- Pricing model for e-books is the same as physical books: retailers buy at wholesale prices and set the retail price. This allows for competition between retailers and lower prices for consumers.
- Amazon.com releases the Kindle and starts selling e-books—often at a loss—for $9.99.
- Book publishers do not like this and think this retail pricing will bring down the wholesale price of both digital and physical books.
- Apple is about to release the iPad and wants to strike a deal with book publishers for 30% of every e-book sold through iBooks.
- Apple and Book Publishers conspire to switch the industry from a wholesale pricing model to an agency pricing model, allowing Book Publishers to set the retail price of books2.
- Result: Book Publishers don’t need to worry about prices dropping and Apple won’t need to compete with Amazon’s prices.
And check out this quote from the complaint:
As Apple CEO Steve Jobs described his company’s strategy for negotiating with the Publisher Defendants, “We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what [the Publisher Defendants] want anyway.”
- Monopoly and Monopsony of Amazon
- High Stakes Negotiating With Steve Jobs
- iPad 3: Non-Revolutionary Upgrades