Five book publishers and Apple have been sued in a class action lawsuit that alleges they colluded to drive up the price of e-books. The suit claims HarperCollins, Hachette, Macmillan, Penguin and Simon & Schuster worked with Apple to break Amazon’s discount pricing strategy and help Apple’s iPad compete with the Kindle.
The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like movies and music. The complaint alleged that Apple and the publishers worked together to force Amazon to drive up prices. They did this by forcing Amazon to stop using discount pricing and start using the agency model.
The agency model allows publishers to set prices for their e-books, with the online store taking a portion of the price. Previously Amazon had bought e-books from publishers and set its own low prices. In the agency model, Amazon would not be allowed to sell e-books at prices lower than those set by the publishers. Since the publishers in question control 85% of the popular books on Amazon, it was inevitable that Amazon would have to raise e-book prices – and it since has.