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Apple's E-Book Price-fixing Case

By THE EDITORIAL BOARD
It came as no surprise that a federal judge on Wednesday ruled against Apple in an e-book price-fixing case. The easy money was always on the Justice Department, which had evidence that Apple conspired with five major book publishers to manipulate the market. Yet it remains an open question whether these legal proceedings served consumers’ best interest.

Before Apple launched its iBookstore in 2010, Amazon controlled 90 percent of the e-book market. Amazon set retail prices as it saw fit, often steeply discounting best-sellers and hawking them for $9.99, at a loss. Not unreasonably, publishers worried that Amazon was too dominant and were delighted when Apple came on the scene, introducing an “agency model” in which the publishers set retail prices and Apple took a cut. Apple proposed price caps of $12.99 and $14.99 for new releases, with contracts that also included a “most-favored-nation” clause: if a competitor’s list price for an e-book ever dipped below Apple’s, the publishers would match it, allowing the iBookstore to offer the best deal.

The Justice Department argued, and Judge Denise Cote of Federal District Court in Manhattan agreed, that Apple “facilitated a horizontal conspiracy” to eliminate retail price competition. Once the publishers were cozy with Apple, the Justice Department said, they used that relationship as a cudgel against Amazon, threatening to withhold new content unless Amazon moved to the agency model and let prices rise. The strategy worked. Amazon switched, and its prices went up.

To make its case, the government unearthed a telling e-mail from Steve Jobs, Apple’s chief executive at the time, in which he said he could tolerate Apple’s contracts with the publishers “as long as they move Amazon to the agent model too for new releases for the first year.”

Apple plans to appeal the decision.

The big picture is that while Apple’s pact with the publishers raised prices in the short term, it also brought much-needed competition to the e-book marketplace. It is estimated that Apple now controls 10 percent of that market and Amazon 65 percent, with Barnes & Noble and others splitting the rest. That is healthier for the publishers and for consumers, too.
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The New York Times’s Editorial Board »

PUBLISHED JULY 12, 2013