It’s publishing intrigue time again 🙂 This time in the form of the wholesale model versus the agency model in digital publishing — OR, in other words, Amazon versus Apple.
Both models are monopolistic. The wholesale model allows the e-book retailer to fix a below cost (to them) flat price of $9.99 (very suspicious for future price gouging). The agency model allows the publishers to price-fix a higher, colluded price range. So, pick your poison or your monopoly.
Which is better for the industry as a whole ? For the consumer ? For the financial sustainability of good writers and attracting future talent ? Etc., Etc., Etc.
There are points on both sides of this issue, but one thing should remain clear while the Justice Department is trying to sort it all out:
Open and aggressive competition always promotes ingenuity, improved products, promotes quality industry growth AND is the only safe and fair way to set prices. Something we have forgotten in a greedy rush to set or protect an unfair advantage or status quo.
Washington Post columnist Steven Pearlstein gives an in-depth explanation of the publishing wholesale and agency models along with an insight into the industry politics and nuances involved in this flushing out of the new publishing landscape:
Pick your monopoly: Apple or Amazon
As a general rule, we don’t prefer monopolies. We know that, over the long run, monopolists tend to raise prices, reduce choice and stifle innovation.
But are monopolies so bad that we might want to tolerate a little price-fixing by customers or suppliers in order to break them?
Could a little anti-competitive behavior actually be pro-competitive?
That is what five leading book publishers are arguing in explaining why they simultaneously accepted an offer from Apple, just before the release of the iPad, to change the way e-books are priced and distributed. Their actions moved the industry from a “wholesale” model, in which they sold e-books to retailers and let them set the retail price, to an “agency model,” in which the publishers set the retail price and pay the retailers a fixed commission on every sale. In the process, they managed to break up Amazon’s e-book monopoly and raise the price of online books by 30 to 40 percent.
Now you might ask at this point why breaking up a monopoly would raise prices rather than lower them.
The answer has to do with how Amazon went about building its e-book monopoly in the first place — namely, by setting a price that was lower than what Amazon was paying publishers for the book. What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.
So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?