Electronic book prices set by Apple, Inc. and Amazon.com, the leading eBook sellers, hurt smaller competitors and are unfair to consumers, says Connecticut Attorney General Richard Blumenthal in a letter he sent this week to the two companies.
The letters are a tool in Blumenthal's just-launched investigation of potentially anti-competitive agreements the electronic media giants reached earlier this year with the country's five largest book publishers. Those deals center on an "agency model" that gives publishers control over the minimum price consumers pay for eBooks. They also ensure that Apple and Amazon will both receive better prices for eBooks than their competitors.
At the heart of the investigation is a controversial requirement by Apple and Amazon that in exchange for their agreeing to the publishers' higher pricing model, the latter must guarantee not to permit any competitors to sell eBooks at lower prices. Such price guarantees, also referred to as "most favored nation" clauses, are "not per se legal," according to the letter.
"I am concerned that your acceptance of the agency pricing model ... has already resulted in achieving or maintaining uniform price for e-books, to the ultimate detriment of the consumer," Blumenthal, a candidate for the U.S. Senate, said in his letter.
The current prices - $12.99 to $14.99 for most fiction and non-fiction eBooks -- are up to $5 higher than the $9.99 threshold Amazon had set for its Kindle offerings prior to the iPad's arrival last April. Amazon fought having to adopt the agency model, but after some publishers threatened to withhold their titles from the online seller in favor of Apple's readiness to set higher prices, it succumbed to the pressure. Barnes & Noble and Borders were also found to offer eBooks at identical minimum prices.
Publishers that have reached such agreements with Apple and Amazon include Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin.
Apple declined to comment on the investigation. Amazon did not respond to a request seeking the company's response to the allegations.
What's your investing game plan?View Course »