Finally, an Apple Antitrust Probe

The European Commission (EC) this morning announced that it was opening an antitrust investigation of Apple and five major book publishers, which it believes colluded together to artificially raise the prices of books when Apple entered the ebook market last year. Readers will recall thatI made this same accusation when Apple announced the original iPad and its iBooks online store in early 2010.

"The Commission has concerns that these practices may breach EU antitrust rules that prohibit cartels and restrictive business practices," an EC statement reads, noting that the pricing for ebooks took a sudden and otherwise unexplained jump when Apple entered the market. In addition to Apple, publishers Hachette Livre, Harper Collins, Penguin, Simon & Schuster, and Verlagsgruppe Georg von Holtzbrinck are named in the investigation.

Before Apple's entry, publishers set the wholesale price of books, but retailers could determine the final selling price. But Apple changed that, allowing publishers for the first time to determine the final price at which ebooks were sold to consumers. As a result, the average selling price of new ebooks jumped from $9.99 to $14.99.

The EC will try to determine whether the firms colluded to fix prices and restrict competition. Both charges should be easily proven.

As I reported in February 2010, while Apple was negotiating with the major publishers, at least one of them—Macmillan—demanded that Amazon raise prices on its Kindle books to match Apple's prices. Amazon, now as then, owns the dominant ebook platform, called Kindle. And Macmillan threatened to pull its books from the Kindle unless Amazon went along with the price hike. After temporarily pulling Macmillan's titles from its store, Amazon capitulated and raised prices as demanded.

"We have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over [its] own titles, and we will want to offer them to you even at prices we believe are needlessly high for ebooks," Amazon wrote to customers at the time. 

In August 2011, Apple and the six biggest US publishers of ebooks were sued in a class-action lawsuit for artificially raising the prices of ebooks. "Apple facilitated changing the ebook pricing model and conspired with the Publisher Defendants to do so," the suit alleges. "As a direct result of this anti-competitive conduct as intended by the conspiracy, the price of ebooks has soared. The price of new bestselling ebooks increased to an average of $12 - $15, an increase of 33 to 50 percent."

And now, finally, a major regulatory body is investigating this issue. (A US review of ebook price fixing on behalf of Connecticut Attorney General Richard Blumenthal in August 2010 has gone nowhere.) The European Union's (EU's) EC is known to be aggressive in its protection of consumers over the competitive needs of corporations. And according to EC spokesperson Amelia Torres, the Commission is making this investigation "a matter of priority."

"This is an important issue for consumers, for people like me and you who love to read books, including on an electronic platform," she said, adding that the probe will determine whether the Apple and publisher agreements "had the objective or effect of restricting competition and fixing the price of e-books at a high level in Europe."
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