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Apple reluctant to settle e-book pricing probe as antitrust specter looms

post #1 of 44
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Three of the five international publishing houses involved in U.S. and E.U. investigations over e-book price fixing are reportedly ready to settle, but Apple along with the two other content providers don't agree to the terms and remain holdouts.

Citing people familiar with the matter, The Wall Street Journal reported on Wednesday that Apple is not willing to agree to settlement terms set forth by U.S. and European oversight authorities, which is pushing the Department of Justice closer to filing an antitrust suit against the iPad maker.

The sources say that the proposed settlement could see the shredding of current "agency model" contracts Apple has with Simon & Schuster, Hachette, Penguin, Macmillan and HarperCollins, to be replaced by the wholesale model used by competitor Amazon.

The "agency model" allows publishers to set e-book prices under so-called "most favored nations" agreements that ban the distributors from offering their wares to competitors for lower prices.

By allowing Amazon to revert to its original wholesale model, publishers would no longer be in control as they would sell e-book content to retailers that would in turn set their own prices. This allowed Amazon to sell content at a discounted rate in order to drum up business.

Publishers are afraid that by reverting to the "wholesale model," Amazon will begin selling e-books at below-cost prices which would put pressure on competing retailers. Apple, Barnes & Noble and other outlets would be forced to lower their prices to stay competitive or exit the market altogether.

Wednesday's rumors fly in the face of reports that Apple and the DoJ were nearing a deal not more than a week ago.

Apple and five major book publishers are suspected of colluding over inflated e-book pricing through the company's iBookstore that allegedly helped take some market share away from industry leader Amazon. Investigations are currently underway in the U.S. by the DoJ, while the European Commssion is handling the issue across the pond.

Europe's competition commissioner, Joaquin Almunia, has been working with the DoJ to investigate the matter.

"The companies involved know very well under which conditions we are ready to settle," Almunia said. "If our conditions cannot be met in a satisfactory way, we will continue our investigation."

Some publishers have reportedly offered to compromise and do away with the "most favored nation" agreement with Apple in exchange for retaining the "agency model." The DoJ has said that the solution is not enough and posits that the publishers were only able to reach the model as a result of collusion, according to sources.

People familiar with the case have said that the Justice Department has proposed a "cooling-off" period in which publishers would not be allowed to re-enter the "agency model" in an attempt to dispel any possibility of future collusion. The length of the "cooling-off" period is supposedly one of the topics being discussed at the settlement talks.

[ View article on AppleInsider ]
post #2 of 44
I think Apple is going to have to give up on the whole idea that you can't sell an e-book for less on some other store. If they want to make 30%, fine, then the publishers can set the price at the wholesale level however they see fit. It is not like the iOS app store where you can only get it from one source. Books are different. You don't have to make any API call in a book . You just read it. That is why I think Apple came up with the iBooks Author format. That way you do need API calls and Apple can control it beginning to end.

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post #3 of 44
Typical Apple sort of behavior. When a company gets bigger than many governments, ISTM that they think that they are entitled do anything that they want to do.

Apple is likely to fight this in court.
post #4 of 44
Quote:
Originally Posted by mstone View Post

I think Apple is going to have to give up on the whole idea that you can't sell an e-book for less on some other store.

That's the first thing I thought of... And I hadn't considered it before this article.

Quote:
That is why I think Apple came up with the iBooks Author format. That way you do need API calls and Apple can control it beginning to end.

I think it was less sinister than that. I think the primary reason was because there werre no options for making good interactive books that were not apps.

EPUB simply wasn't up to the task but it's a great foundation. If they wanted it to be locked down they could have made the format much harder to copy.

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post #5 of 44
Quote:
Originally Posted by SolipsismX View Post

That's the first thing I thought of... And I hadn't considered it before this article.


I think it was less sinister than that. I think the primary reason was because there werre no options for making good interactive books that were not apps.

EPUB simply wasn't up to the task but it's a great foundation. If they wanted it to be locked down they could have made the format much harder to copy.

But they could have used HTML5 and then added their own DRM but instead they used a format where you cannot read or edit the code which is unnecessarily proprietary and almost impossible to copy as it is completely binary executable.

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post #6 of 44
Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.
post #7 of 44
Oh how I loathe the current DOJ. The idea that agency pricing is some nasty tool of evil, giant book publishers is total, utter bosh.

Small publishers and self-publishing authors are so delighted by the agency model, that they insisted that Smashwords change its contract to the agency model. Agency pricing allows an author, no matter how unimportant, to hold special sales and test lower prices, knowing that giant retailers will have to change prices on their insistence. Without that those authors would simply be ignored. Amazon would set the price to whatever it wanted and there it would remain.

Look at the facts. Before agency pricing, Amazon had some 90% of the ebook market and, by selling ebook, below cost, was well on the way to destroying all its competition. Now its market share is only about 70%. The reason? Agency pricing meant that Amazon couldn't use its deep pockets to destroy its competitors. We now have a far healthier and more competitive market. The DOJ wants to destroy that.

My own hunch is that Amazon is behind this move. Money, perhaps untraceable money, has gone into certain pockets to bring this about. Never forget that our current administration is simply corrupt Chicago machine politics at the national level. That's where Obama spent virtually his entire political career. Not a single crooked Chicago politician was ever inconvenienced in the slightest by Obama in his entire career.
post #8 of 44
I don't see why the issue with the agency model. If that is how Apple wants to play they should be allowed to do so.

The only issue the DOJ should care about is Apple forcing their terms on other stores. And the favored nation issue. Publishers should be free to take whatever terms they wish.

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post #9 of 44
Apple should stick to their guns, don't let those bozo's in Washington dictate how companies should sell their products.

Don't these clowns realise that they will be effectively creating a monopoly for whoever has the deepest pockets and can afford to discount the "wholesale" model the longest.

Typical politicians they can't see past their current term in office.
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post #10 of 44
Quote:
Originally Posted by hill60 View Post

Don't these clowns realise that they will be effectively creating a monopoly for whoever has the deepest pockets and can afford to discount the "wholesale" model the longest.

That can be against the law if the intent is to create a monopoly or harm competitors. Many countries and states outlaw predatory pricing.

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post #11 of 44
Quote:
Originally Posted by drobforever View Post

Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.

My guess is that only a tiny fraction of Apple's profits are derived from eBooks. And nearly all of Apple's stock is owned by institutions, who will realize the small impact.

Don't Panic.
post #12 of 44
Quote:
Originally Posted by mstone View Post

That can be against the law if the intent is to create a monopoly or harm competitors. Many countries and states outlaw predatory pricing.

In this case they are condoning it i.e. what Amazon was actively doing before Apple came along to shake up the industry.
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post #13 of 44
Quote:
Apple, Barnes & Noble and other outlets would be forced to lower their prices to stay competitive or exit the market altogether

Apple could buy Amazon. Apple is owning their markets. Now Barnes and Noble and other retailers will be screwed, so I'd expect Barnes and Noble to strike an alliance with Apple.
post #14 of 44
Quote:
Originally Posted by drobforever View Post

Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.

Get serious. Apple's ebook business covers their cost of distribution. This is nothing to Apple who can set prices below Amazon if it wanted to do so.

Believe it or not, Apple wants a healthy channel instead of crushing the channel so that eBooks provide a profit to publishers who then in turn open up their entire catalogue to the iOS environment knowing it's worth while investment.

Amazon cannot match Apple's volume and they know it. They will wish they had not opened up this can of worms. Apple can under cut them and strike an advertising relationship with the publishers who then recoup their losses and effectively cut out Amazon all together.

Google receives the 80%+ of it's mobile advertising revenue off of iOS, not Android.

The revenue maker is Apple.
post #15 of 44
I'd prefer if content was the same price everywhere until the entire industry can standardise around a single eBook format. I'm not interested in having half my digital media in Kindle and half in iBooks.

Though the price does need to come down significantly, especially if the publishers are going to fork us over with DRM. In many cases it is still possible to order a single dead tree book on-line and have it shipped internationally for less than the cost of the same book on kindle or iBooks.

Books are not impulse purchases for me so "delivered in 60 sixty seconds" pales against the ability to loan, resell, buy second-hand or display a printed book on a book shelf.
post #16 of 44
Im glad Im not an author! There must be some middle ground between conspiracies to inflate prices and selling at a loss to drive competitors out of the market.
post #17 of 44
Quote:
Originally Posted by mstone View Post

But they could have used HTML5 and then added their own DRM but instead they used a format where you cannot read or edit the code which is unnecessarily proprietary and almost impossible to copy as it is completely binary executable.

EPUB3 has a fair amount of HTML5 in it. I haven't seen any DRM, just proprietary code, which is e pelted since they invented it. We've seen a lot of proprietary WebKit code that has become part of an open standards over the years. Will they do that with aspects of their iBooks Author formatting? Perhaps, but only if they think it betters their position in the market.

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post #18 of 44
Quote:
Originally Posted by drobforever View Post

Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.

Absolute nonsense. As an Apple shareholder, given my time horizon, I would view it as a terrific buying opportunity.

I hope Apple sticks to its guns.
post #19 of 44
Quote:
Originally Posted by I am a Zither Zather Zuzz View Post

Typical Apple sort of behavior. When a company gets bigger than many governments, ISTM that they think that they are entitled do anything that they want to do.

How are you coming up with the assertion that Apple is "bigger than many governments"? Especially the governments that are party to this investigation?

Exactly what metrics are you comparing? Or, as usual, are you simply throwing out bombastic statements without any foundation?

(Heads-up: If it's Apple's revenues to the governments' GDP, you would make no sense whatsoever.)
post #20 of 44
Don't understand the problem, lower prices, good for consumer. I am a consumer, good for me. This is a digital item, cost ZERO to reproduce so publishers will make the same money if you sell 100 eBooks for 3 dollars or 3 eBooks for 100 dollars. I would rather buy the eBook for 3 dollars.
post #21 of 44
Apple.. Settle and sell all ebooks for $0.99 until you drive everyone else out of business. Maybe then the DoJ will be happy.
post #22 of 44
Quote:
Originally Posted by NasserAE View Post

Apple.. Settle and sell all ebooks for $0.99 until you drive everyone else out of business. Maybe then the DoJ will be happy.

I like this idea. I'm for it. This is one of the few instances they actually COULD "make it up in volume".

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post #23 of 44
Quote:
Originally Posted by Hellacool View Post

Don't understand the problem, lower prices, good for consumer. I am a consumer, good for me. This is a digital item, cost ZERO to reproduce so publishers will make the same money if you sell 100 eBooks for 3 dollars or 3 eBooks for 100 dollars. I would rather buy the eBook for 3 dollars.

That is an interesting situation. Traditionally if a retailer moved a huge amount of product they were entitled to a better wholesale price. I think I remember that three was usually 5 levels of reseller pricing. When you consider the regulations concerning unfair pricing as well as perfered nation pricing it can get very confusing since there is no tangible expense to the product. This will be interesting indeed.

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post #24 of 44
Walking the halls of capitol hill are sinister reps who are out for blood. Apple is in their sights. They are waiting for the time when there will be blood in the water and they will release the sharks. Then they will watch their adversary (people's tech God) be consumed by the almighty Uncle Sam.
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post #25 of 44
The DOJ should be investigating the publisher's pricing power for ebooks rather than the pricing model. The issue isn't most-favored nation status, it is about any product being used as a loss leader. How did that work for the CD business long-term?

Agency model makes sense, the prices are just too high right now.
post #26 of 44
Let me start by saying I have just about every Apple product on the market today and I love them but that doesnt mean I always agree with how Apple does business.

If you were to step back and look at the motivations behind the agency model you would see two distinct rationales. Apple needed the agency model because they had no intentions of forfeiting their 30% cut and the publishers were not about to loose 30%. Without the agency model the publishers would have provided books at a much higher cost to recoup that fee but Apple knew that wouldnt work because people would just go to Amazon where it was cheaper and iBooks would fail. Apple needed to level the playing field and instead of looking within for that resolution they looked outside the company. The agency model gave them a way to eliminate competition after which it was just a race of brand loyalty. (Ipads & Iphones vs Kindle)

The publishers wanted the agency model to control public perception of what an e-book should cost. Their fear was that Amazon would eventually stop undercutting the books and that the rise in pricing would result in a collapse of the e-book market. People would demand the lower prices and in order to sell they would be forced to provide Amazon and Apple books at a much lower cost which would effect their revenue stream not Amazons or Apples. To be clear when Amazon cut an e-book price the publishers still got the full cost.

The agency model removes competition. Let Amazon & Apple battle it out, if they want users they can take the short-term hits to their bottom line. As for the publishers, while Im not naive enough to believe there is no cost behind an e-book, the actual cost is far less then printed books. (No printing, distribution or buy backs) which makes their profit margin larger. They simple need to adjust to the fact that they will never ever be able to command hard cover pricing (Bulk of their profits) for DRM digital e-books.
post #27 of 44
Quote:
Originally Posted by drobforever View Post

Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.

ebboks are such a teeny tiny percentage of Apple's sales and profit that no matter how the settlement on this goes the result will be statically insignificant to Apple's numbers.

If Apple loses I'd hate to be an Amazon competitor like B&N or whoever.

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post #28 of 44
Quote:
Originally Posted by drobforever View Post

Would be a disaster to AAPL's price if they can't settle this. People should be worried, especially at this price level.

Apple is facing many lawsuits from men on the street to patents trolls to large corporations so did Apple share price suffers.

Btw the Apple share price hinges on how well they perform and not in the court, Yes Apple have lost many battles there too just in case you don't know.
post #29 of 44
Quote:
Originally Posted by AppleInsider View Post


Some publishers have reportedly offered to compromise and do away with the "most favored nation" agreement with Apple in exchange for retaining the "agency model." The DoJ has said that the solution is not enough and posits that the publishers were only able to reach the model as a result of collusion, according to sources.

Many said the problem was not the agency model but the provision. Now we see that they even want the agency model gone. So in effect, publishers have no rights whatsoever to set prices of their products and can only sell wholesale. Yet, if they forgo Amazon, Apple, etc, and directly sell to consumers via their own store, what then? Then they can set prices? Some publishers do sell directly. In the Netherlands, book prices are protected by law and publishers do set the prices (for better or for worse). At least, let the market decide. Let Amazon set their prices, let the publishers set their prices when selling through iBookstore and forgo the "most favored nation" agreement. I don't see any problem with the agency model.
post #30 of 44
Quote:
Originally Posted by marvin2591 View Post

Let me start by saying I have just about every Apple product on the market today and I love them but that doesnt mean I always agree with how Apple does business.

If you were to step back and look at the motivations behind the agency model you would see two distinct rationales. Apple needed the agency model because they had no intentions of forfeiting their 30% cut and the publishers were not about to loose 30%. Without the agency model the publishers would have provided books at a much higher cost to recoup that fee but Apple knew that wouldnt work because people would just go to Amazon where it was cheaper and iBooks would fail. Apple needed to level the playing field and instead of looking within for that resolution they looked outside the company. The agency model gave them a way to eliminate competition after which it was just a race of brand loyalty. (Ipads & Iphones vs Kindle)

The publishers wanted the agency model to control public perception of what an e-book should cost. Their fear was that Amazon would eventually stop undercutting the books and that the rise in pricing would result in a collapse of the e-book market. People would demand the lower prices and in order to sell they would be forced to provide Amazon and Apple books at a much lower cost which would effect their revenue stream not Amazons or Apples. To be clear when Amazon cut an e-book price the publishers still got the full cost.

The agency model removes competition. Let Amazon & Apple battle it out, if they want users they can take the short-term hits to their bottom line. As for the publishers, while Im not naive enough to believe there is no cost behind an e-book, the actual cost is far less then printed books. (No printing, distribution or buy backs) which makes their profit margin larger. They simple need to adjust to the fact that they will never ever be able to command hard cover pricing (Bulk of their profits) for DRM digital e-books.

The bolded part is nonsense. There are multiple book publishers. They can compete by selling their books at any price they want using the agency model. The alternative is Amazon setting prices and being willing to use predatory pricing to control the market. How is the agency model bad and turning the entire ebook market over to Amazon good?
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post #31 of 44
Quote:
Originally Posted by jragosta View Post

The bolded part is nonsense. There are multiple book publishers. They can compete by selling their books at any price they want using the agency model. The alternative is Amazon setting prices and being willing to use predatory pricing to control the market. How is the agency model bad and turning the entire ebook market over to Amazon good?

It will be good for the consumer. As I stated above, it cost ZERO to produce an eBook so if Amazon can lower prices and sell in volume, the publishers still get the same amount of money since there is no overhead. 3 eBooks for $100 is the same as 100 eBooks for $3. This is not a physical item that has manufacturing costs. I much rather pay the $3 and so would the other 99 people in my equation.
post #32 of 44
Quote:
Originally Posted by mstone View Post

That can be against the law if the intent is to create a monopoly or harm competitors. Many countries and states outlaw predatory pricing.

Then why hasn't anyone investigated Amazon? In every single article that I have ever read on this it is always mentioned that Amazon sells e-Books at a loss to gain market share. Isn't this pretty much the very definition of predatory pricing?
post #33 of 44
Quote:
Originally Posted by mknopp View Post

Then why hasn't anyone investigated Amazon? In every single article that I have ever read on this it is always mentioned that Amazon sells e-Books at a loss to gain market share. Isn't this pretty much the very definition of predatory pricing?

Only if they require the publishers, through contract, to sell cheaper to them. Amazon pays full price, then lowers it until they are able to sell in volume. Sometimes at a loss. Apple didnt like that because they knew Amazon could undercut them, especially with Apples 30% tacked on, and no one would buy from them.
post #34 of 44
Quote:
Originally Posted by Hellacool View Post

It will be good for the consumer. As I stated above, it cost ZERO to produce an eBook so if Amazon can lower prices and sell in volume, the publishers still get the same amount of money since there is no overhead. 3 eBooks for $100 is the same as 100 eBooks for $3. This is not a physical item that has manufacturing costs. I much rather pay the $3 and so would the other 99 people in my equation.

So the writer is paid zero?

The staff at the publishers are paid zero?

The buildings and equipment the publishers use costs zero?

The promotion the publishers do costs zero?

The electricity and equipment needed to create and store ebooks costs zero?

DIGITAL BOOKS DO NOT COST ZERO NO MATTER HOW MANY TIMES YOU REPEAT IT.
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post #35 of 44
Quote:
Originally Posted by hill60 View Post

So the writer is paid zero?

The staff at the publishers are paid zero?

The buildings and equipment the publishers use costs zero?

The promotion the publishers do costs zero?

The electricity and equipment needed to create and store ebooks costs zero?

DIGITAL BOOKS DO NOT COST ZERO NO MATTER HOW MANY TIMES YOU REPEAT IT.

Wow, you obviously have no clue. Yes eBooks cost ZERO to reproduce. No the writers will get paid (duh) through volume sales. What buildings and equipment you talking about? Copy paste doesn't require much overhead, Promotions will get paid, again by the sale's. What electricity you talking? You can fit 1,000,000 eBooks on a 32GB thumb drive, someone orders one, you hit copy and paste and send it too them. You need to come out of the 60's and realize these are not REAL books.

Stop trying to sensationalize things and being dramatic. As I stated before, and you obviously fail to grasp, an eBook cost ZERO to reproduce, will sell in volume and the publishers will still get paid the same through volume. This is about Apple trying to fix high prices so they can blackmail their 30%. If they didnt, Amazon would simply sell their eBooks for 30% less and no one would buy from Apple. The publishers were trying to protect their old system of selling and charging the same price for a NO COST eBook as they did for a real book but Amazon didn't let them because Amazon sold them for what they wanted to generate volume (publishers were still getting paid). Publishers were not concerned with the cost of the eBook they were concerned that this NO COST eBook would cut into their real book prices. This was never about the writer or not getting paid it was about Apple ensuring their 30% and the publisher protecting an ancient pricing scheme.

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post #36 of 44
Quote:
Originally Posted by Hellacool View Post

Wow, you obviously have no clue. .

http://journal.bookfinder.com/2009/0...ook-costs.html

The above article shows the cost of producing a new hard cover novel is around $15, with about 1/3 of that related to the cost for a physical book.
For an ebook, the cost of managing a download system, while not free, is certainly lower than a physical book. Apple says it is close to break-even with their 30% cut, so maybe those costs are greater than I think.
The remaining 2/3 of the cost for a new book is there, whether it is physical or electronic. So, ebooks are not free.
post #37 of 44
Quote:
Originally Posted by anantksundaram View Post

How are you coming up with the assertion that Apple is "bigger than many governments"? Especially the governments that are party to this investigation?

Nowhere is there any assertion that Apple is bigger than the governments which are party to this investigation.

As for bigger than many governments, if you compare Apple's annual sales to GDP (an imperfect method, admittedly) Apple would be bigger than around 20 sovereign nations.
post #38 of 44
Quote:
Originally Posted by Hellacool View Post

Don't understand the problem, lower prices, good for consumer. I am a consumer, good for me. This is a digital item, cost ZERO to reproduce so publishers will make the same money if you sell 100 eBooks for 3 dollars or 3 eBooks for 100 dollars. I would rather buy the eBook for 3 dollars.

Lower prices are good for the consumer in the short run. But if the prices are set artificially low by a company with market poser in an attempt to bankrupt the competition, it can be bad in the long run.

Few things in this world are black or white.
post #39 of 44
Quote:
Originally Posted by hill60 View Post

So the writer is paid zero?

The staff at the publishers are paid zero?

The buildings and equipment the publishers use costs zero?

The promotion the publishers do costs zero?

The electricity and equipment needed to create and store ebooks costs zero?

DIGITAL BOOKS DO NOT COST ZERO NO MATTER HOW MANY TIMES YOU REPEAT IT.



He overstated his case. He should have said that the marginal cost of production is very close to zero.

Had he said that, he would have been correct.
post #40 of 44
Quote:
Originally Posted by Applecation View Post

http://journal.bookfinder.com/2009/0...ook-costs.html

The above article shows the cost of producing a new hard cover novel is around $15, with about 1/3 of that related to the cost for a physical book.
For an ebook, the cost of managing a download system, while not free, is certainly lower than a physical book. Apple says it is close to break-even with their 30% cut, so maybe those costs are greater than I think.
The remaining 2/3 of the cost for a new book is there, whether it is physical or electronic. So, ebooks are not free.

See I never said eBooks are free, I said reproducing them is. Once all the ground work is complete, there will be no "real" additional cost to keep making copies like a real book. If Amazon can sell 1000 eBooks in volume for $3 and another company can only sell 100 for $6, the 1000 books win, the "sunk costs" are the sunk costs, everything after that is gravy and that is where volume eBooks can soar. The main issue is:

A - Publishers are trying to protect the physical book market and antiquated business model, they do not want the eBook to surpass the physical book because then writers will no longer need them, who needs to pay a publisher when you can quickly and easily generate your own eBook and sell it on Amazon?

B - Apple is charging 30% on top of everything else. The only way that can succeed is if no one could sell for cheaper. If Apple is selling an eBook for $12.99 and Amazon sells it for $9.99, Apple will lose.
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