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On July 10, 2013, a federal judge found Apple guilty of conspiring with major book publishers to raise e-book prices, marking a huge win for Amazon and consumers. The judge’s opinion portrays Apple carefully executing a plot to rally book publishers into altering their contract terms with Amazon so the iPad would face a friendlier e-book marketplace at its 2010 release. Whereas the five major publishers settled with the Department of Justice (DOJ) earlier this year, Apple went to trial alone to defend their negotiations, which the judge found violated U.S. antitrust laws.
When Apple decided to enter the e-book market with its iPad bookstore in 2010, it did not plan to do so on Amazon’s terms. Amazon had been operating under a wholesale model, where the e-book giant set e-book prices below market value in an effort to drive Kindle e-reader sales. So long as Amazon continued to underprice e-books, Apple’s ability to profit from e-book sales was in jeopardy. “Luckily,” Apple found a friend in the publishing industry. Book publishers were eager to adopt the agency model proffered by Apple, whereby the publishers set e-book prices, and Apple would take a 30% cut. To charge publisher prices and remain competitive, however, Apple needed publishers to force Amazon to adopt the agency model too–which, with a little help from Apple, they did.
In her opinion, the judge emphasized the fact that Apple’s strong influence led publishers to threaten to pull their titles from Amazon unless the online retailer accepted the agency model. When Amazon relented, the almost overnight price jump in e-books–from an average $9.99 to $14.99–caught the attention of both consumers and the DOJ. Following the ruling, it is likely, though not certain, that e-book prices will return to their prior levels. However, in their settlement agreements with the government, the book publishers have agreed to end the agency price model for two years. Beyond Apple’s plans to file an appeal, its e-book future remains unwritten.
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- Qualcomm Settlement May Reconfigure the Smartphone Market in China
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