E-book economics in court
IN JANUARY Apple announced a partnership with publishers McGraw Hill Education, Pearson and other publishers to sell e-book versions of academic textbooks via the i-Tunes store and its i-Books app. Some fear this fulfils the prophecy of the late Steve Jobs, who told his biographer "textbooks are an $8 billion industry ripe for digital destruction". The first such i-Book textbooks appeared in January. Some seem not to be sales of books to keep, but one-academic-year licenses for US$14.99.
Then in March the US Department of Justice warned Apple and five textbook publishers - HarperCollins, Pearson imprint Penguin Group, Macmillan (owned by Verlagsgruppe Georg von Holtzbrinck), Simon & Schuster (owned by CBS) and Hachette - that it planned action for alleged price-fixing of e-books.
Some publishers agreed to an out-of-court settlement offered by the DoJ: Penguin, Macmillan and Apple are preparing to fight in court. Apple said in its filing that "The Government sides with monopoly, rather than competition, in bringing this case." Penguin describes Amazon as "a monopoly" and says that it drove the retail price of some ebooks down to $9.99 through "predatory, below-cost pricing practices - apparently designed to exclude competition and control the pricing of ebooks".
The case centres on the "agency model" for e-book pricing, in which the publishers - not the e-retailers - determine the price to the consumer. Were publishers "induced" by Apple to adopt an agency model?
Classical economics predicts that the implication of retailers setting e-book prices is to drive these toward the marginal cost of a copy: roughly zero. See www.londonfreelance.org/fl/1106eboo.html for more on the murk of e-book pricing.