Agency pricing and the vigilante

So, many of you have heard that the DOJ is rattling its sabers at the original Agency 5 and Apple, claiming that they colluded in creating the Agency Model of pricing, a pricing scheme for ebooks that allowed publishers to set prices among vendors without the possibility of discounting.

There have been a number of responses from various sources, but most of the apologists for agency pricing say the same thing. Scott Turow of the Author’s Guild response is pretty standard, as he explains why agency pricing was necessary:

Two years after it introduced the Kindle, Amazon continued to take losses on a deep list of e-book titles, undercutting hardcover sales of the most popular frontlist titles at its brick and mortar competitors.  Those losses paid huge dividends.  By the end of 2009, Amazon held an estimated 90% of the rapidly growing e-book market. Traditional bookstores were shutting down or scaling back. Borders was on its knees. Barnes & Noble had gamely just begun selling its Nook, but it lacked the capital to absorb e-book losses for long.

So, the argument goes, agency pricing was necessary because Amazon was being anticompetitive in the first place. Amazon was engaged in predatory pricing (which is a claim of monopolization, or perhaps in Amazon’s case, attempted monopolization). Predatory pricing is anticompetitive, of course: it raises the barriers to entry to a market, and reduces the number of competitors out there. (It is also hard to distinguish between a highly competitive market in which firms slash prices in order to compete with one another. This doesn’t mean predatory pricing is okay, or that Amazon wasn’t engaged in predatory pricing–but it does mean that it’s not an easy call to make.)

But assuming that Amazon’s pricing was predatory (and you could make good arguments on either side), what Turow says is still not an answer.

Self-defense is a justification for murder and assault. “I had to hit him; he was going to shoot me” works. If you are in imminent danger of death or bodily injury, saying that you must wait for the authorities to come rings rather hollow. But try these on for size: “I had to steal his car; he was going to take my wallet.” Or: “I had to engage in insider trading; she was embezzling funds and the stock price was about to go down.” Uh, no.

Those are not justifications that get you off the hook for your wrongful act. If someone is doing something wrong, and the harm you suffer is purely economic, you can recover for that harm. If it is so patently clear that Amazon was engaged in the attempted monopolization act of predatory pricing, sue them and recover treble damages under the Sherman Act. (If it is not so clear that you’d win, well…that just means that your justification sounds a little thin.)

More importantly, like someone who engages in insider trading, the victim of the harm is not the person who supposedly done you wrong, but the consumer. In this case, agency pricing actually made Amazon a ton of money–and cost readers in terms of access to books and higher prices. Casting agency pricing as an act of defiant vigilantism is all well and good in terms of rhetoric, but most of the things that vigilantes do are illegal.

10 thoughts on “Agency pricing and the vigilante

  1. I’ve been a member of the AG for quite a while. I’ve become convinced they don’t see what MY interests as a writer are. This most recent letter from Turow is making me question my membership dues.

    The AG seems to have forgotten that what’s in the best interest of a publisher is not necessarily in the best interest of an author. Turow’s letter read to me like a “Protect The Publisher” screed when, in fact, current Big 6 practices are actively hurting authors. Where’s the AG’s protest over rotten royalty rates and royalty statements that aren’t anywhere near in line with what authors know is selling electronically.

    And yeah, the “they HAD to cheat” just pisses me off as a reader and an author. No they didn’t.

  2. Trying to break Amazon’s monopoly is a weak post rationalization. An excuse for putting up prices because publishers are scared of modern technology, they thought that the book was the last bastion of tradition, and they were wrong. Sad really.

    On a different note, please would you ask Mr Milan to review

  3. Agh, I pressed submit by accident. I was saying, can you ask Mr Milan to review unravelled. I just read his other reviews and they’re very amusing.

  4. Ha! I am trying to get Mr. Milan to review things, but sadly, now that he is gainfully employed, he insists on doing things like going to work and stuff.

    I shake my fist at him, but there’s only so much nagging that can be done!

  5. Ah, that annoying work thing. It does get in the way of fun.

    I guess we’ll let him off. 😉

  6. Of course, if he publishers really wanted to break Amazon, they could have put books out DRM-free. They could also have taken a more reasonable approach – set the price as they do with paper books, but continue to allow incentive/loyalty programs, coupons and sales (as they do with paper books). Why Turow would even make this argument baffles me. Even in cases where the right self defence actually applies (serious physical harm or death), the defence would not be upheld if the action taken is not reasonalbe in the circumstances (at least that is how the law is applied in Canada). Do you think that the publishers will settle this, or is it likely to proceed? From my lawyer perspective, I’d like to see how it plays out in court, but from a reader peerspective, I’d like to see the end of agency pricing ASAP.

  7. I just wanted to say thank you for this post (and many others like it) because it often perfectly articulates what I want to say when I’m trying to explain it. I can’t say the number of times I’ve linked other people to your articles here.

    I’ve always felt it was wrong to use the Amazon-will-equal-a-monopoly-without-Agency-pricing defense but didn’t think of this wonderful analogy.

  8. I agree with all you said Courtney but I’d also add that it isn’t so cut and dried to suggest (as Mr. Turow seems to have) that Borders failed simply because ebooks were being sold so cheaply by Amazon. There were a lot of other reasons, only some of which had to do with the adoption of ebook technology and which all mostly boiled down to bad management (at least as I understand it).

    DA Jane had an interesting post a while back positing that the introduction of Agency pricing helped B&N compete with Amazon as it levelled the playing field while they were developing their Nook, but I suppose, they could have started developing the Nook earlier if they wanted to. It seems to me, the main reason Amazon was doing so well was because they got their first – they had the Kindle at a reasonable-ish price and marketed it aggressively. As much as it may or may not have also been involved in predatory practices, their strategy seems to me to be basically pretty clever business. I’m not an expert, but from where I stand, it seems like everyone else was left in their dust and struggled to catch up.

    I’ll be very happy to see the end of Agency pricing and a return to discount coupons and reward programmes for Agency ebooks. I hope that day comes soon!

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