Competition Issues with regard to E-Books

(Excerpt) From the Paper presented at the 13th International Conference of International Society for the Study of European Ideas, http://issei2012.haifa.ac.il/



Ioannis Iglezakis
Assistant Professor
Faculty of Law, Aristotle University of Thessaloniki


Abstract
In this paper, the competition issues are dealt with which may arise from the proliferation of e-books. In the nascent market for e-books new distribution models are evolving that give publishers more freedom, but provoke concern, as they may not be in line with competition rules. Similar concerns arise from the fact that technical restrictions are put in place by some developers regarding the format of e-books, which fragment the relevant market.


Keywords: e-books, competition, e-book pricing, e-book publishing, agency distribution agreements, price fixing, abuse of dominant position


Introduction

The advent of e-book publishing revolutionized the literary publishing world, but also brought about significant changes in the distribution and pricing models, which may not be in conformity with competition law and thus, are under scrutiny by competition authorities. Moreover, the existence of multiple e-book formats may hinder competition and could be seen as an abuse of dominant market position; this is due to the fact that they raise platform compatibility issues and are tied to proprietary reader technology.

An electronic book, shortly e-book, is basically a digital file that contains text and icons, which is distributed over the Internet, but can be read offline on a computer and other electronic devices, mainly dedicated e-book readers. E-books are the electronic equivalent of print versions, but may also be originally produced in digital format, i.e., ‘born digital’. Their advantage over traditional print books is that they become more accessible and easily traceable. They are also less costly, while modern technology provides the ability of a conceivable number of e-books and journals to be stored on a device.

Ε-books were introduced in the early 1990’s, but they did not make any success until new devices were developed that provided ease of use. Notably, the Amazon’s Kindle, Sony’s PRS-500 and Barnes & Noble Nook were the most successful devices, while a certain breakthrough came with the advent of Apple iPad and Apple’s iBookstore. As of 2010, the sale of e-books began to grow exponentially and on May 19, 2011 Amazon announced that it has sold more e-books than hardcover and paperback print books combined. This development is indicative of the effect that digitization has on the publishing industry, which undergoes a transformation similar to those already taken place with regard to the music and entertainment industry. E-book publishing becomes a trend of future advance and the new landscape of digital publishing has the potential to change not only the way people assimilate information, but also the way of reading, whether for work or for pleasure.

In more particular, in January 2010 Apple announced that it had agreements with five of the six largest publishing houses to provide e-book content for the iPad, who were based on an agency model that gives publishers the ability to set e-book prices, while Apple receives a commission of 30 percent from each e-book sale through Apple’s online bookstore. This implies that publishers have the ability to set e-book prices by their own, while Apple become a distribution agent for sales to consumers. Under this agreement, e-book prices are tied to the list prices of comparable print editions and thus, e-book prices would vary in a range from $ 12.99 to $ 14.99 for most general fiction and nonfiction titles. Publishers of e-books are also required to ensure that the prices of e-book offered through the iBookstore are not higher than the prices at which they are offered from other e-book distributors (so-called ‘most favored nation’ clause).

Amazon, on the other hand, has set a low price for new releases of e-books ($9,99) in order to give a boost to their sales, but that model was opposed by publishers, which worried that these discounts could lead to cannibalization of hardcover sales and lead to expectations of consumers of low prices for all books. Publishers preferred the agency model suggested by Apple, as it gave them higher prices than those offered by Amazon. Consequently, Amazon was forced to enter into negotiations with book publishers and also accept the agency model.

Conclusion

New exploitation and distribution models are introduced in the market for digital worksthat might be more suitable for the proliferation of new digital assets such as e-books. However, the changes that take place are not always compatible with antitrust legislation and particularly, clauses in distribution agreements that limit the freedom of distributors and limit competition might be found to infringe anti-trust legislation. In addition, the tying of e-book format to specific hardware might also be regarded as infringing in case certain requirements are fulfilled.