Is Apple price-fixing? Does it matter?

The United States DoJ is investigating Apple and five major publishers for collusion.

Earlier this month, the Wall Street Journal reported that the United States Department of Justice was investigating Apple and the "big five" publishers (HarperCollins, Hachette, Macmillan, Penguin, and Simon & Schuster) for collusion to fix ebook prices.

At stake is the agency pricing model, where publishers have the power to set their own prices on ebook retailers; this is in contrast to the pricing model dominant in the industry before Apple's entrance, where retailers (at the time largely synonymous with Amazon, which held 80-90 per cent of the ebook market) were free to set their own prices while guaranteeing a certain cut to the publishers.

The concern of the Department of Justice seems to be that all the major publishers used the entry of Apple into the market to force Amazon to adopt the agency model, and then, it is alleged, all made the most of their newfound freedom over pricing to raise the prices of their ebooks.

Evidence on the issue is scarce, and some of the publishers have reportedly moved to settle already; but today, some new figures came to light which may strengthen their case.

The publisher Smashwords, which acts as an umbrella body for self-published authors looking to get their books on to digital storefronts, has released the data it submitted to the DoJ in the investigation. It shows that, all else being equal, the competition afforded by agency pricing seems to lower prices across the board:

In plain English, the average prices have dropped 25% from $4.55 in October 2010 to $3.41 today...

The $3.41 is a really interesting number, for a couple reasons:

1) It shows that authors and publishers, left to their own free will, are pricing their books lower in this highly competitive market. Sure, they could all try to fleece customers by pricing their books at $29.99, but customers won't let them.

2) $3.41 is remarkably close to the average price paid for Smashwords books purchased at Barnes & Noble during the last 30 days. The B&N number: $3.16. I looked at every Smashwords book sold at Barnes & Noble between February 28 and March 27, then calculated the average price. This means Smashwords authors are pricing their books close to what customers want to pay. The median price (represents the midpoint, where an equal number of books sold at lower prices and and equal number sold at higher prices) was $2.99.

But proving that agency pricing doesn't lead to artificially inflated price tags may not be enough to save the publishers and Apple from a lawsuit. Tim Carmody reports for Wired that the issues for the DoJ are "bigger than rising e-book prices or even collusion between publishers":

"Plenty of business practices raise prices that aren’t antitrust violations," says Donald Knebel, an IP and antitrust attorney affiliated with the Center for Intellectual Property Research. "Agency pricing is perfectly legal. But something isn’t an agency relationship just because you call it that."

Knebel says there are three major points of law at stake in both the class-action suit and the Justice Department investigation against Apple and the five publishers:

  1. Whether and how the agency model applies to virtual goods;
  2. Whether Apple and publishers engaged in a “hub-and-spoke” conspiracy or simply “conscious parallelism”;
  3. The status of the “most-favored nation” clause, common to many legal contracts today, which Apple used to ensure that books could not be sold elsewhere at a lower price than in the iBooks store.

The case is nowhere close to conclusion, but whatever the outcome, it will reverberate throughout the industry. In tech, it remains the case that where America goes, the rest of the world follows.

A Kindle is tested in Amazon France. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue