Do not pass Go, do not collect two hundred dollars: Apple and the publishers vs. Amazon?

Do you buy e-books? Did you feel surprised, taken aback, betrayed, indignant, outraged when the average e-book price suddenly jumped from $9.99 to $12-15? Now: have you thought about why those prices changed?

First, it’s important to understand that $9.99 is not the actual cost of an e-book: Amazon set that price point, and they were taking a loss on every e-book sale, in the hopes of luring more and more customers to buy their Kindle e-reader. Amazon was able to set e-book prices because they bought the books from publishers on the “wholesale” model: Amazon paid the publishers about half the cover price of the book, then set its own price for its customers.

A quick note about the real cost of a book: just because it’s a digital version – an e-book – rather than a book printed on paper doesn’t mean it was free to produce. Authors, editors, publicists and marketing people still had to be paid, offices still had to have lights on and computers running. The cost of paper and printing is somewhere in the neighborhood of $3 for a hardcover, less for a paperback.

So with the wholesale model, publishers could not set their own prices for books. With the “agency” model, however, they could: when Apple entered the e-book market, it allowed publishers to set their own prices and take 70% (Apple taking the remaining 30%). Apple also “reportedly stipulated” that publishers who used the agency model couldn’t sell their books for less to anyone else; thus, no more selling to Amazon on the wholesale model. The price change across the board is what drew the attention of both consumers and of the Justice Department, which is threatening Apple and five of the “big six” publishers with “allegedly colluding to raise prices.” (Never mind when airlines change their prices and policies one suspiciously close to the other. And do not get me started on cable companies. Or Amtrak.)

However, Washington Post columnist Steven Pearlstein advises the long view in this situation. True, when Apple broke up Amazon’s de facto monopoly, prices for consumers went up, not down; but, he points out, “What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.” Which is better, he asks, “a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?”

When you think about it that way, maybe paying an extra few dollars for your e-books is worth it.

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