E-Books, Price-Fixing, and Monopolies

E-book scandal

 

Apple was charged yesterday with conspiring to fix e-book prices alongside other publishers, including Hachette Book Group Inc., Macmillan, HarperCollins Publishers LLC, Penguin Group, and Simon & Schuster (the publishers all settled with the Department of Justice prior to the trial).

According to the US district judge, Denise Cote, Apple and the publishers had seen Amazon’s growing dominance with e-books (centered around a $9.99 price point) and sought to raise the price point to $12.99 and $14.99. As reported by The Guardian:

During these talks, Apple said it wanted to announce the iBookstore at the 27 January 2010 launch of the iPad, but would only do so if it was assured the company could make a profit.

“With a full appreciation of each other’s interests, Apple and the publisher defendants agreed to work together to eliminate retail price competition in the e-book market and raise the price of e-books above $9.99,” said Cote.

As early as 2008, executives at MacMillan and Hachette discussed ways to get Amazon to increase ebook prices. All of the publishers expressed frustration in 2009 and began campaigning for prices to be raised in newspapers and in private dinner meetings.

Of course, after the ruling Apple issued a statement of its innocence and promised an appeal.

To be honest, I don’t have the time to look through the court documents related to the meetings and correspondence that backed this ruling up. What I know is this: the other publishers settled (not necessarily an admission of guilt; perhaps trying to stop further litigation and loss), Apple was also charged, Apple was found guilty in court, and Apple maintains its innocence. At this point the best we can say is that a Judge ruled that price-fixing did occur, and we have no choice but to cautiously believe that if we want.

But was price-fixing such a big deal?

 

Price-fixing

 

According to Merriam-Webster, price-fixing is “the setting of prices artificially (as by producers or government) contrary to free market operations.” The English language learner’s version goes into a little more detail: “the usually illegal act or practice of agreeing with business competitors to set prices at a particular level instead of allowing prices to be determined by competition.” Notice the “usually illegal” portion of the definition. In the case of the book publishers and Apple, it was considered illegal.

The reason is that they were upset with a competitor’s pricing and hold on the market and attempted to use price to wrestle some of that hold away. Their actions caused prices to rise for consumers – in other words, their reaction to competition was not to bring more competition, but to negatively impact consumers for their gain. (It gets even more devious if the reports are true that Apple took some of the gain from the price-fixing.)

This part of the argument (as opposed to the monopoly discussion below) is the part I can’t stand. It seems like a childish way to react – they’re being mean, so let’s get ‘em! Why not think of legitimate, smart ways to be competitive instead? It’s not like Amazon got where it is by Harry Potter magic. They built a smart business model, and they’re reaping the benefits. If you want to be in competition with them and/or make more money off of your books, think of something amazing and ingenious, not illegal.

 

Monopolies and near-monopolies

 

That brings us to the monopoly discussion. The argument against Amazon now and always is that they’re too much of a monopoly: “Of course it’s hard to compete, because Amazon has such a stranglehold on the market!”

This argument at least makes more sense. It’s obvious that Amazon is doing incredibly well, not just in online sales, but in e-books and e-book readers in particular. Their Kindle Paperwhite is the best e-reader I’ve come across, and while I can’t speak to the Paperwhite’s sales volume, I do know that their Kindle Fire line is selling like hotcakes (although I would argue e-reading on tablets isn’t the greatest). And it’s easy to see why – they’re well-built devices. And these well-built devices are really putting the pressure on their competitors, even causing Barnes & Noble to drop their NOOK HD line altogether. And while Barnes & Noble isn’t down-and-out (their retail space is doing incredibly well, netting a $374 million profit this year), it’s obvious Amazon is putting the pressure on multiple markets.

But is this a bad thing?

Monopolies are generally frowned-upon because they stifle competition, the bread-and-butter of consumerism. But Amazon isn’t a monopoly. In terms of online retailers, there are other major general retailers (Buy.com, now Rakuten.com; Walmart.com, etc.) as well as numerous specialty retailers (Newegg.com, TigerDirect.com, Staples.com, etc.). Amazon is simply the largest online retailer. It is a near-monopoly, but it is not a monopoly.

But even near-monopolies can be concerns. You look down the road and wonder what would happen if everything went through Amazon. But you can’t really blame Amazon for that – they’re providing services and devices that consumers absolutely love.

So which is it? Should near-monopolies be punished, or should consumers be allowed to choose and keep near-monopolies if they want? Or is it both? (Is that even possible?)

Personally, I don’t like too much power being in one place. I think the government should only have its hands in the appropriate places. But it’s different with the consumer market – you’re not dealing with laws, you’re dealing with products. However, the same temptation for power and corruption is still there.

It’s a really tricky situation, and one that I don’t have the answer to. I love the services and devices that companies like Google and Amazon provide, and as a consumer I don’t want to see that broken up, let alone go away. Why should they be punished for being awesome? But on the other hand, is it possible for the small-to-medium-sized businesses to rise up and be legitimate competitors to Amazon – perhaps not in everything, but at least in small ways?

I think that’s the catch – if other businesses have the opportunity to compete using smart (and legal) tactics, then the near-monopolies are okay. They’re still providing services and products to consumers while allowing other companies to have a chance. But I shouldn’t be the judge of if that’s happening or not – I don’t know enough about business to speak to that.

 

How does this affect me?

 

So what does this mean in terms of the recent ruling?

Companies should be careful how they attempt to manipulate the market. Price-fixing and illegal practices are despicable and need to be rejected. Legal, smart competition needs to be the charge: if you don’t like the hold Amazon has on the market, challenge it. Be smart, be innovative, show your chops.

The concepts of monopolies and near-monopolies need to be carefully considered. We don’t want to stymie innovation and we don’t want to remove what consumers like, but we want to be careful how the future plays out.

It’s a delicate balance and a controversial topic, but we need good dialogue and decisions in this area. As Winston Churchill once said,

I never worry about action, but only inaction.

Nate Humphries

Nate Humphries

My two personal passions in life are technology and theology. If you sneaked a peek at my life you'd see me hanging out with my wife, our Dachshund Bella, and our snake Phoenix; playing Skyrim/Civ:BE/F3/FNV/BL/Rage/GW2/SRIV; watching movies; reading on my Kindle (sci-fi or theology research); or playing on my Moto 360/Samsung Galaxy Note II.

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  • paul revere

    I am glad you are bringing to peoples attention the problem of Amazon and Monopolies. I agree that a true solution is hard to come by but I think that there are some obvious ways of stopping the monopoly that Amazon has. Here is an example. If one buys a Kindle, then shouldn’t they have the ABILITY to download books electronically from Barnes and Noble, or Google Play???? Currently, no one has this ability. Yet I can listen to music on an iPod from any source, why??? This is clearly a monopoly mentality. I personally think that it should be illegal as it is blatantly against capitalism. On the other hand, I am sure Amazon has more lawyers than I do.

    • http://culturemass.com/tech-science Nate Humphries

      Thanks, and I’m really glad you’re bringing up those discussion points. I think it’s a complicated issue, especially when it comes to electronic technology. Here’s why:

      With non-electronic consumer goods, you don’t have the ability to purchase a particular store’s goods from another store – i.e. you can’t buy Walmart-brand goods at Target.

      However, with electronics it’s complicated – it’s more about retrieving and sharing digital information, but they’re still consumer goods.

      The other complication is that companies have been making proprietary content and devices for years, ever since the birth of electronics; and other companies have been making free-to-use-and-edit content and devices as well.

      For example, Microsoft’s .doc and .docx formats are proprietary in that to use them on a Mac you have to buy extra software. In contrast, Google uses the HTML format by default for documents created through Google Drive – a more open format. Barnes & Noble’s NOOK line uses ePub by default for books (a more open standard), while Amazon uses their proprietary AZW/AZW3 format in the Kindle line.

      I don’t think one option is necessarily evil and one is gloriously wonderful – however, I think consumers should push for what they think is better. I use Microsoft Office and I don’t mind the more proprietary nature because it still works well with Google Drive. However, I know of some people who wish they could buy a book once and use it anywhere – a valid point. I’d like the same thing with movies. Buying a movie multiple times is ridiculous.

  • paul revere

    I am glad you are bringing to peoples attention the problem of Amazon and Monopolies. I agree that a true solution is hard to come by but I think that there are some obvious ways of stopping the monopoly that Amazon has. Here is an example. If one buys a Kindle, then shouldn’t they have the ABILITY to download books electronically from Barnes and Noble, or Google Play???? Currently, no one has this ability. Yet I can listen to music on an iPod from any source, why??? This is clearly a monopoly mentality. I personally think that it should be illegal as it is blatantly against capitalism. On the other hand, I am sure Amazon has more lawyers than I do.

    • http://culturemass.com/tech-science Nate Humphries

      Thanks, and I’m really glad you’re bringing up those discussion points. I think it’s a complicated issue, especially when it comes to electronic technology. Here’s why:

      With non-electronic consumer goods, you don’t have the ability to purchase a particular store’s goods from another store – i.e. you can’t buy Walmart-brand goods at Target.

      However, with electronics it’s complicated – it’s more about retrieving and sharing digital information, but they’re still consumer goods.

      The other complication is that companies have been making proprietary content and devices for years, ever since the birth of electronics; and other companies have been making free-to-use-and-edit content and devices as well.

      For example, Microsoft’s .doc and .docx formats are proprietary in that to use them on a Mac you have to buy extra software. In contrast, Google uses the HTML format by default for documents created through Google Drive – a more open format. Barnes & Noble’s NOOK line uses ePub by default for books (a more open standard), while Amazon uses their proprietary AZW/AZW3 format in the Kindle line.

      I don’t think one option is necessarily evil and one is gloriously wonderful – however, I think consumers should push for what they think is better. I use Microsoft Office and I don’t mind the more proprietary nature because it still works well with Google Drive. However, I know of some people who wish they could buy a book once and use it anywhere – a valid point. I’d like the same thing with movies. Buying a movie multiple times is ridiculous.