Connecticut AG Investigates E-Book Pricing

Published May 31, 2016

Contract provisions between publishing houses and e-book sellers Amazon and Apple, Inc. have drawn the attention of Connecticut Attorney General Richard Blumenthal. His department is conducting an investigation into whether the agreements constitute price fixing.

The proliferation of e-book readers such as Amazon’s Kindle, Apple’s iPad, Barnes & Noble’s Nook, and Borders’ Kobo and the anticipation they will become very popular holiday gifts this December warrant “prompt review of the potential anti-consumer impacts” of content-pricing arrangements, according to a press statement issued by Blumenthal.

Thus far the ongoing investigation has concluded books appearing on the New York Times bestseller list are priced identically across the e-book platforms. This finding led Blumenthal to state, “Such agreements—especially when offered to two of the largest e-book retail competitors in the United States—threaten to encourage coordinated pricing and discourage discounting.”

‘Ambitious Regulators’

Edward Lopez, associate professor of law and economics at San Jose University, detects excessive regulatory zeal in Blumenthal’s efforts.

“Apple and Amazon are the two largest players in a newly viable marketplace, and this sort of combination tends to attract the attention of ambitious regulators,” he said.

Publishers who have signed agreements granting Amazon and Apple “most-favored nation” low-pricing consideration include Macmillan, Simon & Schuster, Hachette, HarperCollins, and Penguin.  Blumenthal sent letters to the publishers and e-book companies requesting a meeting concerning such MFN agreements.

Blumenthal’s office argues the MFN agreements prevent publishers from providing sale prices to Amazon and Apple competitors. In his statement, Blumenthal said, “These agreements among publishers, Amazon, and Apple appear to have already resulted in uniform prices for many of the most popular e-books—potentially depriving consumers of competitive prices.”

End-User Prices at Issue

Lopez says identical pricing for consumers doesn’t prove publishers and e-book companies are engaged in price fixing, noting such investigations also happen when prices vary.

“Regulators often look for such evidence within a structure of variable pricing, but in this case they are looking at how closely end-user prices track each other at different retailers. So, much remains to be seen in this case,” he said.

“Like all other state and federal antitrust laws, Connecticut’s antitrust statutes are designed to protect consumers from anti-competitive business practices. General Blumenthal’s letters to the two companies argue that their contracted price agreements with upstream content providers could have anti-competitive effects on the downstream final consumer market,” he added.

Sheldon Richman, editor of The Freeman, published by the Foundation for Economic Education, says Blumenthal’s investigation stems from government market intervention in the first place.

“Alleged price-fixing agreements in cases like this have but one source: The government’s monopolistic grants to e-book makers and publishers through so-called intellectual property laws,” said Richman. “In a fully free economy, where ideas cannot be locked up and competitors are free to enter the market, such agreements would have no force whatsoever.”

Bruce Edward Walker ([email protected]) is managing editor of Info Tech & Telecom News.