Is apple price fixing

What’s with Apple Price-Fixing Ebooks—and Does This Mean Ebooks Will Be Less Expensive?

Dear Lifehacker,
I’ve been hearing a lot about how the Department of Justice is sueing Apple and a few publishers for price fixing ebooks. That’s interesting and all, but all I really want to know: Is this is going to make ebooks cheaper or not?

Sincerely,
Penny Pincher

Dear PP,
It’s nice to see the Department of Justice looking out for the good of the consumer, but you’re right, what really matters to most of us is whether or not these lawsuits will have a direct impact on the price of books. The DOJ’s lawsuit is just starting, so let’s start by getting a quick grasp on the news before we look at the possible end result.

Why Apple and Publishers Are Getting Sued in the First Place

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The Department of Justice’s case (which you can read for yourself via The Verge ) accuses Apple and five major publishers of conspiring to raise the price of ebooks by creating a fixed price that all sellers have to use. The goal was to end Amazon’s $9.99 price dominance and raise prices to the now standard $12.99-$14.99 for new ebook releases.

This came about because publishers worried that when Amazon sold books for cheaper than everyone else (at a loss to Amazon) it would set consumer expectation levels low and would make it difficult to sell books from other sellers—like Apple’s iBooks—for the publisher’s higher retail price. At first, publishers didn’t have a lot of options to deal with this, but then Apple came in and offered the publishers agency pricing. The Wall Street Journal explains what agency pricing means:

It’s a term for a new way of setting e-book prices that came about as Apple prepared to introduce its iPad in 2010. Under the traditional «wholesale» pricing model, publishers had long charged booksellers around half the cover price of a book, leaving booksellers to discount the books if they wanted.

When Apple entered the fray, it offered publishers the ability to set their own prices. Under the Apple arrangement, known as «agency pricing,» publishers received 70% of the retail price and Apple took a 30% commission. But Apple also insisted that publishers couldn’t sell more cheaply to any of its rivals. The publishers then were able to impose the same model on Amazon.

In a nutshell, this means prices on ebooks went up because the agreement with Apple made it so other sellers, like Amazon, couldn’t lower the price on ebooks.

Three of the seven publishers have already settled with the Department of Justice , but Apple, Penguin, and Macmillan rejected the offer. Now that we know the reasons behind the lawsuit, let’s see if any of this news is actually will have an effect on pricing.

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Apple fined €1.1 billion in France for price fixing

Apple abused its dominance to force resellers to follow its pricing. It is the biggest fine ever doled out by France’s Competition Authority.

French regulators fined US tech giant Apple €1.1 billion ($1.2 billion) on Monday for illegal price fixing.

The Competition Authority said Apple had struck deals with resellers to align prices on iPads and some other products. The deal meant resellers could not offer sales or discounts on the products, hurting consumers.

It was the biggest ever fine doled out by the agency.

Two so-called premium’ Apple resellers in France, Tech Data and Ingram Micro, were also fined a total of €139 million.

The agency said «Apple abusively exploited» distributors’ dependence on the company and «prevented competition among different Apple distribution channels.»

Apple announced that it would appeal the decision.

The case began in 2012 when an Apple exclusive retailer complained that Apple was abusing its dominant position to favor its own branches.

Apple said the case related to business practices more than a decade old and said it would appeal.

«Apple has been operating in France for over 40 years and we are proud of our many contributions to job creation and economic development. Our investment and innovation supports over 240,000 jobs across the country. — The French Competition Authority’s decision is disheartening,» it said in a statement.

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It is not a surprise that Apple has been accused of price-fixing — just look at its history

It was not a surprise when Apple was sued last week by app developers who believe there should be more competition in the App Store.

That’s because Apple has been accused of price-fixing or monopolistic abuse before, once regarding their control of e-book prices in the iBookStore developed for iPad, and once around the way Apple prevented rivals from selling music that can be played on the iPod and in iTunes.

In the most recent case, the developers of the «Pure Sweat Basketball» workout app and «Lil’ Baby Names,» a newborn-naming app, allege in a lawsuit filed in a California federal court that Apple’s total control of the App Store, and the pricing regime inside it, stifles competition. Apple also faces a consumer class-action lawsuit in the US on the same issue.

It is not possible to have your app compete on price in the App Store by charging 50 cents

Their argument looks like this: Apple does not allow anyone else to operate the App Store’s gateway function. Neither Amazon nor Facebook, for instance, are allowed to distribute their developers’ apps in the App Store. Everything has to go through Apple. Apple thus faces no price competition on the 30% cut it takes from all in-app revenue. Competing app distributors can’t offer developers a more generous 20% cut to Apple’s developer-customers. And Apple also charges a flat $99 fee for developers, which is non-negotiable and — you guessed it — is not exposed to any kind of marketplace competition.

Apple also controls the 99 cent pricing structure for apps and in-app purchases. It is not possible to have your app compete on price by charging 50 cents. (Developers must charge at least 99 cents, and can only charge prices higher than that if the price ends in $.99, the lawsuit claims.)

In its defence, Apple points out the obvious: There is competition. Developers can work with Google if they prefer. Apple built, owns, and maintains the App Store, and thus has a right to charge a fee for developers who want to use it. Neither of these developers would even exist had Apple not built the iOS App Store and launched it, in 2008.

«Developers set the price they want to charge for their app and Apple has no role in that. The vast majority of apps on the App Store are free and Apple gets nothing from them. The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store. Developers have a number of platforms to choose from to deliver their software – from other app stores, to Smart TVs to gaming consoles,» Apple says.

But the lawsuit does raise some basic questions about what a monopoly looks like: Why doesn’t Apple allow non-Apple competition from app distributors inside the App Store? And why aren’t apps allowed to compete on prices?

Apple’s conspiracy to control book prices

This has happened before.

In 2016, a court ruled that Apple should pay $450 million in damages because Apple fixed the prices of e-books sold in its iBookStore.

In that case, a federal judge concluded that Apple organised a conspiracy with book publishers that resulted in the typical price of an e-book on the iPad rising from $9.99 to $14.99, almost overnight. And when I say «conspiracy,» it was literally a conspiracy: Apple media SVP Eddy Cue took a series of secret meetings with New York book publishers in which they all agreed to raise e-book prices rather than let the market sort it out. Some publishers deleted their internal emails in the hopes of keeping the conspiracy from the public. And Steve Jobs all-but admitted to a reporter that he knew that all e-book prices «will be the same» after the iPad launched.

Why did Apple prevent music labels from setting their own prices?

The new App Store lawsuit has a lot of parallels with a long-running class action lawsuit, which Apple won, called «The Apple iPod iTunes Anti-Trust Litigation.»

The suit originated in the prehistoric era before the iPhone was invented. When Apple founder Steve Jobs launched the iPod, he persuaded all the record companies selling music for it to agree to a set range of prices — 79 cents, 99 cents and $1.29, with equivalents in local currencies. The prices were, literally, fixed. He also made sure that music could only be bought and played on the iPod if it had come from Apple’s iTunes store (or from a commercial CD). Generally, users were prevented from playing their own music collections — which at the time often came from pirate copies obtained via Napster — on their iPods.

But Real Networks — a digital media company that was a big deal in the late 1990s and early 2000s — found a way to sell songs from its Real Music shop that could be played on iPod. Apple immediately changed its software to prevent Real songs from being played on an iPod. The litigation went on for years, and Apple finally won when it discovered that the two lead plaintiffs had not actually bought iPods during the time period in question.

Although Real’s litigation strategy was based on a catastrophic error, the heart of the case raised a legitimate question: Why was it that no one else could sell songs that could be played on Apple products? And why had Apple prevented music labels from setting their own prices?

Apple has a clear strategy for markets on its devices

In all three cases, Apple did broadly the same thing:

• Create a new marketplace over which Apple was the sole gatekeeper.
• Prevent outside companies from competing in that marketplace.
• Set the prices of the products inside the marketplace.

Previously, these cases have tended not to succeed. Courts took a common-sense line, which is to say that they ruled Apple had created a product with a simple pricing structure, and the market could take it or leave it. It is hard to demonstrate that consumers who choose to buy an app for 99 cents are being «harmed» in some way.

But now that the European Union has carved into Google’s abuse of its monopoly on search, advertising, and Android, the atmosphere has changed. The US government is looking afresh at whether tech companies are abusing their dominance by reaching into markets they have no business in — music, books, app development — and controlling or stifling competition there.

Apple will ‘never get over the case’

This is not a mere technicality for CEO Tim Cook and his crew. It is the core of their business, and they take it personally. Apple executives were chided by the judge in the e-books case for being «less than forthcoming» in their testimony. Later, documents in the case said that Apple’s top executives remained «extremely angry» about the decision, and will «never get over the case.»

So expect Apple to fight the App Store case tooth and nail.

Read more about Apple and antitrust issues:

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Russia finds Apple guilty of ordering iPhone price fixing with local retailers

AppleInsider is supported by its audience and may earn commission as an Amazon Associate and affiliate partner on qualifying purchases. These affiliate partnerships do not influence our editorial content.

Apple did indeed engage in price fixing by ordering 16 Russian retailers to lock in specific prices for iPhones, the country’s Federal Antimonopoly Service ruled on Tuesday.

If a retailer was discovered selling iPhones at an «unsuitable» price, Apple would contact them and ask them to change the price or risk losing their sales agreement, the FAS said, as quoted by the Financial Times. Apple is said to have «actively cooperated» with the agency during the investigation process, and agreed to make changes to avoid future conflicts.

The FAS found that from 2013’s iPhone 5s through to 2015’s iPhone 6s, resellers typically stuck to the prices recommended by Apple Russia for about three months.

Apple could face a penalty as high as 15 percent of its Russian sales, but lesser options are available. A decision won’t be made for months. In the meantime, the company has three months to launch an appeal.

The FAS launched its investigation in August, following a complaint that resellers were all selling the iPhone 6s and 6s Plus for the same price — despite their theoretically being in competition with each other.

Apple is known to maintain strict price controls in many markets, including the U.S, for the first critical months of an iPhone’s product cycle. This helps prop up profit margins, and is more likely to steer shoppers towards buying from Apple directly, since there’s little benefit to going elsewhere and the company generally has more inventory.

Prices are allowed to vary somewhat as new iPhone models approach, presumably to keep sales going and clear out old stock. Late last year Apple also relaunched sales of refurbished iPhones, though only for the 6s and 6s Plus, not 7-series models.

Comments (15)

foggyhill

Blah blah blah blah, Apple mostly locks down prices everywhere; this is basically just some extortion game.

Everything related to Russia just requires a bigger envelope to be resolved.
And it seems Apple has not reached that level yet.
I’m sure this will convince them to go deeper in their pockets.

Most of my friends are Russians, from Kaliningrad, St Petersburg and Moscow and I won’t tell you what they think of current Russia.
Because they still got family there and because their high profile positions, they’re afraid to talk openly. That tells you everything.

apple jockey

Me thinks that the Russian government is being less than honest about these charges. In truth, accurate acronym for the agency unhappy with the dealings of Apple is most likely the FSB, Russian Security Services, not the the FAS. Likely that Apple has not been quite compliant enough with the internal/external spy agencies.

jbdragon

Is not Apple getting the same price for hardware no matter who sells it? If these stores selling the iPhone don’t want to sell at the recommended terrain price and take a price cut, then that’s on them. Allow them to do it and get into an price war and make zero profit. Apple still makes their own profit as they sold the iPhone.

teaearlegreyhot

Part of the agreement in being an «authorized reseller» may contain conditions about selling above or below MSRP. Such conditions may be legal in some places, and not others. So it may or may not be that the reseller can charge what they want for a product. Manufacturers view discounted prices as damaging to their brands, and don’t want prices to spiral down for that, among other, reasons. Some vendors may have opaque pricing, available only to existing customers, which may avoid the problem, but they usually can’t advertise that price list.

SpamSandwich

Not a good strategy to keep selling product in Russia, IMO.

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