Competition and Books

Amazon has been facing quite a bit of heat from the publishing industry lately. Most of it is over their ebook pricing policies.

This year, Amazon has been changing their contracts with distributors and adding additional charges for ebooks, lowering the amount of money publishers end up with in their pockets from the sale of ebooks via Amazon. One large distributor of books published by small and mid-size publishers, IPG (Independent Publishing Group), recently discontinued their sale of ebooks via Amazon due to these increased charges, pulling over 4,000 ebooks from Amazon’s website.

The Authors Guild has also voiced concerns over Amazon’s pricing policies and strategies. They recently stated, “In Amazon’s hands, predatory pricing can be a particularly potent weapon.” This organization feels that Amazon is attempting to control the book industry by compelling publishers and authors to bend to its wishes including (among other things) requiring public libraries to redirect their patrons to Amazon’s commercial website to borrow books for their Kindles.

Two years ago, when Apple offered a different pricing strategy than the one the industry had been using, the top publishing houses in the United States adopted a new pricing model for ebooks called the “Agency Model”. Simply put, rather than the wholesale model where the publishers sold to the retailers who in turn sold the ebooks at whatever price they liked either for a profit or loss (as is done with print books), these publishers switched to telling retailers what price to sell the ebook for and giving the retailer a percentage cut of the sale. This new model for pricing ebooks was adopted because the publishers feared that Amazon would devalue ebooks and lock the long-term sale prices lower then publishers wanted (as Amazon was doing by selling ebooks cheaply at a loss in order to sell more Kindles).

The book industry continues to use the wholesale model for print books. Amazon will sometimes still sell print books at a loss. For example, one publisher member of Christian Small Publishers Association (CSPA) recently discovered that was selling her print book for $1.29. The book’s retail price is set at $14.95. Horrified, this publisher contacted Amazon about the issue, fearing that she would be losing A LOT of money on sales. Amazon’s reply was that they knew they were selling goods for far less than their purchase price and were okay to continue doing so. In other words, this book was being used as a “lost leader.” Of course, this publisher, now knowing that she would not lose any money from sales, immediately sent an alert to her email list letting her fans know that the book was on sale on Amazon. Needless to say, Amazon quickly raised the price after a few sales.

Now, the U.S. Department of Justice has announced that it is considering an antitrust lawsuit against Apple and five major publishing houses over allegedly colluding to fix ebook prices when they established the Agency Model for ebook pricing.

What a sad state of affairs. In an attempt to maintain their viability and thwart Amazon’s ebook discounting, the publishing industry adopted a new pricing model. This model has helped keep competition alive and well in the book selling industry and has allowed publishers and authors more choices on how and where to sell their ebooks.

The competition is working. Two years ago, Amazon owned 90% of the ebook market. Now, they have roughly 60% of that market since Apple, Google, and Barnes & Noble didn’t have to be forced into a pricing model set by the market leader and instead could compete in a way that brought them business.

I certainly hope that the Department of Justice will reconsider this lawsuit and save true competition. Real competition is what we need to keep the value of books.

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