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Amazon Won’t Be A Big Winner In the DOJ’s Price-Fixing Suit

2012.04.18   prev     next

AS near as I can gather from various news reports, this is what happened:

First, there was no significant market by which to sell e-books.

Then, Amazon made the Kindle e-book store. Amazon’s pricing policy stipulated that Amazon got to set the price of the e-books. If any publisher didn’t like that, they were free to not sell their e-books on the Kindle store. Since Kindle was the only significant e-book game in town, the publishers caved, and let Amazon set book prices — though they really didn’t like how low Amazon often set them.

After a while, competition arrived: Apple made the iBookstore. And unlike Amazon, Apple allowed the publishers to set the price of their books. (Apple keeps a cut, of course.) So the publishers went back to Amazon and said, we want to control (or at least set a minimum) price for our e-books on the Kindle store. You’re no longer the only game in town — just look at all those iPads Apple’s selling! If you won’t let us control the price of our books, then we’ll stop selling them for the Kindle.

And this time, thanks to the threat of competition, Amazon caved, allowing the publishers to control their prices on Kindle.

The DOJ’s (Department of Justice’s) suit against the publishers and Apple, it seems, is based on the idea that Amazon shouldn’t have been forced to relent to the publishers’ demands, and the publishers were acting in collusion to “fix” the prices of their own books (i.e. to make them higher than Amazon wanted them to be).

Apple is also named as a defendant in the suit, due to Apple’s policy that says that while you can choose the price of your iBook, you may not set it higher than it is on anyone else’s e-book store. This policy, apparently, emboldened the publishers to call Amazon’s bluff (and it worked). To the DOJ, that amounts to Apple orchestrating illegal collusion among publishers.

Amazon, as you might well imagine, is ecstatic, as described by the Wall Street Journal (as quoted on Daring Fireball):

Amazon hailed the settlement as a victory for consumers and users of its Kindle e-reading device. “We look forward to being allowed to lower prices on more Kindle books,” Amazon said.

Amazon needn’t celebrate too long. This isn’t going to work out in their favor, no matter what the DOJ does, and here’s why:

Authors control the books they write. And they don’t want Amazon (or anyone else, for that matter), telling them how much (or how little) they should sell their books for. So if the DOJ forces these publishers to let Amazon set the prices, then the publishers can just pull their e-books from Amazon (non-contingently this time), and sell on Apple’s iBookstore exclusively. If the DOJ forces these publishers to sell on Amazon whether they want to or not? Then the authors can start using some other publishers. If the DOJ forces all publishers to sell on Amazon? Then the authors can go directly to Apple and sell iBooks with no middleman save Apple. If the DOJ forces authors to sell their books on Amazon whether they want to or not? Then the authors can stop writing books and do something else for a living. And if the DOJ forces the authors to go back to book writing?

Well, I think you’re probably getting the picture. Unless the DOJ has infinite powers that would make the harshest dictator blush, then there really isn’t anything it can do in the long run to force authors to sell their books for a lower price than they want to. The thing that really keeps e-book prices in check isn’t the DOJ riding to the rescue — it’s just the consumer deciding that this particular book costs too much, so I’m going to buy some other book, or buy something else, or just hold onto my money for now.

If Amazon’s business model is based on the hope that they’ll always be able to undercut other bookstores by selling for less, they’re in for a rude awakening. The DOJ isn’t going to shut down the iBookstore and put things back to the way they were when Kindle was the only e-bookstore.

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