How Justice Department warned Apple and publishers over ebook pricing

The United States Justice Department warned Apple and five of the nation’s biggest book publishers that it will sue them for their alleged price fixing of ebooks unless the companies agree to change their business practices, according to a report Thursday.

Apple, which unveiled its new iPad Wednesday, refused to comment publically about allegations of ebook pricing violation.

When the Kindle made its debut, Amazon cut deals with publishers and set book prices at $9.99 in order to stimulate demand. At the time, publishers were unhappy with Amazon’s strategy of pricing e-books at about $9.99. This meant a threat to profit margins for publishers.

When Apple came along it offered the publishers the opportunity to set their own prices for books.

According to sources, Steve Jobs told to the publishers:  “We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway …” They went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.” 

Now, the six biggest publishers are the ones deciding how much consumers will pay through both Apple and Amazon, choosing prices more in the range of $12.99 to $14.99.

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