Apple Versus Amazon: A Tale of Two Conspiracies

The European Commission announced an agressive antitrust investigation into Apple's e-book policies, leaving many to wonder the obvious: What about Amazon?

This article is from the archive of our partner .

The European Commission announced an agressive antitrust investigation into Apple's e-book policies, leaving many to wonder the obvious: What about Amazon? The Apple probe also targets five top publishing houses -- Hachette Livre, Harper Collins, Simon & Schuster, Penguin and Macmillan -- all of whom, the Commission claims "have, possibly with the help of Apple, engaged in anti-competitive practices affecting the sale of e-books … in breach of EU antitrust rules." As the Apple critics cheer, Amazon CEO Jeff Bezos must be smiling and touching his fingertips in true Montgomery Burns fashion.

Those that've been following Apple's late entrance into the e-book market aren't too surprised about the antitrust investigation in Europe. Just three months ago, the Hagens Berman litigation group filed a very similar, antitrust-related class action lawsuit against Apple in the United States District Court of Northern California. The suit alleges that Apple and the same five publishers named in the European investigation conspired to create a so-called "agency model" arrangement that allowed the publishers to set the prices of the e-books in Apple's iBookstore leading to industry-wide inflation. In comparing that lawsuit to the latest investigation, Fortune's Philip Elmer-Dewitt highlights this section of the plaintiff's complaint that explains how Apple and the publishers designed the structure in order to edge out Amazon, which had been in the e-book business two years longer than Apple:

Given Amazon's first-mover advantage and ever growing installed user base, publishers knew that no single publisher could slow down Amazon and unilaterally force an increase in eBook retail prices. If one publisher acted alone to try and raise prices for its titles, that publisher would risk immediately losing a substantial (and growing) volume of sales.

Not wanting to risk a significant loss of sales in the fastest growing market (eBook sales), the publishers named as defendants ("Publisher Defendants") solved this problem through coordinating between themselves (and Apple) to force Amazon to abandon its pro-consumer pricing.

Indeed, there is evidence that Apple succeeded in driving up prices. Ars Technica's Matthew Laser pointed out at the time, "New best selling e-books have in many cases gone up to $12 or $15 per eBook, a boost of as much as 50 percent from the $9.99 price Amazon had been pushing."

All this talk about an Apple-publisher conspiracy only serves to highlight Amazon's own monopolistic tendencies. Not only does Amazon continue to dominate the e-book market; it now has international regulators cracking down on competitors. What a great arrangement! But seriously, Amazon is poised to control over half of the book publishing business -- not just e-books but for all formats -- by 2012. As the company expands the portfolio of authors for its own imprint and begins to become a major force in the tablet hardware market, free market advocates are starting to get worried about what Jeff Bezos could do with all that power. Wired's Tim Carmody floated a couple of suggestions after Amazon announced its newest, impossibly cheap Kindle lineup:

If you sell e-books, you could see [the cheap Kindles] as good news. The addressable market just got a lot bigger. But it also means the market is increasingly dominated by just one company. Nook, iBooks and even retail bookstores and Google Books’ toes-in-the-water efforts were all brakes on Amazon’s ambitions. Now the brake lines have been cut. …

Now, Amazon could shut Netflix out of its Appstore, keeping it off the Fire to steer customers towards Amazon Prime. That’s what Apple does when another company tries to offer an identical/duplicate service. It’s what Amazon would do if Netflix tried to sell books.

Carmody's anxiety about a future Amazon conspiracy is speculative, of course, but the Apple comparison is particularly timely.

So far, Amazon is staying quiet about Apple's antitrust troubles, but we doubt they're upset about being cast as the victim. There is some damning evidence against Apple, including the telling and now well-known exchange in which Steve Jobs tacitly admitted to targeting Amazon with the iBookstore model to The Wall Street Journal's Walt Mossberg. Nevertheless, even if its caught cheating in the e-book game, Apple's still a more valuable company than Amazon based on its humungous market cap, and Steve Jobs was still the more celebrated CEO. Coincidentally, on the same day that news broke about the Apple's European antitrust investigation, Walter Isaacson's biography Steve Jobs became the best-selling book of 2011—on Amazon.

This article is from the archive of our partner The Wire.