Linked by Thom Holwerda on Fri 2nd Aug 2013 15:30 UTC
Apple
Apple Inc deserves a five-year ban from entering anti-competitive e-book distribution contracts and should end its business arrangements with five major publishers with which it conspired to raise e-book prices, federal and state regulators said on Friday.

The U.S. Department of Justice and 33 U.S. states and territories proposed those changes after U.S. District Judge Denise Cote in Manhattan last month found in a civil antitrust case that Apple played a "central role" in a conspiracy with the publishers to raise e-book prices.

The DoJ also requires that competitors such as Amazon and Barnes & Noble be allowed to include links to their own stores in their iOS applications, which Apple had prohibited.

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Again, they should call...
by Kochise on Fri 2nd Aug 2013 17:47 UTC
Kochise
Member since:
2006-03-03

...Obama to the rescue !

Cf. http://osne.ws/l0i

Kochise

Edited 2013-08-02 17:49 UTC

Reply Score: 2

Good
by Alfman on Fri 2nd Aug 2013 18:14 UTC
Alfman
Member since:
2011-01-28

"The DoJ also requires that competitors such as Amazon and Barnes & Noble be allowed to include links to their own stores in their iOS applications, which Apple had prohibited."


Am I right in thinking that apple were the only ones to have had this sort of limitation in the first place? I hate that government intervention was even necessary, but it's a good outcome since apple shouldn't be banning apps from linking to their own websites.

It reminds me of this whole crap with banning dropbox apps on account of them linking to the website.

http://mobileorchard.com/apple-bans-apps-that-integrate-with-dropbo...

It at least could be understandable if apple were blocking illegal / "unethical" links (whatever that means), but banning them in order to block users from clicking on sites that might be used for commercial transactions goes way too far into anti-competitive territory.

Reply Score: 6

Everyone is wrong
by atsureki on Sat 3rd Aug 2013 05:02 UTC
atsureki
Member since:
2006-03-12

My comment title has become a kind of calming mantra to me, as I see it more and more all the time, at both individual and group levels and on all topics. It's strangely comforting to see wrongness as equilibrium rather than as conspiracy or "evil". Anyway:

Apple is wrong:
-Because Most Favored Nation clauses are scummy, lazy, and anticonsumer. (Usually.*)
-Because unrelated retaliations against parties that refuse to participate in their plans is patently unethical and illegal.
-Because the principles of neutrality should apply to natural monopolies (iPad) just as it should to legal ones (ISPs)
--Because they have no business deciding what other people's content business models should be, i.e., the right to forbid or to capitalize in-app content sales.
---Though allowing the likes of Amazon to give away a free app costs Apple money, which if Amazon then uses to compete against Apple for its own gain, is a very bad deal for Apple. But its current App Store terms of service is the wrong solution.

Amazon is wrong:
-Because it offers ebooks below cost, in violation of U.S. antitrust laws on "dumping"
--to put legitimate competitors, who have to turn a profit to stay in business, out of business
--to increase customer loyalty, thus increasing Kindle sales and public reliance on its own DRM garden while others wither away

The Department of Justice is wrong:
-Because it imagines Apple is a bigger player in the ebook market than is Amazon.
-Because it imagines Amazon's way involves "competition", while Apple's does not.
--(*)Because without Apple's agency model disruption, there is no competition in the ebook market. There is only Amazon, destroying specialized Barnes & Noble and ejecting generalized Sony and Apple by offering artificially low prices, subsidized by their natural online shopping monopoly.

The government has no mechanism for simultaneously dealing with both an unscrupulous market manipulator and their equally established, similarly wrongdoing vigilante rival, and arriving at a pro-consumer outcome. So they've come down on the vigilante at the behest of the original villain, but when's Amazon's trial? Before or after they flip the "profit switch" we've all known for years is coming? If it ever comes, I'm sure it'll be long after the Nook business is a distant memory.

Reply Score: 3

RE: Everyone is wrong
by Kochise on Sat 3rd Aug 2013 06:37 UTC in reply to "Everyone is wrong"
Kochise Member since:
2006-03-03

Ebook below cost ? You should explain me how the price tag of a thin air based book is set, beside the author's fee and distribution (hrum, web hosting) margin.

Do you know what a author gets from a $50 paper edition ? You'll be surprised that like milk producing facilities, the one that do produce get the most little part. Something between $1 to $4 per book.

Ebook ? It's almost producer to consumer, no physical support (beside memory and mass media paid by the consumer) but it still costs a lot for what it is, and the author still gets only a tinny part of the price.

Until the author get the main part of the price, books will be too much expensive, period.

Kochise

Reply Score: 4

RE: Everyone is wrong
by TM99 on Sat 3rd Aug 2013 07:39 UTC in reply to "Everyone is wrong"
TM99 Member since:
2012-08-26

Apple alone is 'wrong', as you correctly have written.

However, Amazon in this case is not in the wrong. They have not violated anti-trust laws because selling below cost an item they paid for wholesale and did not themselves produce is not dumping. You might believe it is, but legally and economically it is not so.

Amazon follows the 'wholesale' model. Apple colluded with publishers to push the 'agency' model. There is a huge difference.

http://www.macstories.net/stories/understanding-the-agency-model-an...

This article explains why Amazon is NOT putting other online sellers of eBooks out of business.

http://scholarlykitchen.sspnet.org/2012/01/19/the-hidden-expense-of...

Your points on the DOJ are also wrong. I mean, even reading a basic Wikipedia summary on monopolies and anti-trust will show you exactly why Amazon is NOT in trouble legally with the government and Apple IS.

It had nothing to do with Apple being a big player. They broke the law. Amazon has not done so. Volumetric pricing is illegal under Robinson-Patman. Amazon was selling the ebooks for a loss to get to a $9.99 price point. Amazon can bend the Robinson-Patman rules by asking for a larger co-op which is what they have been doing. That larger co-op has to be offered to all other retailers which it has been. Therefore, under current wholesale agreements, it is ultimately up to the publisher to decide whether to offer content at a specific price. And once they offer it to Amazon at that price, then they have to honor it for all direct accounts. It will be the publishers then who bend the rules. What Apple and those publishers did, as outlined in the above links and the court documents, is beyond bending the rules. It was a full blown violation of the laws as they stand.

Now if Amazon uses predatory pricing to gain unfair market advantage, and then subsequently raises the cost, excessively, to consumers, then and only then will they have violated the law in the same fashion as Apple & those publishers did.

Your thesis falls into the false equivalency meme when the actual facts are elucidated as I have now shared. Sorry.

Reply Score: 5

RE[2]: Everyone is wrong
by atsureki on Sun 4th Aug 2013 07:18 UTC in reply to "RE: Everyone is wrong"
atsureki Member since:
2006-03-12

http://www.macstories.net/stories/understanding-the-agency-model-an...

This article explains why Amazon is NOT putting other online sellers of eBooks out of business.


Well, I called your bluff and read that whole article. It doesn't say anything to absolve Amazon of predatory pricing or explain how other retailers can compete by also dumping content below wholesale prices. If you were referring to the classic razor/blade loss leader example, comparing that to this case is ludicrous, because that model requires the higher volume item (content/blades) to be profitable, while the entry point item (hardware/razor) is the loss-leader. The more ebooks you sell at Amazon's prices, the more money you lose. That makes it impossible to be an ebook retailer in Amazon's world.

Amazon can bend the Robinson-Patman rules by asking for a larger co-op which is what they have been doing. That larger co-op has to be offered to all other retailers which it has been.


I have no idea what you mean by this.

Therefore, under current wholesale agreements, it is ultimately up to the publisher to decide whether to offer content at a specific price. And once they offer it to Amazon at that price, then they have to honor it for all direct accounts. It will be the publishers then who bend the rules. What Apple and those publishers did, as outlined in the above links and the court documents, is beyond bending the rules. It was a full blown violation of the laws as they stand.


Yeah, that's probably all true, except the notion that there's any such thing as merely "bending" rules in a pure legal sense. I chose the word 'wrong' rather than the word 'illegal' for a good reason: because I'm talking about what damages the market, what the DoJ "should" be protecting the consumers from, not about who had a better case in court given the letter of the law.

Now if Amazon uses predatory pricing to gain unfair market advantage, and then subsequently raises the cost, excessively, to consumers, then and only then will they have violated the law in the same fashion as Apple & those publishers did.


What other purpose could there possibly be? Maybe if Amazon would release numbers on Kindle profitability, we could be assured that, at the average attach rate, they're not dumping.

Oh, whoops: http://www.forbes.com/sites/kellyclay/2012/10/12/amazon-confirms-it...

They're dumping. And it's unfairly putting competitors out of business.

Your thesis falls into the false equivalency meme when the actual facts are elucidated as I have now shared. Sorry.


Sorry, which facts? Your link only explains the difference between wholesale and agency and how Apple went about getting the publishers to switch to agency, which admittedly includes a few shady moves. If we strip the word 'conspiracy' of its pejorative connotational baggage and pretend, for the sake of argument, that Apple 'conspired' with publishers to throw a surprise birthday party, we can look at the respective motives for what they really are. Apple needed the agency model to break Amazon's iron grip on the ebook market. Amazon used the DoJ to fight that strategy and maintain its own power over the market. Now we can actually talk about right and wrong. Or rather, wrong and wrong.

Somewhere in the course of all this, I noticed another one.
The DoJ is wrong because:
-It assumes artificially low prices in the short term are better for consumers than a stable system where we are presented with real prices from the beginning.

Reply Score: 3

RE[3]: Everyone is wrong
by TM99 on Sun 4th Aug 2013 09:08 UTC in reply to "RE[2]: Everyone is wrong"
TM99 Member since:
2012-08-26

Bluff? Because you do not understand what is happening hardly means it is a bluff. I provided a link that might explain it to you. Obviously, you do not understand it.

If you do not, then you need more education on the subject. The remainder of your reply is therefore going to be rather blustery bullshit, I suspect if you do not understand the actual facts of the situation with regards to publishing and distribution of printed and digital media.

Again, you need to re-read what was linked and understand it before you can draw conclusions. Your original post is about a legal case, and now you are attempting to move the goal posts so that it is an ethical case of right versus wrong. Sorry, no.

Currently, the customer is best served by the wholesale model and Amazon negotiating with publishers via the Robinson-Patman rules to lower prices on eBooks which cost far less to produce than what they are charged to the customer. Apple and the agency model were forcing eBooks up to $14.99 and above from the regular $9.99 and below prices via Amazon and other sites.

If Amazon negotiates with a publisher, let's say O'Reilly, for a particular price wholesale and for selling rights at retail, then O'Reilly themselves and any other third party distributor of O'Reilly titles must honor that price. That is very good for the consumer. Using the same example of O'Reilly under the Apple agency model deal, Apple would set the price, the publishers would have to raise it high enough to cover Apple's 30% off the top charge, and Amazon and other sites would have to charge the customer the same price as the Apple store - a higher price. With favored nation status, Apple could and would negotiate so that if you want that O'Reilly book, only the Apple iTunes store may be the only distributor of it digitally. Not only would it then not be available at Amazon or B&N, but it would also be higher priced to cover Apple's fees. Not only is this illegal colluding and the equivalent of a 'shake down', I would like you to explain to me how this model is better for customers. I know that it isn't and so does the DOJ and other industry experts, but no really, I would like to see you try and rationalize this.

No, no, and yet again no. You simply do not understand this correctly. Selling the Kindle that they produce at a loss has no direct legal relevance to the concept of dumping with regards to eBook prices that Amazon provides customers. They do not publish the eBooks. They sell them retail after negotiating wholesale pricing with the actual publishers.

It is like you didn't even read your own linked article. They even mention that this is similar to a gaming console. Microsoft sold the original Xbox at a loss on the hardware side. There revenues from that division came in from the games and added content via the Xbox Live program. As it was perfectly legal for Microsoft to do that with the Xbox, it is perfectly legal for Amazon to do that with the Kindle. They realize their profit on the Kindle division not from the hardware, but from the software, i.e. the digital eBooks. They can afford to take a loss on the hardware and lower the retail price of the book because they still realize a HUGE profit from the sale of all of their media from hard copy books to games to other digital downloads.

This is not dumping. This is not illegal. As my statement said, if and only if Amazon turns around and grossly raises prices plus if and only if Amazon is deemed a monopoly (the only source for eBooks which is laughable), then and only then could they begin to be investigated for violations of the anti-trust act. They have showed no such intention to do so. It is highly profitable for them to provide eBooks to customers at the $9.99 price point. So much so that they are unconcerned if the same co-op deal is provided to the Apple iTunes store, B&N, KOBO, the GooglePlay Store, or anywhere else. Apple and the publishers were not thinking about the customer. They wanted exclusivity as well as the ability to set 50% higher prices across the board for eBooks.

I suggested in the last post that you bone up on economic theory and anti-trust law. Obviously you did not. My linked articles provided facts when coupled with that to understand why this was a very 'good' ruling and that only Apple & the publishers involved were 'wrong'. I have now provided you even more facts. It seems apparent to me again from this last paragraph and your attempts to change the legal definition of 'conspired' to some other definition to fit your thesis, that you are not thinking about this case, you are reacting to it emotionally. Amazon did not use the DoJ. Period. Amazon was never involved with this case. That is simply factual wrong. The DoJ investigated Apple when they blantly admitted to what they were doing during the intial run up to a civil class action lawsuit brought by consumers against Apple.

http://betanews.com/2012/03/09/apple-admits-to-two-key-allegations-...

http://www.publishersweekly.com/pw/by-topic/digital/content-and-e-b...

And once more you are wrong. The DoJ completed this lawsuit because Apple and the publishers broke the damned law. For you to claim that the real price of an eBook is $14.99 to $20.99 versus $9.99 is ludicrous. Once a book is published in hard copy, the price for production to digital is negligible. Publishers then are already making one profit source on the print copy. Publishers typically pay between 5% and 8% of book sales to the authors. I know, because I have been published. On a $9.99 sale of a digital copy, the author makes $.50 to $.80 and the remaining $9.00 goes to the publisher on top of the print sale revenue. Apple & Publishers who wish to inflate eBook prices further will not change this at all really for the author. Let's say the eBook is now $20.00. The revenue to the author is still 5% to 8% so now he or she is making $1.00 to $1.60 and the remaining $18.00 is going back to the publisher. That is a win/win for Apple (who would have gotten their little fee) and the publishers involved (who would realize double the revenue on their digital sales). It is a lose/lose for the author who still gets an incredibly small percentage of the overall sale, and the consumer, who is expected to pay twice as much.

Right now there is a stable system that involves competition. With Apple's agency deal, we would have an iron-walled system that costs us as creators and consumers of the digital content but still nets Apple and select publishers high profits. Amazon would not have been hurt really due to their other sources of revenue in this scenario. They still would have sold eBooks and in fact, if you paid attention during this case, Amazon was forced to raise prices on eBooks from $9.99 to $14.99 and higher. Look up the annual revenues to see that they weren't hurting. No, the DoJ did its job and we the consumers have a stable system with better prices.

I suspect you work as a programmer and will retort that digital is somehow more expensive and should be specially exempt from how the rest of the world has and will continue to treat 'objects' of sale. But I am sorry the real price of digital if it was to be the absolutely best for the consumer and still realize a hell of a profit for the publishers and wholesalers is in the $2.00 to $3.00 range. Do the math. I have.

Reply Score: 4

RE[4]: Everyone is wrong
by atsureki on Sun 4th Aug 2013 12:00 UTC in reply to "RE[3]: Everyone is wrong"
atsureki Member since:
2006-03-12

Bluff? Because you do not understand what is happening hardly means it is a bluff.


"This article explains why Amazon is NOT putting other online sellers of eBooks out of business."

It did not. It's either a bluff or a blunder, take your pick.

Your original post is about a legal case, and now you are attempting to move the goal posts so that it is an ethical case of right versus wrong.


Fair enough, I'll simply say that I'm more interested in what's wrong than I am in what's illegal. In any case, you've still said nothing about predatory pricing laws that excludes Amazon from culpability there. Maybe you want to actually quote something, because I've already wasted enough time reading whole articles that don't contain the point you say they do.

Currently, the customer is best served by the wholesale model and Amazon negotiating with publishers via the Robinson-Patman rules to lower prices on eBooks which cost far less to produce than what they are charged to the customer. Apple and the agency model were forcing eBooks up to $14.99 and above from the regular $9.99 and below prices via Amazon and other sites.


How long is "currently"?
When do we see the results of this "negotiating"?
How does costing "far less to produce" help other retailers keep up with Amazon's artificially low prices?
Since when is below wholesale "regular"?

That is very good for the consumer. Using the same example of O'Reilly under the Apple agency model deal, Apple would set the price,


Not what the agency model is. Source: your link.

the publishers would have to raise it high enough to cover Apple's 30% off the top charge,


Industry standard book retail margin is 50%. Apple charges less. Source: your link.

Selling the Kindle that they produce at a loss has no direct legal relevance to the concept of dumping with regards to eBook prices that Amazon provides customers. They do not publish the eBooks. They sell them retail after negotiating wholesale pricing with the actual publishers.


They charge less than wholesale. You keep ignoring the single most important part. They charge cost for the hardware, and below cost for the content. Their entire ebook business is a dumping operation.

You keep mentioning that Amazon isn't the publisher, but you've cited nothing that makes that relevant.
http://en.wikipedia.org/wiki/Predatory_pricing
Do you see anything on that page about having to be the manufacturer? Because I see a lot of retailer examples. Again, maybe quote something.

They can afford to take a loss on the hardware and lower the retail price of the book because they still realize a HUGE profit from the sale of all of their media from hard copy books to games to other digital downloads.

This is not dumping. This is not illegal. As my statement said, if and only if Amazon turns around and grossly raises prices plus if and only if Amazon is deemed a monopoly (the only source for eBooks which is laughable), then and only then could they begin to be investigated for violations of the anti-trust act.


It sounds like you're talking about a standard of evidence. Super. So if you're right, then the law is useless, because by the time that happens, B&N is already long out of business.

It is highly profitable for them to provide eBooks to customers at the $9.99 price point.


False. Source: your link.

Amazon did not use the DoJ. Period. Amazon was never involved with this case. That is simply factual wrong.


Apple says otherwise.

http://paidcontent.org/2012/08/15/apple-bashes-amazon-and-proposed-...

"For example, many expressed concerns about the possibility that the Government has unwittingly placed a thumb on the scales in favor of Amazon, the industry monopolist. Amazon was the driving force behind the Government’s investigation, and it told a story to the Government that has yet to be scrutinized. Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees—yet not once under oath. The Government required that Amazon turn over a mere 4,500 documents, a fraction of what was required of others."
-Footnote 6 of the embedded memo.

(See, now, that's how citing is done. My link is relevant, I told you where to look, and I even quoted the part that matters.)

For you to claim that the real price of an eBook is $14.99 to $20.99 versus $9.99 is ludicrous.


I never gave an example of a "real price", but I did use that term, and what I meant by it was either a publisher-dictated agency price or a profitable retail price. In other words, anything other than Amazon's system of charging below wholesale; anything that is tenable or sustainable for a legitimate retailer, not funneling profits from unrelated businesses, to charge.

That the publishers are being greedy as a general rule is irrelevant to whether Apple or Amazon or both are undermining retail competition.

(I did us both the favor of removing all your ad-hom static. Maybe you can take care of that yourself next time.)

Reply Score: 3

RE[5]: Everyone is wrong
by TM99 on Sun 4th Aug 2013 16:23 UTC in reply to "RE[4]: Everyone is wrong"
TM99 Member since:
2012-08-26

You still continue to be unable to provide any relevant proof that Amazon has or is currently putting other retailers of eBooks out of business. They are not. That is why I called your statement ludicrous.

I really wish you would read that article again on the Agency model more closely, because the questions you are asking of me and the points you are trying to debate with me are indeed covered there.

But I will reiterate if it helps.

No one can answer 'how long' only to acknowledge that under the wholesale model that Amazon follows, consumers pay less for the same eBook. That is good for consumers. Under the agency model and collusion practice that Apple & these publishers attempted to push through, consumers paid higher prices at all sources of purchase including Amazon. That is bad for consumers. If Apple and the other publishers are forced to stop these practices, because we all know Apple will not willingly settle this, then prices will return to their lower position, hopefully, and that is good for consumers.

As an Amazon customer you have already seen the results of the negotiating. This is how it has been done for almost a decade now with them with regards to the wholesale model. The publishers agree to this because while they may bitch that they are losing money, in fact they are not. It is simple math. If I sell volume x at a higher price at one location (iTunes store) but fewer buy because of the higher price, and if I sell volume x at a lower price at another location (Amazon) and more buy because of the lower price, not only does Amazon realize a profitable success but so does the publisher. They want more of the pie. Fair enough. But they allowed Apple to suggest a means to do this which is illegal. That is why they got their hands slapped.

I don't think you understand the wholesale model and what has occurred. Amazon negotiates a wholesale price with the publisher. The publisher can suggest that Amazon charge more for the book, but they can not force Amazon to do so. They are quite free to sell it below MSRP. Companies do this all the time. Have you bought computer parts at NewEgg or Tiger Direct? Did you pay MSRP for that 1TB hard drive on Black Friday? How about a new car deal from the car lot down the street? Are these companies putting other ones out of business? If so, is it done illegally? No, and here is why.

You are mixing concepts and that is why there seems to be a misunderstanding. From your Wiki link:

In economics, "dumping" is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.

Amazon does not create the eBooks. Therefore, they can not be 'dumping' them. Read the examples sited. Your other link is to predatory pricing. Some might attempt to argue that Amazon does that but they do not. They are engaged in price competition.

...price competition, which is where a company tries to distinguish its product or service from competing products on the basis of low price.

Amazon distinguishes themselves in their sale of eBooks by negotiating with publishers under the wholesale model so that they can sell eBooks at below MSRP for $9.99 or less. That is not dumping. That is not predatory. They do not have any sort of favored nation status exclusion which is exactly what Apple attempted to do here - Apple gets the better deal (as you quoted) in exchange for exclusivity to having that eBook ONLY at the iTunes store and not on Amazon. Amazon does not do that. They may sell the same eBook for less than Kobo, iTunes, GooglePlay Store, or B&N, but, they do not force or attempt to force publishers from making deals with those other stores. You may not like how they are competing, but the how is not illegal nor is it even unethical. For now, yes, it does provide us, the consumer, with lower prices for a product that already has a very high market up given its actual production costs.

Finally, though, you believe that I am making 'ad-hom static' as you call it but it is not. You are trying to base your argument that Amazon was the instigator of the lawsuit (which is factually wrong!) based on Apple's very, very recent appeals filing with the DoJ.

Please read the comments. There are a few intelligent and accurate responses. Just because Apple says so, does not make it so. The Supreme Court has already determined that settlements such as this by the DoJ are allowable and do not violate the due process of the companies involved. They have been found guilty of an illegal act. Due process was served in the trial. Apple is trying to argue that they are immune to such settlements. Forcing them to break an illegal contract is not a violation of due process. Their contracts are based, on court determined guilty illegal practices

Apple wanted to enter the eBook market. They did so illegally and prices across the board on eBooks rose because of their collusion and anti-competitive practices with their chosen publishers. You want to argue that Amazon is bad for the market and for consumers. Yet, Apple is the one who is now proven to have been something truly bad for the market and for consumers. I yet again ask you how do you rationally defend this? Can you deny that they broke the anti-trust laws? Can you deny that eBook prices have risen and remain high(even at Amazon) due to their illegal practices?

Snark all you want. I provided links. I will not hold your hand for you with regards to having a better foundation of economic understanding when reading those links. You may not intend this to be so, but you sound like a 'fan' who is trying to rationalize why Apple is not wrong and Amazon is. I have no great love for the corporation Amazon. Their warehouse anti-labor practices are atrocious and need seriously correcting. However, that is irrelevant to this case and this situation. Amazon is not wrong. The DoJ is not wrong. Apple is wrong.

Reply Score: 4

RE[6]: Everyone is wrong
by atsureki on Mon 5th Aug 2013 01:45 UTC in reply to "RE[5]: Everyone is wrong"
atsureki Member since:
2006-03-12

http://www.digitalbookworld.com/2013/revenues-and-profits-down-at-b...

B&N is suffering. I wonder why. Oh, wait, no I don't.

You keep either misunderstanding or willfully ignoring that Amazon is selling books not merely below MSRP, but below the wholesale price that they, and their competitors, paid. No negotiations were involved. Amazon simply ate the difference. And that is not a model their competitors can follow, because to their competitors, this is an actual business, one that sustains them, not simply a new crown jewel up for sale to the highest bidder.

http://www.macstories.net/stories/understanding-the-agency-model-an... [YOUR LINK]

"As publishers began selling e-books, they retained this wholesale method. So when retailers such as Amazon wanted to sell e-books they established wholesale contracts with the publishers. But Amazon, as part of their move to promote the Kindle device they sold, began to sell new release and best selling e-books at $9.99. This price was below the wholesale price.

"Amazon was relentless in their push for $9.99 prices on virtually all new release and best seller titles. The publishers were still getting the full wholesale price, but customers were getting e-books for less than that price and Amazon was willing to take a loss on them. Amazon made those e-books a loss-leader, meaning that they priced them at below cost-price in order to entice new customers to purchase a Kindle or perhaps even to encourage them to purchase other goods from Amazon."

Emphasis original. You can't miss it.

Amazon's regular price (not sale price; cut it out with the red herrings) was not simply below MSRP (in the article, RRP), it was less than Amazon paid. It was less than wholesale.

Now, if we were talking about physical items here, Amazon's competitors could make up some of their difference by just buying their stock from Amazon. But these are not physical items. Amazon is cultivating a DRM garden. Amazon is creating dependence on their services, to the exclusion of competing services.

And as already established, the Kindle isn't a profit item, either, so obviously that's not the end goal. Neither hardware nor ebooks are selling for profit. Until... I don't know. But I do know why companies usually do this kind of thing. And I'm pretty sure I read somewhere that it's illegal, as it very well should be.

In economics, "dumping" is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.


Noted. I had heard dumping and predatory pricing used interchangeably, but if you insist dumping is something more specific, I can go along with that.

They do not have any sort of favored nation status exclusion which is exactly what Apple attempted to do here - Apple gets the better deal (as you quoted) in exchange for exclusivity to having that eBook ONLY at the iTunes store and not on Amazon.


That's not what MFN is. You probably mean to say publishers will refuse to sell the ebook anywhere that won't honor the agency price. Because that would actually be true. And I really hope against hope that we only mean to say things that are true.

You are trying to base your argument that Amazon was the instigator of the lawsuit (which is factually wrong!) based on Apple's very, very recent appeals filing with the DoJ.


(Then rebut it with facts.)

"Amazon talked with the Government repeatedly throughout the investigation, even hosting a two-day meeting at its Seattle headquarters. In all, the Government met with at least fourteen Amazon employees—yet not once under oath."

And everyone agrees this outcome is great for Amazon. Because it allows Amazon to... continue selling books at a negative profit...? Why would they want to do that?

Ooh! Ooh! I know why! Pick me!

Reply Score: 3

RE[7]: Everyone is wrong
by TM99 on Mon 5th Aug 2013 07:47 UTC in reply to "RE[6]: Everyone is wrong"
TM99 Member since:
2012-08-26

Yet again, you don't seem to be understanding this.

It is ok for Amazon to sell below RPP, MSRP, or whatever the hell you want to call it. They can sell below wholesale price IF they want to. They are NOT breaking any laws to do so. Many businesses do this including the examples I gave you in the previous posts - NewEgg and Tiger Direct. I can provide hundreds of others. As long as they are paying the wholesale price that the publishers ask for, then they are just fine. B&N are not paying one price from the publisher and Amazon another.

B&N is a bad choice for your argument because they sell many of the same items including this little eBook reader called the Nook. Perhaps you have heard of it?

MFN status in this case did mean exclusivity with the Apple store because Amazon, B&N, the GooglePlay Store, etc. all used the wholesale model. They were being pressured to change what has been done so that Apple and publishers involved could set the price higher. That is what is a direct violation of the Sherman Anti-Trust Act. Apple & these publishers acted like the Mafia. They made deals that others couldn't refuse. It is illegal. Period. Look it up if you need more 'facts'.

I provided links already that can get you going on looking up the actual DoJ lawsuit and the original class action lawsuit.

Finally, here is what you are just not understanding. There is absolutely no problem with Amazon doing what they are doing even if eventually leads to becoming a monopoly. That is considered a normal aspect of market place economics. The problem occurs if and only if the monopolist abuses their position. The Sherman Anti Trust Act among other laws defines what is ok and what is not ok for a monopolist to do. A cursory study of the Microsoft vs DoJ will educate you more on this area of business. There was never a problem with Microsoft becoming a monopoly. The problems began when they abused that monopoly.

Businesses in the capitalistic model of market place economics that we have in America are allowed to compete very aggressively. We have very few laws really to define what is not ok. In Apple's case with this lawsuit, they broke one of those few sets of rules. They did it arrogantly and abusively - much like Microsoft did in the 1990's. Once a business achieves monopoly status, then they must follow a much more strict set of rules on their business behavior. If Amazon achieves a monopoly in eBook sales, then they will be held to that standard. At this point in time, they are not a monopoly. There are literally hundreds of places online to purchase eBooks from.

Most importantly at this point, customers are still better served by the wholesale model. Customers are also getting a much better price for eBooks from Amazon given their production costs. And as long as Amazon, even if they become a monopolist, continue to provide eBooks at these types of prices which are good for consumers, they are not ethically or legally breaking any rules of 'good' or 'bad'.

Reply Score: 4

RE: Everyone is wrong
by TemporalBeing on Mon 5th Aug 2013 17:55 UTC in reply to "Everyone is wrong"
TemporalBeing Member since:
2007-08-22

My comment title has become a kind of calming mantra to me, as I see it more and more all the time, at both individual and group levels and on all topics. It's strangely comforting to see wrongness as equilibrium rather than as conspiracy or "evil". Anyway:

Apple is wrong:
-Because Most Favored Nation clauses are scummy, lazy, and anticonsumer. (Usually.*)
-Because unrelated retaliations against parties that refuse to participate in their plans is patently unethical and illegal.
-Because the principles of neutrality should apply to natural monopolies (iPad) just as it should to legal ones (ISPs)
--Because they have no business deciding what other people's content business models should be, i.e., the right to forbid or to capitalize in-app content sales.
---Though allowing the likes of Amazon to give away a free app costs Apple money, which if Amazon then uses to compete against Apple for its own gain, is a very bad deal for Apple. But its current App Store terms of service is the wrong solution.


A pretty good list. But suffice it to say, Apple is wrong for one major reason: Price Fixing, which is not allowed monopoly or otherwise.

Amazon is wrong:
-Because it offers ebooks below cost, in violation of U.S. antitrust laws on "dumping"
--to put legitimate competitors, who have to turn a profit to stay in business, out of business
--to increase customer loyalty, thus increasing Kindle sales and public reliance on its own DRM garden while others wither away


As others have pointed out, Amazon is not selling eBooks below cost. They simply run a different model and therefore negotiated a difference price to sell things at. They have eBooks in a variety of price ranges, not simply one fixed price as Apple tried to do.

The Department of Justice is wrong:
-Because it imagines Apple is a bigger player in the ebook market than is Amazon.
-Because it imagines Amazon's way involves "competition", while Apple's does not.


DOJ in this case got nothing wrong because Apple did something illegal - price fixing.

--(*)Because without Apple's agency model disruption, there is no competition in the ebook market. There is only Amazon, destroying specialized Barnes & Noble and ejecting generalized Sony and Apple by offering artificially low prices, subsidized by their natural online shopping monopoly.


Apple's Agency Model is certainly allowed. What is not allowed is for them to also price fix in such a way as to push other business's with other models to charge more - which is exactly what they tried to do and got called on.

B&N's state has nothing to do with the sale of eBooks but their own inability to negotiate the changing businesses related to what they do due to the Internet. Even then, they have been embracing more of the Amazon method of doing things - they just haven't done it as well as Amazon has, and their Internet site was not as good for quite a while.

The government has no mechanism for simultaneously dealing with both an unscrupulous market manipulator and their equally established, similarly wrongdoing vigilante rival, and arriving at a pro-consumer outcome. So they've come down on the vigilante at the behest of the original villain, but when's Amazon's trial? Before or after they flip the "profit switch" we've all known for years is coming? If it ever comes, I'm sure it'll be long after the Nook business is a distant memory.


Again, you're way off base.

Reply Score: 3