View Full Version : the FTC's definition of price fixing


basschick
04-01-2010, 03:58 AM
it does appear that this applies to the publishers as it does not appear that price fixing requires secrecy to be illegal:

A plain agreement among competitors to fix prices is almost always illegal, whether prices are fixed at a minimum, maximum, or within some range. Illegal price fixing occurs whenever two or more competitors agree to take actions that have the effect of raising, lowering or stabilizing the price of any product or service without any legitimate justification. Price-fixing schemes are often worked out in secret and can be hard to uncover, but an agreement can be discovered from "circumstantial" evidence. For example, if direct competitors have a pattern of unexplained identical contract terms or price behavior together with other factors (such as the lack of legitimate business explanation), unlawful price fixing may be the reason. Invitations to coordinate prices also can raise concerns, as when one competitor announces publicly that it is willing to end a price war if its rival is willing to do the same, and the terms are so specific that competitors may view this as an offer to set prices jointly.

i doubt that a legitimate justification would be "because we want to make more money" :rolleyes:

the entire page has more about this:
http://www.ftc.gov/bc/antitrust/price_fixing.shtm

ShellShock
04-01-2010, 07:51 AM
Is it still price fixing when the competitors are not selling the same product? Is a publisher who sells Stephen King books selling the same product as a publisher of John Grisham? Because each author's work is generally only provided by one publisher, I guess the publishers would argue that they are not selling the same product as their competitors, therefore no price fixing is involved.

In the UK we used to have a Net Book Agreement which fixed the price of books in shops (any bookseller who sold a book at less than the agreed price would no longer be supplied by the publisher in question); this was deemed illegal in the 1990s because it was anti-competitive, and I would imagine the same would apply in the UK to any "agency" agreement such as now been set up in the USA.

HarryT
04-01-2010, 07:53 AM
Moved to the "general discussion" forum. This is more "commentary" than "news".

GhostHawk
04-01-2010, 09:00 AM
Shellshock, You don't think Car dealers do it? They sell different products.
I used to know where the 3 car dealers would meet once a week. Someone always had a ford they took in on trade that they'd rather trade for a chevy, etc. Considering how long they would sit and talk they were doing more than swapping brands.

And to answer your question, yes, same product, different flavor.
They are selling books, the "flavor" changes from author to author.

pendragginp
04-01-2010, 09:06 AM
Very interesting. :chinscratch:

rhadin
04-01-2010, 09:38 AM
The Agency Model is not price fixing no matter how you cut it. There is no agreement on price between the publishers; at best there is agreement on a distribution model, which is no different than what existed before the agency model.

As Shellshock notes, the products aren't the same -- they aren't interchangeable.

Each publisher is free to set its own price for a book. John Grisham could be sold at $16.99 for the hardcover and Stephen King at $79.99. More importantly, look at pricing for paperbacks. Nearly all mass market paperbacks have a similar retail list price yet that is not price fixing.

It is wishful thinking that the agency model is illegal, but it isn't. The U.S. Supreme Court has held that manufacturers can set minimum resale prices without violating antitrust laws as long as they didn't conspire on the prices. Ever notice how little Sony products are discounted?

Kali Yuga
04-01-2010, 10:05 AM
The Agency Model is not price fixing no matter how you cut it. There is no agreement on price between the publishers; at best there is agreement on a distribution model, which is no different than what existed before the agency model.
+1

Both the intent and letter of laws relating to price fixing, as far as I can tell, relates to anti-competitive behavior.

The publishers are not collaborating in secret to set their prices. The retailers are not collaborating to set prices, or to develop strategies with the specific intent of elevating prices. Everything is out in the open, nothing is secret, everyone is competing against one another. The FTC, the AG, the EU regulators, no one has announced any investigations or anti-trust concerns yet.

Moreover, no one squealed about "price fixing" when Apple and other services like Amazon or eMusic set flat rates for digital audio downloads. Also, there are numerous instances of, for example, a government agency specifically setting prices for regulated products, e.g. the CPUC regulates just about every single price PSEG can charge, at every step of the power generation and transmission process.

This type of pricing arrangement is not common, but it isn't anti-competitive and therefore highly unlikely to be illegal.

DawnFalcon
04-01-2010, 11:44 AM
The Agency Model is not price fixing no matter how you cut it.

Quite true, it's a cartel.

It is wishful thinking that the agency model is illegal, but it isn't.

Heh. Well, I'm not surprised that you hold that opinion... (Also, there are places in the world outside the USA)


Kali Yuga - At least in the EU, the anti-competition investigators cannot do anything unless they are specifically asked over the legality of a model, or it is applied. They have no powers to pre-empt a business model. (Which is good, if you think about it)

ShellShock
04-01-2010, 01:05 PM
This type of pricing arrangement is not common, but it isn't anti-competitive and therefore highly unlikely to be illegal.

To further clarify, my interpretation is that this type of pricing arrangement is not price fixing as defined in USA law. But, a similar arrangement in the UK regarding paper books was deemed to be illegal because it was "against the public interest" (which we may choose to view as meaning it was anti-competitive). Therefore I think the new, restrictive agreement in the USA, would not succeed here in the UK. There certainly seem to be grounds for consumer groups in the USA to oppose this agreement, based on our experience in the UK.

DawnFalcon
04-01-2010, 01:39 PM
ShellShock - And many of those sites sell to the UK, hence it's now an issue for UK competition authorities.

Elfwreck
04-01-2010, 03:06 PM
The Agency Model is not price fixing no matter how you cut it. There is no agreement on price between the publishers; at best there is agreement on a distribution model, which is no different than what existed before the agency model.

There is agreement between distributors, locking each other into "no selling lower than us" contracts through the publishers. And it's possible that there are agreements between publishers, establishing that $9.99 is "too low" for ebooks and agreeing not to allow their current bestsellers to be sold at that price.

Each publisher is free to set its own price for a book. John Grisham could be sold at $16.99 for the hardcover and Stephen King at $79.99.

They are not free to set their own prices for ebooks, by the current Apple contracts. Saying, "they could raise/lower the price of one of their other products to be able to change the price of this one" isn't the same.

It is wishful thinking that the agency model is illegal, but it isn't. The U.S. Supreme Court has held that manufacturers can set minimum resale prices without violating antitrust laws as long as they didn't conspire on the prices. Ever notice how little Sony products are discounted?

I don't think the agency model is illegal, but it's possible that the contracts requiring that competitors aren't allowed to sell at a lower price are illegal.

I don't know if these contracts & sales models count as price fixing, but I'd certainly like some serious attention paid to it. The *result* is that customers will be unable to find many ebooks outside of the industry-standard price ranges, regardless of what stores would like to sell them for--and that certainly seems like price fixing.

Whether it is or not depends a lot on whether such things are measured by specific contract details or industry results.

6charlong
04-02-2010, 12:19 AM
+1

Both the intent and letter of laws relating to price fixing, as far as I can tell, relates to anti-competitive behavior.

The publishers are not collaborating in secret to set their prices. The retailers are not collaborating to set prices, or to develop strategies with the specific intent of elevating prices. Everything is out in the open, nothing is secret, everyone is competing against one another. The FTC, the AG, the EU regulators, no one has announced any investigations or anti-trust concerns yet.

Moreover, no one squealed about "price fixing" when Apple and other services like Amazon or eMusic set flat rates for digital audio downloads. Also, there are numerous instances of, for example, a government agency specifically setting prices for regulated products, e.g. the CPUC regulates just about every single price PSEG can charge, at every step of the power generation and transmission process.

This type of pricing arrangement is not common, but it isn't anti-competitive and therefore highly unlikely to be illegal.

Government only fixes prices in cases where they have granted a monopoly because monopolies are anti-competitive by definition. Without competition there is no free market--no market pressure of any sort. Thus in the case of a monopoly government intervention is necessary to preserve the free enterprise system. Publishers do not have a monopoly but when they get together and agree on a pricing scheme act like a monopoly and have broken the market as effectively as if they were a monopoly.

My local brick-and-mortar book store sells new releases at greatly discounted prices on the day they are released. As I understand this new Agency Pricing scheme, book stores like Fictionwise and Kobo are not allowed to do this. How can that not be seen as breaking the free exercise of the market?

advocate2
04-02-2010, 01:23 AM
Perhaps my command of English is not what it once was. When a seller says to its distributors "You must sell at this price and nothing lower" it is fixing the price in an anti competitive manor. It is the antithesis of the free market philosophy.

What am I missing that ebooks can be priced above the price of paperbacks? Can it really be true that the marginal cost of an ebook is higher than the marginal cost to the publisher of a paperback?

When one sees valid speculation that sellers like FW will go out of business because they can not price compete, we have behavior which seeks to reduce competition. This entire stucture now adopted by the publishers can be viewed as a mechanism to reduce competition. What else would you propose to call the new system? Kindly, anyone, explain to me how the new pricing model does anything other than seek to reduce competition.

djloewen
04-02-2010, 01:51 AM
From what I can see, you guys (some of you anyway) have missed the point entirely. We're not comparing Stephen King to John Grisham. We're comparing Stephen King to Stephen King.

Let's say a publisher gives Book "A" to five distributors. If those distributors set their own prices and compete against each other, that's normal. If those distributors have a conference call and agree to artificially set the price for Book "A" at a uniform price and not compete with each other, it's price fixing, and it's in violation of antitrust law.

What's actually happening is dangerously similar to the second case. Rather than the distributors deciding it amongst themselves, it's the publisher that's fixing the price. In this example the distributor is fixing the price of a single product, Book "A", through every distributor. I am not a lawyer and don't fully understand the intricacies of antitrust law, but that sounds like something that should be illegal, for the same reason that it would be illegal if the distributors do it: it screws the consumers by robbing the system of its natural, competitive "free market" tendencies.

bevdeforges
04-02-2010, 06:04 AM
:book2:A long time ago, in the US, there were certain manufacturers who attempted to set the minimum prices for which their products could be sold by stores - in a manner extremely similar to what it seems the big five publishers are trying to do now. This went on for a while, but ultimately was struck down as an illegal restraint of trade. Then, they got into that "anything goes" era, where the gummint simply caved to any and all requests of Big Business. But, AFAIK they haven't gone back to those sorts of minimum pricing agreements, at least not for physical consumer goods. They are still illegal. So, there is hope.

But yesterday, after the Sony store finished their shut-down for the big repricing, I checked out some of the price differences. It seems like they are pegging the e-book prices to the retail prices of the currently available p-book editions. So, new releases are selling (in most cases) for some discount off the hard back price, whereas older editions already out in paperback are selling for some discount off the paperback list price. I can kind of live with that, since I normally wait for the paperback edition to come out anyhow.

The one big exception seems to be Penguin. All their books in e-format are selling for what looks to be the full retail price of the hard back - with no discount whatsoever. Too bad - I used to buy books for a big university library and at the time I really liked Penguin. But at $25 for an e-book, I doubt I'm going to be buying much of their stuff any more.

rhadin
04-02-2010, 09:40 AM
Perhaps my command of English is not what it once was. When a seller says to its distributors "You must sell at this price and nothing lower" it is fixing the price in an anti competitive manor. It is the antithesis of the free market philosophy.

What am I missing that ebooks can be priced above the price of paperbacks? Can it really be true that the marginal cost of an ebook is higher than the marginal cost to the publisher of a paperback?

The price fixing must be between the publishers. If several publishers got together and decided that all of their ebooks would sell for $16.99 -- none less and none more -- that would be grounds for a price fixing lawsuit.

For a publisher to tell a bookseller that the selling price must be $16.99 for all ebooks, that is not price fixing under U.S. law.

If several of the largest publishers (all is not necessary) tell all retailers that all ebooks must sell for $16.99, even if there is no direct evidence that the publishers sat around a table and came to this agreement, under U.S. law this could (not will, just might) be price fixing.

There are several problems with the price fixing idea under U.S. law.


Not all ebooks in a particular genre will have the same selling price.
Not all ebooks will have the same selling price.
No group of publishers has sat down to establish a minimum sales price (the 70-30 split in the agency model doesn't amount to a minimum price because it fluctuates on a per book basis).
Gasoline is gasoline, a TV is a TV, but 1 book is not the same as another book, consequently there is no identity of product, which is needed for price fixing -- the commodity must be unique, and not replaceable (i.e., no substitute), which means that ll books would have to be identical in the marketplace.
There are other problems, but this gives you the idea of the problems of price fixing in the U.S.

rhadin
04-02-2010, 09:47 AM
From what I can see, you guys (some of you anyway) have missed the point entirely. We're not comparing Stephen King to John Grisham. We're comparing Stephen King to Stephen King.

Let's say a publisher gives Book "A" to five distributors. If those distributors set their own prices and compete against each other, that's normal. If those distributors have a conference call and agree to artificially set the price for Book "A" at a uniform price and not compete with each other, it's price fixing, and it's in violation of antitrust law.

What's actually happening is dangerously similar to the second case. Rather than the distributors deciding it amongst themselves, it's the publisher that's fixing the price. In this example the distributor is fixing the price of a single product, Book "A", through every distributor. I am not a lawyer and don't fully understand the intricacies of antitrust law, but that sounds like something that should be illegal, for the same reason that it would be illegal if the distributors do it: it screws the consumers by robbing the system of its natural, competitive "free market" tendencies.

The problem is that the publishers have no obligation to sell the product to the retailer. Publishers could just as easily say to the consumer you must buy directly from us from our corporate website. Think Apple. Because that is legal, the agency model is also legal.

The U.S. Supreme Court has already held that manufacturers can set minimum resale prices without violating antitrust laws. Sony and Apple and do it all the time.

rhadin
04-02-2010, 09:49 AM
:book2:A long time ago, in the US, there were certain manufacturers who attempted to set the minimum prices for which their products could be sold by stores - in a manner extremely similar to what it seems the big five publishers are trying to do now. This went on for a while, but ultimately was struck down as an illegal restraint of trade. Then, they got into that "anything goes" era, where the gummint simply caved to any and all requests of Big Business. But, AFAIK they haven't gone back to those sorts of minimum pricing agreements, at least not for physical consumer goods. They are still illegal. So, there is hope.

Sorry, but within the past few years the Bush Supreme Court reinvigorated those minimum reselling rights.