Apple Sued Over E-Book Price Fixing

Hagens Berman, consumer rights class-action law firm, in today’s press release (PDF) about suing Apple for e-book price fixing:

As a result of the pricing conspiracy, prices of e-books have exploded, jumping as much as 50 percent. When an e-book version of a best-seller costs close to – or even more than – its hard-copy counterpart, it doesn’t take a forensic economist to see that this is evidence of market manipulation.

I don’t think that logic, though seemingly sound, can be easily applied to e-books, in particular the sales, distribution, and account management aspects of e-books.

It isn’t too difficult to figure out what costs are associated with making a physical book, precisely because it is a physical artifact. You have paper, printing, binding, the hard cover, the storage cost at a central hub or retail store, the distribution cost, etc.

E-books on the other hand are just ones and zeros, packaged in a digital wrapper or some sorts, like PDF. Right? Well, not really. Just like real books, e-books require typesetting, printing say into PDF, a DRM wrapper. Just like for paper books these steps require expensive computers and software applications. Many of them. Then there’s the online store. Different from taking an order and shipping out a physical book, an e-book requires digital distribution. You need storage servers, application servers, secure account servers, and like many more servers to make sure you get the e-book you ordered into your device. There are probably many more things going on with e-book sales, distribution and account management.

This e-book thing is new, so infrastructure development costs are not negligible. Add to these costs of doing business patent trolls like Nathan Myhrvold’s Intellectual Ventures and you realize it does take a forensic economist to figure out all of these costs. In my opinion, an e-book that is more expensive than the physical counterpart isn’t necessarily evidence of market manipulation.

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