Thursday, April 12, 2012

Apple vs the Department of Justice - A page-turning whodunit

The case the Department of Justice (DOJ) has brought against Apple and five book publishers has been unfolding for weeks with all the drama of a page-turning whodunit. The villains, Apple along with HarperCollins, Simon and Schuster, Hachette, Penguin Group (USA) and Macmillan are accused of conspiring to fix the prices of ebooks against the looming threat of renegade Amazon.
Kindle-carrying consumers are the witless victims while the DOJ casts itself as the justice-serving hero.

The story begins with Amazon having the audacity to sell ebooks for $9.99 thus wringing out much of the fat margin from book publishers. Steve Jobs knew this move quite well. The deceased Apple CEO's iTunes model did the same thing to the music industry. One can almost imagine the whack to the forehead as Mr. Jobs wondered why he hadn't thought of this first.

Rather than trying to get its share of the profits, and perhaps even beating Amazon at its own game, Apple allegedly schemed with the publishers to set prices at $12.99 or $14.99 and hence the conspiracy, or "restraint of trade" as the economics textbooks will cite, was born.

"As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles," said Attorney General Eric Holder.


But was the consumer harmed? Or more specifically, will the DOJ "remedy" help more than the market mechanism that does a pretty good job of policing itself without lawyers.

Even if the companies all settle out of court, here's what's likely to happen.
  1. The publishers and Apple will be fined and charged with legal fees. (The attorneys win.)
  2. The fines will be distributed as vouchers toward future purchases to consumers who can prove that they purchased an ebook at these "inflated" prices. (Who saves this kind of receipt?)
  3. Publishers and Apple reap extra sales if consumers cash in their vouchers. (The publishers and Apple win.)
In the interim, I don't see a lot of hand-wringing angst among the eReader crowd. They all seem pretty happy with their purchases--at whatever price they paid.

If allowed to develop on its own, without the Detective DOJ character, this story would have a much different ending. Clearly, no one advocates this type of collusion, but if and when it does happen, it seldom holds up for long. Human nature, or corporate greed as its usually dubbed, wins out in the long run as the incentive to cheat and gain market share takes hold. Conspirators become competitors, and the actions of the DOJ merely punish innovative American corporations.

And as with most good novels, there's always a plot twist. The real threat to the cozy publishing industry may not yet be introduced for several more chapters. The wise thing to do would be to stop trying to rewrite the script and just keep reading

Update July 10, 2013: Judge Finds Apple Colluded with Publishers on E-Book Pricing. Yep. I knew it!

Copyright © Deborah A. Ayers - All rights reserved.
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