The market still ultimately decides with the agency model. And Apple wasn't demanding specific price points so much as tiers that minimized the pennies-difference price-flux that most retailers use to game search engine's. Again, there were tiers for just about every dollar amount you get by adding $1 to $0.99 if you read through all the material.
That the market would almost always go for a cheaper option of an identical good isn't proof that the cheaper option is the best option. Apple looked at the industry as a whole, where it's been, and where things are going, and they offered a model that they thought would ultimately work for everyone. They painted a picture for the publishers, but ultimately it was still the publishers decision. They knew that the publishers hated Amazon's $9.99 model, and they had a pretty good idea why, so they made suggestions for price points of new releases that make sense for everyone. Remember, it was a negotiation, and they had to find a way to get these guys to see a spot in the middle between where they were selling hardcovers in brick and mortars at one point to where Amazon was selling ebooks. And again, they had to consider how it would affect their business, as they ultimately have to support the infrastructure for the service to exist, so they certainly have reason to be invested in finding price points that will work for all parties involved.
Hard line perspectives on capitalism ignore a lot of fundamental flaws in the system if you were to push it to the extreme. By pushing for an agency model, Apple doesn't bypass the market. The forces of supply and demand take on a different meaning in the digital world though where there is an endless supply of product and the potential for a complete centralization of where that supply comes from, in this case, Amazon. To continue using the traditional retail model that worked in regional brick and mortar bookstores in the digital, connected world is inviting the company that can afford to bleed the longest the ability to win the entire market, as well as your entire industry.
If you're a smart author or a publisher, and you're thinking ahead, you consider what happens if you just surrender to Amazon's play on the traditional model, and you have to know that at some point when Amazon holds all the cards, the rules will likely change, and they'll be looking to make a profit for a change. You've got to be asking, what happens then? (They're a public company, and they're doing well in the stock market because everyone's banking on that day eventually coming.) The publishers know they'll be dead before too long if they continue down this road. The authors will have to learn to play a completely different game, which for many will be great, but for many others, will be difficult, which again, speaks to the benefits and downsides of publishers verses authors directly distributing their work. Neither is the wholly right or wrong way to do it, just different ways for different people.
Bottom line, Apple's thinking about making the system on whole work for everybody. Personally, I don't care what they have to do to wake up some of these content creators and publishers to see it. If you want to see a healthy evolution into the digital world for this industry, the best way to do it is the agency model. If you simply try to apply the most traditional and basic of economic principles to the digital economy, you end up ignoring key fundamental differences that absolutely change the game and open the door to rampant instability, irrational price erosion, and monopolies, not to mention the complete loss of any semblance of culture that once existed in these industries.
