Settlement With DOJ Could Undo Apple Imposed 'Agency Model' on e-Books

A settlement with the Justice Department over allegations that Apple colluded with Publishers to restrict competition in the e-Books industry could undo the Apple imposed 'agency model' currently in effect, according to a Reuters report.

While negotiations are still fluid, the settlement is expected to eliminate Apple's so-called "most favored nation" status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Amazon.com Inc (AMZN.O) or Barnes & Noble Inc (BKS.N), the people said. The deal could also force a shift, at least temporarily, in pricing control from publishers to retailers, one of the people said.

Recently the Justice Department warned Apple and five publishers that it would sue them for conspiring to raise e-Book prices.


The case involves the Apple led change of the e-Book industry from the "wholesale model" to the "agency model". The "wholesale model" was where publishers sold books for about half the price to retailers leaving them free to charge any price they wanted. The "agency model" lets publishers decide the price of e-Books and retailers get a cut.

"It would be a positive for Amazon because the company's greatest strength is as a high-volume, low-price retailer and the wholesale model plays into that," said Jim Friedland, an analyst at Cowen & Co. Amazon used to charge only $9.99 for many e-books, sometimes even pricing them below cost, to attract shoppers.

The European Commission has also opened formal antitrust proceedings to investigate whether international publishers Hachette Livre (Lagardère Publishing, France), Harper Collins (News Corp., USA), Simon & Schuster (CBS Corp., USA), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany) have, possibly with the help of Apple, engaged in anti-competitive practices affecting the sale of e-books in the European Economic Area, in breach of EU antitrust rules.

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