Apple and several publishers including Penguin, Harper Collins, Macmillan, Pearson and Simon & Schuster and Hachette have been accused by the U.S. Department of Justice of price-fixing and collusion. According to the Bloomberg various high level officials of these companies along with a representative from Apple met several times in secret at various locations in New York city prior to the release of the iPad 1. They agreed that the prices of e-books should be set by the publishers and the retailers could not make any changes. It also appears they agreed to the price they would be set at. According to the DOJ this was clearly directed at retailers especially Amazon, who had offered discount prices on e-books.
Simon & Schuster, Hachette and Harper Collins have settled the suit with the DOJ and have agreed to cancel any contract that would allow the publishers to set prices. They also agreed that for two years all contracts must allow for discount pricing by the retailers. Apple, Penguin and Macmillan Publishing have refused to settle. They are fighting to keep what they call the agency model. Apple appears to be the one that encouraged this model. They get 30 percent of all books sold in the iBook store. The agency model means the books will cost more for the consumers but it also means more money for Apple and the publishers. “Sales of e-books rose 117 percent in 2011, generating $969.9 million, Publishers Weekly reported Feb. 27, citing estimates from the Association of American Publishers.”
The European Union is also investigating the arrangement made between Apple and the publishers. It clear that the major publisher like the agency model. The cost of creating and publishing e-books is much lower than physical books and before this agreement the prices for books was going down. With this agreement, prices were stabilized or raised to a level agreed on by all participants and competition was removed. I have to admit I am a fan of Apple products, but I have found that I am less of a fan of some of their business practices and this is one of those times.