[MBCook]

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.

It's a really a strange case.

[revelation]

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.

[MBCook]

Amazon's position in the market before this case is one of the things that makes it interesting. If Apple went to into a competitive market and pulled this it would be pretty clear cut. But instead they went into a market dominated by a de facto monopoly. In fact many people believe that Amazon should have been investigated for it's practices in the 'pre-iBooks' era.

> They fixed prices [...]

This is something I'm not sure about. From what I've read it sounds like all the publishers already wanted to do this and Apple was just the perfect opportunity to force the issue.

But as I said above, Apple clearly knew this was the case and used it to their advantage. They didn't set out fix prices, but they weren't against it.

> And in fact, it didn't.

This is a little odd too. Because of the agency model and the most favored nation contracts, prices went up. But if prices were artificially low before hand, was this a harm to consumers or a correction that would have happened eventually anyway?

There are some interesting twists in this case that make it a lot less clear-cut than most price fixing schemes. Apple probably deserves some kind of punishment for their behavior. On a personal level I'd really like the ability to buy books in the Kindle app, that seems like a fair punishment. I love my Kindle, but I do think Amazon might have been abusing their monopoly.

Of course the publishers were all guilty as hell, but they settled quickly. If they had tried to fight this too, I wonder if we'd hear as much about Apple. They're the only ones left standing and fighting.

[coldcode]

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.

[jolohaga]

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?

[MBCook]

Legally nothing. But the eBook market didn't start to take off until Amazon started to force it. We have every reason to believe that publishers will price eBooks in a way that minimizes disruption to their traditional paper business and keep profits higher than the real equilibrium.

We've seen the music industry do it (avoiding selling to keep album sales up). We've seen the game industry do it (change the same for downloads as physical copies to keep retail happy). We've seen the movie industry try to prevent disruption many times (anti-VCR, pro-Divx, anti-Netflix, etc).