Commentary

Penguin Shells Out $75 Million To Settle Price-Fixing Charges

Penguin will pay $75 million to settle claims by a coalition of state attorneys general that it conspired with other publishers and Apple to increase the price of ebooks.

A portion of that money will go to consumers who purchased the publishers' titles, though at this point it isn't known how refunds will be allocated. Penguin was one of five publishers sued by the Department of Justice and a group of state attorneys general for allegedly conspiring to violate antitrust laws. The other publishers -- Hachette, HarperCollins, Macmillan and Simon & Schuster -- also agreed to settle the charges, but Penguin is the only one to so far disclose the amount it will pay.

All of the companies were accused of conspiring with Apple to force the book selling industry to shift from a “wholesale” model to an “agency” model. That shift put an end to Amazon's ability to sell bestsellers for just $9.99.

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When Amazon first started selling ebooks, it purchased them as a wholesaler, and then sold books as cheaply as it wished. But the publishers didn't like seeing their books selling for just $9.99 and, according to the court papers, they held a series of meetings where they discussed how to put a stop to Amazon's pricing strategy.

In the end, they decided to start using an agency model, where they set the retail price of books and paid a commission to the retailers. The publishers then insisted that Amazon move to an agency model.

When Apple entered the ebook market, it also signed agency agreements with the publishers. But the difference between Amazon and Apple was that Apple wanted the agency model, because it didn't want to compete with Amazon's $9.99 per book prices, according to the government.

For that reason, the publishers' conspiracy benefited Apple. Of course, that doesn't mean that Apple was part of the endeavor. That question will be determined at a trial set to begin next month.

Some critics have criticized the government for prosecuting the case. They argue that Amazon's $9.99 pricing was predatory and ultimately would have resulted in the company's monopoly over ebooks -- which would be bad for consumers as well as other booksellers.

In the short-term, however, the shift to an agency model resulted in higher prices for consumers who purchased ebooks for their Kindles, iPads and other readers. At least some of them now stand to get refunds as a result of the lawsuits.

1 comment about "Penguin Shells Out $75 Million To Settle Price-Fixing Charges".
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  1. Pete Austin from Fresh Relevance, May 24, 2013 at 4:31 a.m.

    Don't see how $9.99 was "predatory". The incremental cost of production for e-books is about zero, and there's no need to buy physical stock or allocate shelf space, so they should be much cheaper than paper books.

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