Apple recently lost the eBook pricing case as the district judge ruled in the favor of the US by concluding that Apple conspired with the major book publishers to raise the price of eBooks. The history of the case goes back to the year 2010 and coincides with the introduction of the iPad.
In 2010 Apple introduced the iPad, revolutionising the tablet computer by announcing a 10-inch tablet with LCD screen running iOS. Alongside the introduction of iPad, Apple entered the eBook space which at the time was dominated by Amazon with over 90% market share. Amazon being the key player in the eBooks industry chose to follow the wholesale pricing model. When Apple approached the Big Six publishers, the company introduced them to the idea of fighting Amazon’s dominance and in turn using the agency model, which had a been the cry of the publishers for long.
As the terms and conditions of the deal with the publishers and Apple were sealed, the Cupertino, Calif., based company came up with the policy to match the prices of eBooks sold on the iBookstore. This policy in effect resulted in publishers reaching out to Amazon and asking it to discontinue the wholesale pricing model and move to the agency model where the publishers would set the price.
According to the new price-match policy, If an eBook was retailing at $14.99 on the iBookstore and the same eBook offered at $9.99 on Amazon then Apple had the right to reduce the price to $9.99 on the iBookstore as well.
In broad terms, the agency model is not an antitrust violation however, the key point in the case refers to the fact that Apple conspired with the Big Six publishers to raise the price of eBooks across the online retail industry. On one hand Apple’s move into eBook industry would give competition to Amazon’s monopoly however, on the other hand the price matching policy would eliminate the competition all-together as there would be no pricing differentiation.
The publishers settled the case with the Department of Justice where they signed a new deal and terminating the existing contracts with Apple and other eBook retailers, and sign a new deal where the retailers could discount the books again but, not below the break even point of the publishers works.
Apple continues to fight the case and will appeal for the 2nd Circuit Court of Appeals as the company feels it did not conspire to raise the price of eBooks. Apple argues that publishers were unhappy about Amazon’s wholesale pricing model and by entering into the eBook market it allowed publishers to set their own prices and give competition to Amazon’s monopoly.