

Why do you keep posting the same argument against a legal business practice? The agency model is legal. Under the agency model, Amazon couldn't lower prices to cut into it's margins regardless of whether or not there was an MFN clause. Because under the agency model, Amazon doesn't set the prices. The publishers do.

The publishers could set the price at $14.99 (and they would get 70% from it, or $10.49). Amazon gets to keep 30%.

But without that MFN clause, Amazon can discount their 30%.


For example,

The Witness by Nora Roberts - $14.99 - publishers set the price
Amazon is then allowed to discount as the agent: $13.49 (keep 20% commission)
Amazon is then allowed to discount as the agent: $11.99 (keep 10% commission)
Amazon is then allowed to discount as the agent: $10.49 (keep 0% commission)

"The Witness" will sell more copies at $10.49 than at $14.99. This will benefit the publishers and the authors, because they get $10.49 for each copy sold. More copies sold = more money for them.

So why didn't they let Amazon discount as the agent? (especially when it benefit them because Amazon will sell more books at $10.49 than at $14.99)?



As I stated, agency pricing is okay. Agency pricing with a MFN clause that prevent Amazon from discounting their 30% commission is NOT OKAY. The DOJ took issue with this.

Competition forces the mark up down (good for consumers). But there is no competition in this case.






I don't think there would a be a DOJ lawsuit if Apple didn't insist on that MFN clause that prevented other "agents" to discount. Without it, Amazon will just say this to the publishers:

"Sure, you get to set the price (70% to you 30% to me). But I get to discount my 30% and pass this savings as a form of lower prices to my customers. You will benefit also because I have data that suggest you will sell more books at $10.49 than at $14.99. You get the full 70% of $14.99 whether I discount or not."


Basically, why did the publishers insist that Amazon take the whole 30% when Amazon only want to take 10% (and pass the 20% mark up to the consumers in the form of lower prices?)