April 12, 2012 at 06:02 AM EDT
Amazon Cuts E-Book Prices as Apple Faces DOJ Charges Over E-Book Scheme
Amazon announced plans to cut down prices on its e-books after the U.S. Department of Justice announced Wednesday that it was suing Apple Inc. and five other publishers on price-fixing charges.
(IBTimes) -- 04/12/2012 --

Amazon Inc. announced plans to cut down prices on its e-books after the U.S. Department of Justice announced Wednesday that it was suing Apple Inc. and five other publishers on price-fixing charges.  

The U.S. Department of Justice filed an antitrust suit against Apple, HarperCollins, Hachette, Simon & Schuster, and Penguin and Macmillan. The DOJ alleges that Apple and the publishers colluded to control e-book prices and violated the law. The suit claims that Apple and the publishers entered into an "agency model" of distribution wherein publishers could set the prices for the e-books and not the retailers. Under such a model consumers were forced to pay more for e-books. Millions of e-books that could have sold for a retail price of $9.99 were sold for $12.99 or $14.99.

Amazon.com had gained popularity by selling e-books for $9.99 but publishers believed these low prices disrupted the industry. According to the Department of Justice lawsuit Apple and the publishers agreed to force the agency model on all other retailers. Top managers for the publishing companies were in regular contact to make "assurances of solidarity." Steve Jobs best explained the deal Apple and the other publishers entered into in his biography written by Walter Isaacson.

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent," Jobs told Isaacson. "And yes, the customer pays a little more, but that's what you want anyway."

HarperCollins, Simon & Schuster and Hachette Book Group agreed to settle the antitrust case on Wednesday, but Apple, Penguin Group and Macmillan have not, according to the Justice Department.

Hachette Book Group and Macmillan stated the companies did not collude. HarperCollins stated it did not violate any antitrust laws. Simon & Schuster declined to comment. Penguin released a statement about the company's position on the matter.

"The second, and equally powerful, reason for our decision to place this matter in the hands of a court is that we believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books," Penguin CEO John Makinson said in a statement.

The case could be a victory for Amazon as the Internet retailer could be in the unique position to dictate the prices of e-books. Amazon has already announced plans to slash prices on some e-books to $9.99 or less.

"[The settlement] is a big win for Kindle owners," Amazon said in a statement. "We look forward to being allowed to lower prices on more Kindle books."

Other analysts aren't as happy with the arrangement. In going after Apple, the DOJ could have handed the monopoly to Amazon which at one point had 90 percent of the market on e-books. An agency model would help stimulate competition among retailers and lead to more price flexibility.

"Amazon must be unbelievably happy today," Michael Norris, a book publishing analyst with Simba Information told the New York Times. "Had they been puppeteering this whole play, it could not have worked out better for them."

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