ATG Hot Topic of the Week: The Agency Model, the Justice Department, & Allegations of Collusion

In last week’s Wall Street Journal L. Gordon Crovitz challenged the lawyers in the Antitrust Division of the Justice Department.    His article “Steve Jobs, Price Fixer? takes issue with notion that Steve  Jobs’ agreement with book publishers to move to an “agency model” (Publishers setting the price for each book and e-reader companies take an agreed percentage of the revenues) is evidence of collusion between Jobs and the publishers.  Crovitz points out that prior to this, publishers had imported the “wholesale model” from the print world where they sold retailers books for about half the list price.  But this model did not take into consideration Amazon’s ability to sell e-books at very low prices as loss leaders to encourage sale of their Kindle e-reader which eventually led to Kindle having 90% of that market.  Crovitz argues that rather than collusion to fix prices the “agency model” agreement came from publishers wanting to see “competition among e-readers instead of a Kindle monopoly” and worrying “that the subsidized price established artificially low prices.”  This Steve Jobs-publishers agreement is evidence of an industry “undergoing massive change brought on by technology… flailing for sustainable business models” not price fixing.  Crovitz is saying that an overreaching government needs to get out of the way and agrees with Scott Thurow whom he quotes “our government may be on the verge of killing real competition in order to save the appearance of competition.”

Joe Wikert, General Manager & Publisher at O’Reilly Media, is also on Crovitz’s side.  In his blog post “Thoughts on eBook Pricing,” he says that the Crovitz article “sums it up quite nicely, particularly in the closing two paragraphs. Read that piece and ask yourself if the Justice Department’s efforts will actually fix or merely add to an existing problem.”  Wikert says that Amazon has “taking loss leadership to a new level” and later in the post raises the specter of  “one deep-pocketed retailer … putting their competitors out of business.”

Where do you stand? Are Crovitz and Wikert right or does the Justice Department have a case – where Steve Jobs and the publishers actually colluding? Is there a better model for ebook pricing?  Can you suggest one?

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