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The suit, filed by Seattle based law firm Hagens Berman, says that Apple and the publishers secretly agreed to sell books using what’s called an agency model. That’s where the publisher decides what the book will cost the consumer and then the retailer (Amazon, Apple, Barnes & Noble) collects a set commission. This model contrasts with the wholesale model where a retailer buys the book and charges whatever it wants to the consumer.
That wholesale system had been what Amazon was using ever since it launched the Kindle back in 2007. At the time, Amazon was charging $9.99 for books even though it was paying the publisher more than that. Counter-intuitive? You’d think so, but Amazon was trying to make a massive land grab of the e-books market and was willing to lose some money in the short-term for more market dominance down the road.
Around the time Apple got into the e-books market in a more serious way with 2010’s iPad, the model shifted to agency, which meant that Apple wouldn’t have to incur the same losses that Amazon had. Steve Berman of the law firm Hagens Berman, which filed the suit, says “Apple and five of the largest publishers got together and agreed to fix the price or the floor at which e-books could be sold at any e-book distributor like Apple or Amazon.”
As far as evidence, Berman points to the timing of the shift and says, “Second, we know that in the Apple agreement with the publishers, there are actual restrictions that say you can’t allow any other retailer to sell at a lower price than Apple. So that is in effect a written agreement to fix prices. Third, we know when Apple came out with iPad, (Steve) Jobs was asked how are you going to compete since Amazon has a lower price? He said there will no longer be a lower price in the market. So he knew that the publishers were going to force Amazon to raise prices.”
Mike Shatzkin is founder and CEO of the publishing consulting firm Idea Logical. He believes the shift to the the agency model came about honestly and that it is fairer to retailers. “This creates consistent price across all retailers and eliminates the ability of one deep pocketed retailer to drive everybody else out of the market.”
Also on this program, a new technology to make you vibrate more when you watch movies or play video games. Because maybe you’d enjoy vibrating more.