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U.S. Threatens Apple With E-book Antitrust Suit

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(Image source: The Huffington Post)

BY EVAN THOMAS

ANCHOR BLAKE HANSON

Apple can add another potential lawsuit to its stack: the U.S. Justice Department says it’s prepared to sue Apple and book publishers for colluding to inflate e-book prices, thus violating antitrust laws.

According to the Wall Street Journal, the Justice Department is taking issue with the agency model that Apple brought onto the e-book scene. Before the iPad and other e-readers, publishers used to sell books for cheap to physical retailers like Borders and Barnes & Noble.

“Traditionally, publishers sold books to retailers for roughly half of the recommended cover price. Under that ‘wholesale model,’ booksellers were then free to offer those books to customers for less than the cover price if they wished. Most physical books are sold using this model.”

Amazon took it a step further. When it was building up its market lead with the Kindle, it introduced a loss-leader model and sold e-books for even less than wholesale price. Publishers didn’t like losing out, and The Justice Department alleges they went to Apple to put a stop to Amazon’s tactics.

Under Apple’s model, publishers set a book’s end price and Apple takes a 30% cut. Forbes points out there are problems with both sales models.

“Within the economics of it all there’s not really a ‘right’ answer. You can create models where either system has the potential to be abused against the interests of the consumer. So which is better for said consumer is really a matter of judgement about how things are at any one time in any one market.”

The Justice Department is worried the whole apparatus is suppressing competition, specifically against Amazon’s loss-leading practices. But Apple argues —

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