Why Apple Should Be Free to Charge $15 for eBooks
I buy a lot of books—over a hundred a year—and thanks to Apple I now buy some of those books electronically for my iPad. I love the fact that I can be stuck in an airport in Wisconsin and still have instant access to virtually any book, just by touching a few buttons.
I was looking forward to reading about the new iPad this morning, but instead the leading story about Apple is that they and five top book publishers have been threatened by federal antitrust authorities. According to the Wall Street Journal, they are going to be sued for allegedly colluding to fix ebook prices.
There’s so much to say about this story, but here’s the essential thing to keep in mind. Traditional books may come from trees but they don’t grow on trees—and ebooks and ebook readers such as the iPad definitely don’t grow on trees. These are amazing values created by publishers and by companies such as Apple. Those companies have a right to offer their products for sale at whatever prices they choose. They cannot force us to buy them. (If they could, why would they charge only $15? Why not $50? Why not $1000?)
There is no mystically ordained “right” price for ebooks—the right price is the one voluntarily agreed to between sellers and buyers. Sure, some buyers may complain about ebook prices—but they are also buying an incredible number of ebooks.
What in the world justifies a bunch of bureaucrats who have created nothing interfering in these voluntary transactions and declaring that they get to decide what considerations should go into pricing ebooks?
More here.
33 Comments to “Why Apple Should Be Free to Charge $15 for eBooks”
To make matters worse, in the SAME article:
“Amazon Inc. sold many new best sellers at $9.99 to encourage consumers to buy its Kindle electronic readers. But publishers deeply disliked the strategy, fearing consumers would grow accustomed to inexpensive e-books and limit publishers’ ability to sell pricier titles.”
An people wonder why business investment has stalled.
I ayalws set goals but don’t ayalws give them a time frame. It can take a long time to achieve some goals. there are some things we have to accept aren’t possible. I was very sick and I’m still recovering and so I have achieved a lot. People who know me say how well I have done, even the doctor! I have more to do and so I set goals and then achieve them in small steps, usually one by one.
I like how you completely ignore the anti-trust implications. E books were being sold at competitive prices, Apple wanted more money and conspired with the publishers to raise prices. The largest publishers agreed to this price fixing scheme in a pretty obvious violation of the Sherman Antitrust Act. How is an objectivist ok with schemes against competition?
Why do you call Apple & publishers’ price agreements a conspiracy? How are they stopping E books from being sold for $0.01 while they “fix” prices at $15.00? Why does anybody have to obey Apple & publishers and sell at $15.00, unless the “government” and some “law” forces them to? They don’t have to. But, even if they all just fall in line, it takes only ONE maverick to upset the apple cart (forget the pun) and run’em all outa business. Antitrust “laws” are criminal conspiracies by crooks at the behest of crooks who, rejecting competition, prefer, not just combat, but overwhelming force to seize a market and make a fifedom out of it, as long as there are customers still willing to cooperate, or as long as people are forced to be customers, under “authority” of other “laws”.
And promoting competition is a moral imperative because. . .? And it is proper for government right to promote it by force because. . .? Check your premises.
“Apple wanted more money and conspired with the publishers to raise prices.”
If you don’t like that, don’t buy their books. Otherwise, it is none of your business.
“. . . a pretty obvious violation of the Sherman Antitrust Act.”
The Sherman Antitrust Act is a monstrous obscenity, a complete violation of property rights. It was, arguably, the first major step on our 120-year march toward socialism.
“How is an objectivist ok with schemes against competition?”
Here is how:
http://aynrandlexicon.com/lexicon/antitrust_laws.html
Hi Dave. I’m an opponent of antitrust laws. I think they are totally immoral, for the reasons I indicate in my post: they violate property rights and free trade. But you do raise a good question about competition, which I’ll try to address in a separate post tomorrow.
The publishing industry is in upheaval due to the advent of e-readers and Amazon’s self-publishing business (to name a few factors). The “Big Six” have been doing everything short of lobbying to control the bleeding of their businesses by indy publishers/authors currently change their business model where they were once the gatekeepers.
So yes, there’s a lot involved in what is going on in the publishing industry. I had heard that Apple and the Big Six were strategizing to fix the prices of ebooks in order to save their businesses in this now very competitive publishing market. Despite my misgivings over what these large entities are doing, I welcome their tactics. Ultimately the customer still gets to choose which avenue they purchase their ebooks and many are still going to Kindle and Nook over iBooks, even via their iPads, and pay a lot less. Between a $4.99 ebook on Amazon vs. a $9.99 ebook on iBooks, which do you think the customer will buy? Seriously, it isn’t nuclear science.
By the way, we have a few other pieces that address the issue monopolies: http://capitalism.aynrand.org/tag/monopolies/
I also highly recommend this article by my colleague Tom Bowden on past antitrust threats against Apple: http://news.investors.com/article/549320/201010041835/apple-now-targeted-for-success-like-microsoft-was-in-the-1990s.htm
Rand wrote extensively about the evil of the Sherman Act and other anti-trust laws. See especially her article “America’s Persecuted Minority: Big Business” (in Capitalism: The Unknown Ideal), though there are many other articles on the subject in her periodicals, and the “Fair Share” law in Atlas Shrugged is a literary representation of the evil of such laws (and its consequences).
I finished rereading Atlas Shrugged for the seventh time last fall and I’m having a little trouble with some of the discussion I’m reading in these comments. For instance, the “Fair Share Law” was a Gov’t imposed rule regulating the distribution allotments and pricing of a copyrighted product to the market and demonstrated how gov’t interference in markets artificially suppress prices and create immoral black markets.
This deal with Apple is different. A private distributor, Apple, contracted, the gov’t says colluded, with producers, the publishers, to sell books at a higher price and required the producers to guarantee that pricing as a market wide floor.
Now Rand would have no problem with Rearden paying a higher price to any number of iron ore producers to guarantee a reliable supply of ore, but I can’t imagine her promoting the idea that he could include an agreement to prohibit the miners from charging less than Rearden Steel pays to another steel producers.
I have not come to a decision on this issue, but it does seem that the Apple deal does limit market competition. I guess the real question is, does Apple and the publishers have the right to freely contract even if it does limit market competition? I don’t see that discussion anywhere here.
Is entry of new publishers into the market, or expansion of already existing small publishers “blocked”? If it is, what’s it blocked by?
While all I have read of Ayn Rand is Atlas Shrugged, I am curious as to her opinions on the situation we have now of CORPORATIONS. Specifically, that in most cases the corporations have more rights and freedoms than an individual. It has always seemed to me that Atlas was about INDIVIDUALS in production and an INDIVIDUAL’S personal drive to perfection and such.
I would feel FAR differently about this subject if we were talking about companies owned by people. Corporations ARE all about greed, their officers have a fiduciary duty. As demonstrated in Atlas Shrugged, an individual can decide on one’s own responsibility what is good and works for them. Rearden NEVER consulted with any other company about prices. He made a great product. Dagney saw that this was a great product when others didn’t or wouldn’t Afterwards, Rearden invested in the John Galt line because he (HIMSELF, not “officers” not a board) saw value in supporting it. But at the same time he never gouged anyone. He gave value for value.
A corporation is (in MOST cases) about getting as much for as little as possible.
Hi Daniel. Corporations are a totally legitimate business form, and both Rand and Yaron and I fully support the existence of corporations. A corporation is simply a contractual arrangement among individuals that enables them to be more productive. Yaron discusses some of these issues here: http://arc-tv.com/rights-and-corporations/. For a more in depth treatment see http://www.econlib.org/library/Enc/Corporations.html.
Respectfully Don, I disagree. It can be this way, but in general practice it does not end that way.
Fess up. You were a liberal arts major, right?
The purpose for a corporation is to limit liability. That embraces good features and bad. The designed purpose is fantastic. The manipulations possible are not so.
Rick. Good questions. Stay tuned. I hope to comment on this tomorrow.
Good point Greg. Here’s a taste: http://aynrandlexicon.com/lexicon/antitrust_laws.html
Hi Don,
Have a look at these article for some more very recent anti-trust thuggery in the tech world:
http://www.engadget.com/2012/03/06/ftc-orders-western-digital-share-assets-with-toshiba/
http://www.engadget.com/2012/02/02/french-court-fines-google-france-500-000-euros-for-gratis-maps/
Looking at some of the comments to these article, it’s very disappointing to see people defend anti-trust laws in the name of Capitalism. . .
Keep up the good work in the name of freedom
The “essential thing to keep in mind” which you discuss is enough for me. It ought to be enough for any judge, to uphold the right of one to set ones own price, ones right to agree with others on a common price, or EVERYBODY’s right to agree on a common price, as long as anyboby is free to charge any other price, if he chooses to. It ought to be enough, for any senator or representative, to agitate to recognize that right in law if it’s being denied. This assumes that all three know what laws are and what government is and that they unfailingly seek moral integrity accordingly (in terms of egoism).
As for the “so much to say”, I don’t need to know much about all that to know whether the right to set prices is being upheld. AND SO (meaning, for that reason) judges, reps. and senators don’t need to know much about it, either, except to understand and be able to spot criminals (including the judges, reps. and senators among them), who are the ones who originate most, maybe all, of the “so much to say”, such as “fixing” or “colluding”, which are words and notions applicable to their own actions, but which they apply to activities of law abiding people, then make “laws” against those honest activities to cover their own activities of fraud and other crimes of forcibly redirecting the flow of money and goods.
Cops and all other law enforcement authorities and investigators don’t need to know much about it, either, except to spot and understand, apprehend and arrest crooks, even when the crooks are judges, reps. and senators. And this assumes that the cops, and all other law enforcement authorities and investigators know what laws are and what government is and that they unfailingly seek moral integrity accordingly.
I think the educational effort of the ARI and the ARC should, if it doesn’t already, include teaching all that to all of them, and the general public, because none of them know it.
I have no problem with Apple charging any price they want. That is free enterprise, but colluding with other companies to fix prices is the question. Fixing prices undermines to buying power of the customer by preventing fair competition. It creates a conglomerate monopoly that hurts the consumer.
Ron,
Whether you call it “colluding,” “fixing,” “conglomerate monopolies,” etc., the principle is the same: a single company deciding (or a bunch of companies entering into a voluntary arrangement) to charge a certain price, which the customer is free to pay or not. IF companies “colluded” to force other companies to behave a certain way, or to use force to keep other companies out of the market, that would be a different thing. But unless actual force is involved, the government has no business interfering. Let the market decide whether the price Apple et al. are charging is too much.
I am in no way an expert on the subject of economic or antitrust laws. . . .in fact, I have only recently become more intersted in these subjects and am pursuing info on them independently through forums such as this one. So perhaps someone can share some knowledge with me. . . .I am confused by the arguement that price fixing undermines the buying power of the consumer. it seems to me that the the consumer holds all the power when it comes to commercial goods. The consumer makes the choice to purchase a product based on a very simple analysis of is the benefit of is the product in question worth the cost. If the consumer decided a product sold by a specific company is not worth the asking price they will not purchase from that company. If enough consumers decide not to purchase, then wouldn’t companies lower prices or face going out of business?
From what I understand of antitrust laws this far, they seem like a bit of a redundancy because a business would not be successful if they chose to ignore the market.
On the particular subject of ebooks, I agree with the previous comment that “it isn’t nuclear science” (referring to prices) My friends and I all us amazon for cheaper books and then read them on our iPads and iPhones
Wow. Notice how quickly we went from ebooks not existing to having a right to ebooks at “fair prices”. Not even just a right to literature! The article concedes that physical books are still predominantly sold by a wholesale method. But we’d better get the government involved because I have to go to a book store to get clearance-priced books instead of downloading them instantaneously while sitting on the toilet.
Another point: This “agency” model is merely analogous to paying someone by commission rather than wages or salary. Like in paying workers, payment methods compete with each other between and within businesses to find the most effective payment methods for each market over time. This process played out over time in the ebook market and the agency method was generally found to be superior. Blockbuster even used the agency model to out-compete their competition (for a while), even with physical movies. This is nothing new.
Wholesale requires extensive logistics to anticipate supply and demand. What is the point of going through this trouble in a digital market? Supply can be increased immediately if needed and distribution is instant. There is no risk of a glut going to waste. Thus, the app store and iTunes both use the agency method. I think Netflix does as well. The only major digital distributor I can think of that uses the wholesale method is Steam, the largest computer game distributor in the world. This, to my benefit, results in them having periodic massive clearance sales when they acquire a glut of game licenses. A while back, Electronic Arts started their own distribution service for their own games because they thought they could make more money than going the wholesale route through Steam. These things find a balance over time, and with digital content, it is generally moving away from wholesale.
“Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price.” This doesn’t forbid publishers from selling their ebooks wholesale. What it does is say that IF companies want to sell their ebooks wholesale, they must lower the price of their ebooks on Apple’s store if the wholesale market price falls over time. It’s like stores who promise to match competitors’ prices.
Is it necessary to your survival? No! Therefore I you do not like the price agreement, do not purchase the product.
Laissez faire has never worked in the supply chain. Rockefeller set rail prices that controlled lamp oil. Manufactures controlled fixed retail. Promotional pricing gave unfair advantages to selected clients. I am sure the guy that invented the wheel tried to control distribution.
Lost leaders are a staple in the retail arena. Every grocery store employs them in every ad. Having been in that business, manufactures and distributors have always worked for control that is to their benefit beyond the retailer and the end user. (Hint: never buy items on an end cap.)
Time to grow up or go back to arguing about broken windows. There is no such thing as fair pricing and there never will. Sometimes, knuckles should get rapped when unfair advantage is happening.
Ken, thanks for your comment. However, I don’t follow your argument. Take the case of Rockefeller, which I’m familiar with. What did his “control” consist of? It consisted of his ability to guarantee railroads a huge, reliable flow of business, which cut their costs enormously. (Indeed, JDR guaranteed them a certain amount of shipping business *whether or not he had anything to ship.*)
Both sides benefited from the transaction: the RR’s got reliable business, JDR got lower shipping rates than his less efficient and productive competitors. The consumer benefited as well from lower kerosine prices.
My view is that prices are “fair” whenever they are voluntarily agreed to. No private company, absent government intervention, has the power to impose prices on people against their will. The only power or control a company has is economic power earned through being incredibly productive. (For more on this point see: http://www.aynrand.org/site/PageServer?pagename=arc_harry_binswanger_the_dollar_and_the_gun)
Rockefeller used the special rates to damage competition which paid much higher freight rates. He was able to use that to eliminate competition in markets. Prices were fixed to benefit a customer. Jobs and the publishers were attempting to control pricing to their competitor.
I worked with buyers in major corporations and as preferred customers rules were bent as far as possible. Competitors were doing the same thing. But, this agency pricing idea goes far beyond normal business favors.
The facts aren’t about free trade. They are the opposite. Everybody but Amazon was mad that Amazon was breaking the old gentleman’s agreement and selling for other than dust jacket prices. Bookseller’s have been falling by the wayside for a variety of reasons. And, they are very uncomfortable with the elephant in the room that Amazon has become.
Old line companies with bloated management and practices have been the story for many years — steel, auto, and so on. Everyone tries to do anything but the necessary and that includes using things like revised pricing to favor or punish. That the story here. We look out for ourselves and happily take any advantages that fall our way. The good guy isn’t always coming out the winner in the real world. Rand is an exciting author who created and interesting world of her definition. That never covers all the complexity of the real one.
If You want to turn this real world example into Rand’s view then Amazon is John Galt — bring about the collapse of collectivist society’s sacred cows.
Ken, on the issue of Standard Oil, let me recommend this article by my former colleague Alex Epstein, http://www.theobjectivestandard.com/issues/2008-summer/standard-oil-company.asp. It addresses the points you raise in a way that I think is very clarifying.
As for Amazon, you’re right: the publishers did feel Amazon was threatening their business model. And so they did something totally within their rights: they changed their business model.
Now, were they right? Is agency pricing a better way for them to organize their business? Maybe, maybe not. The only way to decide is through a free market competitive process. If they are wrong competitors will come along and outdo them.
What must not be done, in my judgment, is to have the government come along and, in defiance of the rights of the publishers (and Apple), declare that it KNOWS how ebooks should be priced.
They did not change their business model. They changed their pricing structure to control prices. They have always done that. If you didn’t follow it, they would not take returns. That worked against small book stores but it isn’t a factor for Amazon who operates like the grocery industry with its profits based on turns.
As to Standard, well I guess I should give them a pat on the back seeing that I worked for the sugar trust and am one of the most honest folks you could find that you should surely trust explicitly. And Carnegie didnd’t go through bodies keeping steel workers from wasting their time on other pursuits with his generous 12-hour, 6-day week. To quote Archie, “Those were the days my friend.”
Look Don, run down the block and ask an Austrian economist what all this is. I think you’ll have a harder time arguing with one of those over what or who price fixing benefits. And mention it is an example of the free market; they deserve a good laugh.
Grant - Trust me, you really have no idea how HOT it was.For the orrecd, 96 workers died at the construction site (not including those who may have been injured there and died later, off-site).I don’t know why I can remember stuff like that but not stuff that really matters.July 22, 2009 10:29 am