Apple and Publishers Facing Antitrust Law

The wall street journal is reporting that the United States is planning to sue apple and 5 book publishers for colluding to increase e-books prices, that’s violate the antitrust law. For now, several of the parties were talking with the regulators to head off the expensive court battle. And it all comes down to how publishers charge for e-books.

In the printed world publisher sold books to retailers for roughly half of the recommended cover price. Under that “wholesale model,” booksellers were then free to set the final price whether that’s the price marked on the book jacket or lower.

Amazon had acquired e-books under the wholesale model, and sold many new best sellers at $9.99 to encourage consumers to buy its Kindle electronic reader. But publishers hate the strategy because they feared that consumers would grow accustomed to inexpensive e-books and lead to a severe loss of revenue, in much the same way that iTunes had chopped the revenue of the record companies.

Then Apple’s late CEO, Steve Jobs, shifted the “wholesale” model to an “agency” model, under which publishers chose whatever e-book price they want, and Apple keeps 30% of the sale.

When Wall Street Journal’s personal-technology columnist, Walt Mossberg, asked Steve, “Why should she buy a book for $14.99 on your device when she can buy one for $9.99 from Amazon or Barnes & Noble?”

“That won’t be the case,” Jobs said, seeming implacably confident. “The price will be the same.” Mossberg asked him to explain. Why would Amazon increase prices, when consumers were buying so many books? “Publishers may withhold their books from Amazon,” Jobs said. “They’re unhappy.”

The deal with publishers also included a requirement that none of the publishers sell e-books to any other company at a price lower than the publishers charged Apple. The Justice Department says Apple and