Amazon Sued Over Alleged Anticompetitive Practices in Selling E-Books

The talk of legal problems for Big Tech is just beginning as state governments file antitrust lawsuits seeking to break up giants like Facebook and Google. While government is one front in these companies' legal battles, another battle will be waged in court as they face private antitrust lawsuits seeking damages. Amazon has recently been sued in an antitrust lawsuit alleging that the company made anticompetitive agreements with the nation's top publishers to fix the price of e-books sold on its platform. This allegedly inflated the price of books by as much as 30% for consumers.

The Lawsuit Claims That Amazon Depresses Competition By Guaranteeing the Most Favorable Price for Itself

Consumers have filed a class action lawsuit in the Southern District of New York. Here, the consumers were buying the books from the five publishers online in electronic form. Here, the alleged conspiracy is that the publishers and Amazon agreed that the publishers would charge higher prices when they sold on platforms other than Amazon. The plaintiffs bought the books elsewhere and claim that they paid inflated prices.

This is hardly the first lawsuit to affect the publishing industry. There have been numerous allegations that the large publishers have conspired to raise their prices. This has been the frequent subject of investigations and other lawsuits. In other words, the Big Five publishers have a track record of this type. In 2012, a federal court found that they had conspired with Apple to raise the price of e-books sold over the Apple platform. At the time, the publishers were the subject of a consent order that allowed agents such as Apple and Amazon to offer their own discounts. In addition, the publishers were ordered to stop colluding with each other. As a result, prices of e-books fell dramatically.

However, the consent decree was only effective for two years. After the terms expired, e-book prices immediately began to increase. Book publishers began to narrow the band of their prices, which resulted in an overall price hike for their books. There was more continuity in e-book prices among the publishers.

The plaintiffs allege that, once the terms of the consent order expired, that it was back to business as usual for the publishers. E-book prices began to converge among the Big Five yet again. When the House investigated Amazon's competitive practices, they found that the e-book publishers has substantially picked up with contract clauses with Amazon that effectively raised the price elsewhere.

Amazon Allegedly Drives Up the Costs of Books In General

The reason why Amazon is being sued here is that the web giant drives up the costs of publishers doing business. Amazon charges a hefty commission to sell books on its platform. At the same time, it uses the publishing business in conjunction with its other advertising businesses to make even more money. Here, the Big Five have allegedly agreed not to sell their books at a lower price on platforms other than Amazon. This eliminates an important source of price competition that would keep costs lower for consumers.

According to Congress, Amazon has a history of using most favored nation clauses to prevent its sellers from agreeing with any other platform that would undercut it in price. Amazon must be offered the same terms as the publishers would offer to any other platform, including the best possible price. Thus, Amazon's competitors have little ability to grow their business by undercutting the giant retailer on price. Other platforms have to find some way other than price to beat Amazon to win business.

The 2011 case against the publishers and Apple resulted in a settlement of $400 million. The publishers had to pay millions more. Here, the lawsuit is against Amazon, but the web giant may ultimately need to pay even more than what Apple paid given the huge growth of e-books since 2011.

This is likely just the start of antitrust headaches for Amazon. If this lawsuit is successful, count on multiple plaintiffs bringing similar antitrust cases against Amazon, since the business practices at issue in the lawsuit seem to be engrained across the company. In addition, there may be some legal pressure from the Department of Justice as it could investigate whether Amazon has simply grown too big. Amazon faces a rough few years ahead as it weathers the multiple governmental investigations and lawsuits that it faces. Big Tech may be facing a legal reckoning.

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