As you may have noticed, the courts in the USA have declared that the Agency Model, which was a system in which publishers set the selling price of ebooks, is illegal as it is a form of price fixing.

Note added later:

If you read to the end of this post you will find a comment from Rich Adin, in which he corrects several mistakes on my part in this post.  I thought briefly of deleting the post, as I saw no benefit to anyone in a post with incorrect information, but then I thought again, and decided to leave it up as Rich gives a pretty good breakdown of what that legal decision actually means…..

So please do read what he has written as well as what I have written.

For us consumers this is obviously good news as it means that ebook sellers are now free to set the prices of the ebooks they sell us at whatever level they wish.

What this means in practice is that ebook sellers who wish it, can now happily sell ebooks to us at prices below the price they pay to the publishers for these ebooks.

You might well wonder why on earth any company would want to sell us ebooks at a loss, a reasonable question. Obviously most book sellers wouldn’t even consider doing this, but the big volume sellers can afford to do this – for a while at any rate.

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Why are we all up in arms at the idea of any price control for ebooks, but apparently accept the idea that ereader prices can be equally fixed and no real competition between sellers of ereaders is happening. In an Interesting post in his blog, An American editor, Rich Adin poses this question and looks at the implications of this fact.

As it seems to me to be a matter of wide interest to all concerned with ereaders and ebooks, I am reposting his article for all your interest.

So the word is now with Rich:

Why Aren’t Kindles Free-Marketed?

In all the hullaballoo over agency ebook pricing and how terrible it is to not allow ebooksellers like Amazon to discount ebooks and sell them at whatever price they want, even if it is at a loss, ebookers haven’t questioned the lack of dynamic pricing of ereaders themselves, especially that of Amazon’s Kindles.

Consider this: Every store that sells an Amazon Kindle sells it for exactly the same price as Amazon and every other retailer. And when one retailer has it on sale for $20 off, so does every other retailer. (This is also true of the Sony, Kobo, and Nook devices.)

Why aren’t ebookers complaining about this price-fixing? No, I’m not suggesting there is collusion between the companies to prohibit discounting of the devices. Rather, I find it disingenuous that agency pricing, which is a form of price-fixing, is so disliked among some ebookers that they complain about it and want it banned, yet no one has complained about the lack of price competition when it comes to the device to read the ebooks. Why is it OK for Amazon to price fix but not Macmillan?

I’m sure the immediate response will be that there is no complaint because the prices on these devices have dropped to where they are now half or less of the original cost. If that is the key to salvation, then all Macmillan needs to do is drop the price of an ebook from $12.99 to $10.99 and ebookers should be satisfied — after all a drop in price is a drop in price — but I know that would not satisfy. Why? Because the argument would be made that the ebook price would be even lower if true free-market competition were allowed.

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As you may know, the American Department of Justice (DOJ) has been considering taking legal action against the big 6 of the publishing world for some time for what they consider to be illegal collusion to fix the retail price of ebooks, the so called Agency Model.

The way that paper books are sold to book sellers is based on a system in which publishers set a wholesale price, normally about half the cover price, and then the retailer can decide how much they actually sell the book for.  In the early days of ebooks, this system was also used for ebooks.   But this changed about the time the iPad came along, at which point at the urging of Steve Jobs of Apple, the main publishers and Apple adopted what has become known as the Agency Model

What is the Agency Model?

The Agency Model is one in which the publishers sell the ebook to a retailer and set the retail price of the ebook, and base this on about a 30% mark up for the retailer.  The point at contention is that the publishers insist that the retailer sells the ebook at the price they (the publishers) set.  This is the heart of the legal case against them, as this is price fixing between producers of a commodity, and as such is illegal as it is seen as removing any sort of competition between publishers.

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Rich Adin, in his always intriguing and diverse blog – An American editor – has posted an interesting article about the infamous Agency Pricing Agreement for selling ebooks.

This structure, which is currently the subject of legal inspection in the USA, Europe and the UK has caused a real stir over the last year, as it is seen as a form of price fixing, aimed chiefly at preventing Amazon from taking over the entire world of ebooks, and in passing, to give Apple a fighting chance to break into the market as a result of the launch of the iPad.

From the point of view of the consumer, it has had the effect of frequently pushing the price of ebooks up to levels higher than many paper books, which, not surprisingly has caused a lot of anger and resentment.

In this post, Rich gives a rather more nuanced view of this system, and it is because of this broader view of it all that I felt it might be of interest to you to read – assuming you have not already seen it on his blog, of course.

So, the word is with Rich now….  Read on.

eBooks: Is Agency Pricing Good or Bad?

Recently, there has been a lot of focus on the “conspiracy” between 5 major publishers and Apple regarding agency pricing and whether these 6 entities have violated antitrust law. The focus is not on whether agency pricing is good or bad, but whether the parties colluded. That question I’ll leave for the US Department of Justice.

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As you probably know, Apple and 5 major publishing houses are facing legal action in both the USA and the European Union for allegedly setting up a price fixing ring for ebooks – which is illegal in both areas, and if proven, the damages could even hurt Apple very badly.

What is happening is that the Department of Justice in the USA and the European Anti-Trust Commission have decided after months of vacillation to properly examine the so called “Agency Model” of ebook pricing, which basically is an agreement that Apple and the 5 biggest publishers in the world – Harper Collins, Hachette Livre, Simon & Schuster, Penguin and Macmillan – dreamed up between them that sets the retail price for all ebooks rather than leaving the retail price up to the seller.

In both the USA and Europe such agreements between competing companies is completely illegal, and seen as anti-competitive and criminal.

It is being claimed that this whole sorry mess originated with Steve Jobs as part of his strategy for selling the iPad, and was aimed specifically at Amazon, who to all intents and purposes control the world market in ebooks, and were thus seen as the company to beat into the ground in order to ensure that iBooks (as with iTunes) ultimately became the world leader for selling ebooks.

Apparently at a number of meetings with the leaders of the 5 publishing houses, he managed to convince them that their future was safer with Apple than with Amazon, as quotes from Steve Jobs to his biographer Walter Isaacson would indicate

“We told the publishers … you set the price, and we get our 30 per cent, and yes, the customer pays a little more, but that’s what you want anyway,” Jobs reportedly said.

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Back in March I wrote about raids that the EU commission had organized on the offices of a number of big publishers in Europe owing to suspicions that they were possibly guilty of cartel forming in regard to pricing of ebooks.

Setting up a cartel is illegal in Europe as it is seen as stifling competition between suppliers of any particular product or service, and in this case it concerns an agreement between Apple and 5 major European publishing houses, to be exact it concerns Apple, Lagardere’s Hachette Livre, News Corp.’s Harper Collins, CBS Corp.’s Simon & Schuster, Pearson Plc’s Penguin and Verlagsgruppe Georg von Holtzbrinck GmbH.

EU Commission moves slowly:

It has taken the European Commission rather a long time to study the documents they seized back in March when they raided the offices of these companies, but it seems that they have come to the conclusion that there is a case to answer, so the Commission’s Anti-Trust Office will be taking the matter further.

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