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"Apple finally responded on Thursday to the Justice Department\u2019s lawsuit against it and several of the Big Six book publishers \u2014 for allegedly colluding to keep ebook prices high \u2014 by releasing a statement saying it did nothing wrong.\nThe company says its agreement with publishers actually helped break Amazon\u2019s \u201Cmonopolistic grip\u201D on the market, and that it always lets the companies that supply it with things like apps or books set their own prices. \nBut wait: didn\u2019t Apple more or less control the market for digital music in the early days of iTunes, and dictate prices to the major record labels in order to keep prices low? It sure did. In other words, it behaved more or less the same way towards the music business as it accuses Amazon of behaving towards the publishing industry.\nThe situations are not identical, mind you. When iTunes was first launched, Apple negotiated an agreement with the major record companies to charge a fixed price of 99 cents a track and give the labels roughly 70% of the proceeds (in most cases), while it kept the remainder as a commission. \nBefore the arrival of the \u201Cagency pricing\u201D model that Apple negotiated with ebook publishers \u2014 which allowed the publishers to decide what price Apple would charge for their books on the iPad \u2014 Amazon had deals that paid a specific wholesale price to publishers for a certain number of copies, and then it was able to charge whatever it wanted for the books in the Kindle store. In most cases, that was $9.99, a price the publishers believed was too low.\nBut despite the differences in these two models \u2014 with Apple\u2019s iTunes model being closer to the agency approach, where the supplier sets the price and the retailer or \u201Cagent\u201D gets a flat commission, rather than the wholesale model where the retailer gets to charge whatever they want \u2014 Apple\u2019s purpose was effectively the same as Amazon\u2019s, and so was the outcome for their respective markets.\nWas Apple a Monopolist, A Market Innovator, or Both?\nApple wanted to keep the price of iTunes music low in order to stimulate the market, and because it hoped that low prices and control over the content supply chain would drive sales of iPods and other devices. And since it had the most popular portable music player at the time, it was able to dictate terms to the record labels \u2014 who had failed in virtually every attempt to launch their own digital music operations, and therefore had virtually no choice but to play ball. \nThey protested every chance they got about the 99 cent limit, but Apple was able to hold that line until relatively recently when it changed to more flexible pricing.\nIn a similar way, Amazon jump-started the ebook market with the Kindle and wanted to keep prices low in order to stimulate the market \u2014 and to gain and keep control over as much of the supply chain as possible so that it could drive sales of Kindles and related devices. So for a time, it dictated prices to publishers just as Apple did, and when they balked it took steps like pulling all of their titles from its retail stores to show them who was boss. And when they charged too much, it simply discounted prices to $9.99 \u2014 a level that in some cases meant taking a loss on each book sold, something critics have called \u201Cpredatory pricing.\u201D\nIf Amazon had wanted to go head-to-head with Apple a few years ago \u2014 a giant who enjoyed monopoly control over both the online music business and the market for related hardware like the iPod \u2014 it might have offered record labels the opportunity to cut a deal that would have guaranteed them higher prices, just as Apple has done with publishers and the agency-pricing model. And presumably Apple would have argued that it was trying to stimulate a burgeoning market, and Amazon would have protested to regulators about the horrible monopolist who was treating content producers so poorly.\nIn the case of books, Apple did what it believed it had to do to try and compete with Amazon, and whether that involved collusion is ultimately for the Justice Department or the courts to decide. But it looked at things very differently when it was in charge of the music business \u2014 and the way that it treated record companies arguably benefited the music industry and music consumers in the long run. Who\u2019s to say that the way Amazon has been trying to deal with publishers wouldn\u2019t have similar benefits?\nPost and thumbnail images courtesy of Flickr users Beverly and Mike Licht\n"^^<http://www.w3.org/2001/XMLSchema#string>
<http://mashable.com/2012/04/14/apple-slams-amazon/>