Photo courtesy of samratm on Flickr

By Meghan Starr

The U.S. Department of Justice filed an antitrust lawsuit yesterday against Apple and several e-book publishers for alleged price fixing.

Apple is accused of coordinating a move to an agency model of pricing.  In the agency model, the publisher sets the book price with the vendor retaining a set percentage (here 30%).  The Justice Department claims the higher prices have cost consumers millions of dollars and raised the price of some books as much as $3.  They want e-book publishers and vendors to return to the traditional wholesale model where publishers can offer discounts or promotions, but it is the retailer (i.e. Amazon, Apple) who sets the final book price.

Three publishers, Hachette, HarperCollins and Simon & Shuster, have settled the suit.  Macmillan and Penguin Group, along with Apple, plan to fight the charges and deny they colluded to fix prices.  They claim that the agency pricing has been beneficial to consumers by allowing Apple to compete with Amazon.

Prior to this pricing strategy, Amazon was believed to have about 90% of the e-book market.  Amazon was known to offer its books at a steep discount, possibly even selling them at a loss.   Amazon’s Kindle has a market share now closer to 60% (with the Nook at 25% and the iBookstore at 10-15%). (Huffington Post Article)

Also at issue is the “most-favored nation” clause in Apple’s contracts which requires that book sellers provide them with the lowest prices they offer competitors.  The Justice Department voiced concerns that consumers could be hurt if several companies sign contracts that refer to competitor’s prices.

The e-book market grew by 117% in 2011 according to Publishers Weekly.  It is nearly a $970 million market. (Bloomberg Article)