Wednesday, April 11, 2012

E-Book Pricing and Predatory Business Practices

So apparently the Justice Department is filing lawsuits against Apple and some major book publishers because of problems relating to price collusion in online e-book sales (Apple has a growing ebook store that sells and distributes ebooks in a manner similar to its popular iTunes site for music downloads).

I'm not sure I fully understand all of the issues, but I still find this turn of events sort of interesting.  It seems like the government might be being a little unrealistic in the way that it's approaching the sale of e-books.  To me, it doesn't really make sense to require or encourage a wholesale model when dealing with digital content (i.e., selling individual units of books e-books to a distributor at a fixed price with the expectation that the retailer will then turn around and sell them at a markup) when we're now talking about distributors actually just disseminating electronic information.  It seems to make more sense for the publishers employ an agency model, paying a fee to distributors like Amazon and Apple for the service of selling units of their books. On the other hand, if powerful distributors like Amazon and Apple are flexing their muscle to come up with exclusive agreements with publishers that undercut the rest of the market (basically working out deals would allow them to systematically sell products a a cheaper rate than everyone else with an eye toward putting all other, smaller distributors out of business), then it seems like these predatory pricing schemes are going to damage the free market.  If you let these companies kill off all of the competition then consumer choice becomes diminished and the underlying mechanics of capitalism begin to fail.

So this is just one of those areas of business and economics that I've never quite been able to wrap my head around.
Businesses are supposed to be strong and competitive and strive to offer the best services possible at the lowest possible price.  On the other hand, when a business becomes large and strong enough to actually dominate the market and change the nature of the playing field itself, outside intervention becomes necessary in order to preserve the integrity of the system.

Annnnyway, one more example of why capitalism, while a driving force behind our quality of life, needs some pretty significant checks and balances- checks and balances which seem harder and harder to implement in an era of almost unfettered corporate access to the politicial process, massive corporate litigation and lobbying, and prevalent cultural attitudes that consistently look upon government action with suspicion while imbuing private sector activities with a certain sense of inherent patriotism and moral superiority.

At any rate, there may be some argument about whether the Justice Department is engaged in the proper course of action, but I think the government is properly concerned with predatory pricing involving online publishers and distributors.  When iTunes first came on the scene there were a whole lot of record stores in town that I could go to in order to look for a different selection or better deals.  But iTunes was really easy to use and the songs only cost ninety nine cents (and we were told that they would stay that way!).  A few years later everyone has an iPod, the record stores are all gone (except Waterloo- I love you Waterloo!), musicians are pressured to sell their stuff on iTunes because it's the world's biggest distribution hub, and the cost of songs on iTunes is $1.29  and rising.

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