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Connecticut AG To Grill Amazon, Apple Over E-Book Price Fixing

Posted by Soulskill on from the jig-is-up dept.

suraj.sun tips news that Connecticut's Attorney General has demanded a meeting with Apple and Amazon to discuss anti-competitive pricing methods in the e-book market. From Ars: "Richard Blumenthal says that he wants representatives from both on-line giants in his office ASAP to discuss what Blumenthal calls their 'most favored nation' arrangements with big book companies like Macmillan and Simon & Schuster. The crux of the MFN concept is that a given product maker must offer a given distributor the lowest price it's offering anyone. If a competing distributor gets a price break, they get it too. 'The net effect is fairly obvious,' Blumenthal warned in his letter to Amazon (PDF), 'in that MFNs will reduce the publisher's incentive to offer a discount to Amazon if it would have to offer the same discount to Apple, leading to the establishment of a price floor for e-books offered by the publisher.'"

23 of 107 comments (clear)

  1. Zero cost copying by FriendlyLurker · · Score: 4, Interesting

    Of course ebook prices are fixed (amoungst other digital "goods") - how the hell do you price something that can be copied infinitely at next to zero cost? And therein lies the problem...

    1. Re:Zero cost copying by FooAtWFU · · Score: 4, Insightful

      It's one thing to say "This book will cost $14.99 from our store." It's quite another to say "All the books we sell will be $14.99, and if you let us sell your book you're not allowed to sell this book anywhere else for cheaper."

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    2. Re:Zero cost copying by AHuxley · · Score: 5, Informative

      http://en.wikipedia.org/wiki/Lysine_price-fixing_conspiracy should give some insight into the cartel issue and why it needs to be fixed.

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      Domestic spying is now "Benign Information Gathering"
    3. Re:Zero cost copying by MBGMorden · · Score: 2, Interesting

      I don't see where this would help though. Apple and Amazon - being the giants of this particular industry, would logically be able to negotiate the lowest prices anyways. I don't see how this will affect much. Now if "Joe's Online Bookshop" had managed to negotiate this type of thing, it might be a different story. As it is, its about like complaining that Wal-mart made an arrangement with Rubbermaid so that they had to have the lowest cost on their stuff. IE - just a contractually enforced status quo.

      --
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    4. Re:Zero cost copying by homer_s · · Score: 2, Insightful

      The govt. already does this (see the lawsuit against Oracle); so do plenty of companies.

      Think of Amazon and Apple acting as agents for the consumer - they collect all the buying power of the individual consumers and use that to get the publishers/manufacturers to get their pricing down.

      I fail to see what the problem is - it is two entities voluntarily agreeing to certain terms (and please don't tell me it is not voluntary - unless someone holds a gun to your head, it is voluntary).

    5. Re:Zero cost copying by Anonymous Coward · · Score: 2, Insightful

      That's not an accurate description... These MFN clauses actually say "We, the retailer, will pay you, the publisher, $4.99 per book, and if you make an arrangement with a different retailer where they pay you less than $4.99 per book, then we want that price as well."

      I don't see how this is the determining factor for 'price fixing' since any retailer is still free to sell at a lose. Also, without this the publishers would probably intentionally favor new retailers to fragment the retail market, and probably to open the way to go into direct sales themselves, which would be beneficial to them, but not necessarily to consumers.

    6. Re:Zero cost copying by commodore64_love · · Score: 3, Insightful

      This makes no sense to me.

      If I want to sell my books to amazon for $5 while charging $6 to everyone else, why does it matter? Why is the Government's General Attorney interfering with these transaction that only involves two people (me and the amazon rep)? This looks to me like some guy who has too much time on his hands, or is possible looking for an issue to hang his reelection campaign upon.

      Note that this is different from the price-fixing that CD companies were doing - forcing stores like Kmart and Walmart to raise prices from $9 to $12 minimum. That could be argued to be Damaging the consumer, and was found to be an illegal cartel (record companies acting as one unit).

      --
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    7. Re:Zero cost copying by SailorSpork · · Score: 2, Informative

      What you are talking about not "fixed prices," but "fixed costs." The cost of any good sold has a fixed cost and a variable cost, and technically an eBook has very low variable costs (in this case, mostly distribution) but similar fixed costs to deadwood (editing time, design/typography, etc).

        Price fixing, on the other hand, is two companies joining forces to set prices in a market to maximize sales dollars or price out competition unfairly. The wikipedia link is a great reference on that.

        Variable costs and Pricing are not necessarily related in non-commodity goods markets, because then artists would end up making nothing to produce creative works. It would be like saying I'm only going to pay $1 for Starcarft II, because that's what it cost to produce the disk, leaving out the R&D costs, testing, and (God forbid) that someone make some profit by producing a superior entertainment good that "can be copied infinitely at no cost."

    8. Re:Zero cost copying by evilbessie · · Score: 2, Interesting

      But that is a monopoly, why would anyone look anywhere else if they know the best deals are always at Amazon? Small online retailers can't offer special discounts or offers if they are not allowed to sell below the Amazon/Apple floor, you don't get effective competition hence why it needs to be looked into.

    9. Re:Zero cost copying by bloobloo · · Score: 2, Informative

      Most Favoured Customer clauses are well known in economics to be a sign of a cartel.

      Most-Favored-Customer Pricing and Tacit Collusion
      Thomas E. Cooper
      The RAND Journal of Economics, Vol. 17, No. 3 (Autumn, 1986), pp. 377-388

      Abstract:

      This article examines the role of the most-favored-customer pricing policy as a practice facilitating coordination in a dynamic model of price-setting duopoly. This policy is a promise by a firm that if it later lowers price, it will rebate to current customers the difference between the price they pay now and the lower future price. by reducing each firm's incentive to reduce price, the policy enables both firms to offer higher prices and to enjoy higher profits. Consequently, at least one firm offers the policy in equilibrium. We illustrate these general results in an example.

  2. Amazon? by MozeeToby · · Score: 3, Insightful

    Didn't Amazon just hand over its right to price many new releases to the publishers? I seem to remember Amazon wanting to charge $10 for a new (only in hardcover) release, but the publishers forcing them to increase the price or not carry the books. Of course, that doesn't say anything about cheaper books that are out in paperback...

    1. Re:Amazon? by magical+liopleurodon · · Score: 2, Informative

      Yes. And the reason the publishers forced the increase in prices was because of their contracts with apple. The mfn plays into it, but amazon was also forced to go to the agency model because apple said the other vendors couldn't sell to anyone else unless it was through the agency model if they wanted to do business with apple.

  3. AUGH by Pojut · · Score: 5, Insightful

    Fucking e-books. Why does it cost more to buy an e-book than it does to buy a dead-tree paperback? wtf?

    I absolutely adore my nook, but it's filled with public works and books that have been gifted to me...I refuse to pay $10 for a digital copy of a book.

    --
    Living With a Nerd
    1. Re:AUGH by bill_kress · · Score: 2, Insightful

      People tend to forget that with capitalism end user sale price has ABSOLUTELY NOTHING to do with manufacturing cost--it is exclusively related to what people will pay for a product, nothing else (Except, in a few cases, government control).

      If someone figured out how to make a home for $45.76 using nanotech or something they will still be able to sell it for $400,000 or $4M as long as someone will pay for it.

      This is what makes monopolies so dangerous and government oversight so important.

  4. I don't get it. by Spazntwich · · Score: 3, Insightful

    Aren't e-books selling at levels competitive with physical books?

    Aren't they luxury items in the first place?

    If the previous two points are true as I believe, it seems kind of silly that the best use of the Connecticut AG's time is making sure people aren't overpaying a few bucks for items they're obviously already comfortable purchasing at that price.

    I would rather see a legal investigation into Amazon's and Apple's patent tactics and such. Their portfolios and legal strategies likely cause many more customers of many other companies to overpay many more total dollars for zero value.

    But who the fuck am I?

  5. Grandstanding by unixan · · Score: 4, Insightful

    This is just grandstanding by a politician running for office. Neither Amazon nor Apple are headquartered in Connecticut, which makes the appropriate action for this state AG to make a filing to the FTC.

    Except, of course, filing with the FTC just doesn't sound as exciting to voters.

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    1. Re:Grandstanding by KevinIsOwn · · Score: 2, Interesting

      This is just grandstanding by a politician running for office.

      You can claim grandstanding all you want, but those of us from CT know that Richard Blumenthal goes up against corporations from all around the US all the time. Sometimes they get picked up by the media more than others, but this really ins't anything out of the ordinary for him.

      And you can like him or hate him for that, I'll keep this post apolitical, but this is just not unusual for him.

  6. Talking to the wrong people by SuperKendall · · Score: 3, Interesting

    It seems absurd to me to bring in Amazon and Apple over this, when they aren't the ones who set prices (Amazon used to).

    I don't see, at all how Apple and Amazon demanding the lowest price offered sets any kind of "floor" beyond the natural floor of the lowest price the publisher is willing to charge. The only thing it affects is the ability to charge a lower price at one vendor than another, but if that were OK how would that help the consumer? That to me would seem to be used to squeeze out a competitor and generally shrink the book market to one clear leader, who could then more easily collude with publishers to keep a higher average price for books beyond loss leaders...

    --
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  7. That doesn't hold by Mr.+Underbridge · · Score: 4, Insightful

    it seems kind of silly that the best use of the Connecticut AG's time is making sure people aren't overpaying a few bucks for items they're obviously already comfortable purchasing at that price.

    By that logic, there's never been a damaging monopoly at all - after all, by definition, all the customers are comfortable paying the price charged or they wouldn't be customers, right?

    1. Re:That doesn't hold by Mr.+Underbridge · · Score: 2, Interesting

      With specific regard to luxury items? Damn right.

      Sorry, but those are not exempt from the law. Also, consider that any price-fixing malfeasance is what is *keeping* them as luxury items. If the price falls, us little people will be able to afford them too. Even that ignores the appalling notion that books should be considered a luxury, but I digress.

      Also, you use too many commas, and your overall tone comes across as arrogant and standoffish.

      You're a grammar pedant; you mistake simple logical analysis for arrogance; you falsely assume that I give a damn what you think of my 'tone'.

      But do have a nice day. ;)

  8. Folks it is election season! by ScaredOfTheMan · · Score: 5, Informative

    "Richard Blumenthal (born February 13, 1946) is an American lawyer and politician. A member of the Democratic Party, he has been Attorney General of Connecticut since 1991. He is a candidate in the 2010 U.S. Senate election for the seat currently held by Christopher Dodd.[5]"

    Nuff said.

    http://en.wikipedia.org/wiki/Richard_Blumenthal

  9. How companies set "high" prices... by El+Fantasmo · · Score: 2, Insightful

    Traditional books cost about $25+ for new hardback and about $8+ for paperbacks. This price includes the cost of materials which were claimed for many years to be a large chunk of the cost. But companies don't use "cost plus" to price things, where "plus" is some arbitrary profit to make over the cost. Companies, now, figure out the MAX people are willing to pay over cost. If it cost $1.00 to produce an ebook, but you're willing to pay $14, you are WILLINGLY paying 1400% markup; that's 1300% profit.

    Companies aren't as interested in making a valuable product as they're interested in taking the MAX amount of money from you. This also means, power is in the hands of consumers. If you want the price to come down on "over priced," inexpensive to produce goods with relatively high profit margins, don't buy them unless they are at a price you feel they're worth. Yes, some instant gratification will have to put aside.

    More on point, if consumers send the message to Apple, Amazon, Random House et. al. that they won't pay "high" prices for ebooks, then prices will drop across the board regardless of what distributors are charged.

    Since when has they ability to more more product and therefore demand a lower price from a supplier been illegal?

  10. Re:Paper is Cheap; People and Processes are Costly by Omestes · · Score: 2, Interesting

    No clue. But, actual productions costs willing, I'd say at least 50% of the profits, with the rest divided between the various other parties (publisher, retailer, and whoever latches on). The author should get more than anyone else, since without them the rest would languish and die.

    I really have no clue though, since I'm not involved in the industry, and don't know the full break down of the costs of publishing various versions of media.

    In short: more.

    I do find it odd that digital copies cost less to produce, cost as much as a trade, but authors get far less (generally) per copy. Which mirrors the music industry pretty well, sadly.

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