Step Off DOJ: Paying More for E-books Is a Good Thing

Apple broke Amazon's monopoly power over e-book pricing. Now the Department of Justice, in the name of fairness, wants to roll back the clock and let Amazon kill even more bookstores.

As a tech writer and consumer advocate, I’m frequently critical of monopolistic practices that drive up prices and lessen competition. But the brouhaha over e-books, and a lawsuit against Apple by the Department of Justice, turns that logic on its head.

Simply put, consumers are better off if the price of books, e-books or paper, doesn’t hit rock bottom. Sure, no one likes to pay more, but if you want a good product, it has to be worth someone’s time and trouble to produce it and then sell it.

What happened last week was complicated. In essence, Amazon has used its muscle to push down the price of e-books to around $9.99, and grabbed a market share of 90 percent. The low prices were designed to goose sales of the Kindle and lure shoppers onto the Amazon site and ecosystem. Amazon, not the publishers, set the price.

Independent bookstore owners who embraced the digital revolution by selling e-books found themselves undersold. Scott Thurow, a best-selling mystery writer and president of the Author’s Guild, explained the result in an open letter. "Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open."

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In 2010, Apple, which had launched the iPad, formed a so-called agency model which meant that publishers would set their own prices and Apple would, in effect, be their agent selling e-books on Apple iBookstore.

The idea caught on, and Amazon’s share of the e-book market dropped to about 60 percent. But prices went up to a range of $12.99 to $14.99. “The agency model made it possible for us to compete,” says Pete Mulvihill, co-owner of Green Apple Books, one of San Francisco’s oldest and largest independent bookstores. Green Apple sells its e-books via Google, which jumped into the market after Apple paved the way.

Enter the Department of Justice, which claims that Apple and five publishers were colluding to fix prices to the detriment of consumers. I have no idea if there was collusion or not. Apple vigorously denies it, and it’s very odd for the government to claim that it is using its power to stop monopoly practices by suing the groups that reduced the power of the real monopolist: Amazon.

E-book sales, Mulvihill told me, have been steadily increasing – his customers buy them on Green Apple's Web site or in the store – though they’ll probably never constitute a majority of the store’s business. If the suit allows Amazon to regain the power it once had in the e-book market, prices will probably drop, and there’s a good chance that Green Apple will exit the business. That would be a shame.

Stores like Green Apple have not stubbornly resisted changes in technology; they’re not luddites mourning for some former Golden Age. Amazon’s convenience and buying power has already forced the closing of thousands of brick-and-mortar bookstores. Letting it regain its former monopolistic pricing power will kill even more. DOJ may be well intention, but it’s on the wrong side of this one.

It’s ironic, but in this case, paying more is a good thing.

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