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Apple and book publishers in hot water over e-book pricing

The U.S. Justice Department has recently warned Apple and five large book publishers that it has plans to file a lawsuit unless they change business practices for alleged price fixing of e-books. This comes about after the European Commission launched a antitrust investigation on the same issue late last year.

Apple encouraged publishers in the months before the original iPad launch to adopt an “agency model.” This allows the publishers such as Penguin and HarperCollins to set their own pricing in Apple’s bookstore, so long as Apple recieved a 30% cut. Until this “agency model” came into effect sales followed the “wholesale model” where the reseller purchases from publishers then sells them on to customers at retail pricing.

Apple's iBooks application, as seen on the iPad

This selling model allowed Amazon to price recently released best sellers at just $9.99, intending to build up market share and drive sales of its Kindle readers. However publishers did not really like this method and so Apple came to the part. Apple’s “agency model” allowed them to set the prices and further agreements with Apple pushed publishers to not sell their books for cheaper on other electronic book stores. If they did Apple would pull the publisher’s books from online distribution.

Due to Apple’s strategy it resulted in e-books rising 50%, from $9.99 to around $14.99.

The five publishers in question are Simon and Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins. These publishers are accussed of “a pattern of behavior that violates antitrust laws” and as is typical they have denied any wrongdoing. Apple and some publishers are reportedly in talks with the Justice Department to avoid a federal lawsuit.

Kitguru says: Apple realistically in trouble with the legal system? Well this must be a first.

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