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Amazon cuts E-Book Prices, rivals on toes?

business Updated: Apr 12, 2012 23:23 IST
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The US government's decision to pursue major publishers on antitrust charges has put the internet retailer Amazon in a powerful position: the nation's largest bookseller may now get to decide how much an e-book will cost, and the book world is quaking over the potential consequences.

As soon as the Department of Justice announced on Wednesday that it was suing five major publishers and Apple on price-fixing charges, and simultaneously settling with three of them, Amazon announced plans to push down prices on e-books. The price of some major titles could fall to $9.99 or less from $14.99, saving voracious readers a bundle.

But publishers and booksellers argue that any victory for consumers will be short-lived, and that the ultimate effect of the antitrust suit will be to exchange a perceived monopoly for a real one. Amazon, already the dominant force in the industry, will hold all the cards.

"Amazon must be unbelievably happy today," said Michael Norris, a book-publishing analyst with Simba Information. "Had they been puppeteering this whole play, it could not have worked out better for them."

The government said the five publishers colluded with Apple in secret to develop a new policy that let them set their own retail prices, and then sought to hide their discussions.

After that deal was in place in 2010, the government said, prices jumped everywhere because under the agreement, no bookseller could undercut Apple.

HarperCollins, Hachette and Simon & Schuster settled the charges on Wednesday, leaving the other two, Penguin and Macmillan, and Apple to fight.

Amazon, which already controls about 60% of the e-book market, can take a loss on every book it sells to gain market share for its Kindle devices. When it has enough competitive advantage, it can dictate its own terms, something publishers say is beginning to happen.

Traditional bookstores, which have been under pressure from the Internet for years, fear that the price gap between the physical books they sell and e-books from Amazon will now grow so wide they will lose what is left of their market. Barnes & Noble stores, whose Nook is one of the few popular e-readers that is not built by Amazon, could suffer the same fate, analysts say.

John Sargent, the chief executive, Macmillan, said he would not settle because he had done nothing wrong. He wrote to his authors and employees that he made the decision to change pricing structure "on January 22nd, 2010, a little after 4 am, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now."

"I am now more convinced that we need a viable alternative to Amazon or this nonsense will continue and get much worse," the suit quoted David Shanks, the Penguin USA chief executive, as saying.