Pricing

Why do books have prices printed on them?

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From Marketplace:

Charles Robinson, a bookshop owner from Atlanta, asked Marketplace this question: 

Why are books actually marked with a price on them? Music isn’t. Movies aren’t. Most retail items that I could think of that you would find at resellers aren’t in fact.

. . . .

You may not be able to judge a book by its cover, but you will know how much it costs.

Pick up any book on your shelf that was published in modern times and you’ll see a suggested retail price, often printed on the back, near or inside the bar code. 

Like Robinson observed, it’s a feature that’s not commonly seen on other retail products. Potato chips and books are extremely odd in this regard. Other commodities might be labeled with a tag or a sticker, but the cost is not usually printed on the product itself, giving stores more power to set their own pricing. 

It turns out the origins of price listing are rather murky — publishers didn’t collectively decide to assign print prices on books for one set of reasons. The practice has persisted over the decades in different forms, for different types of books. 

. . . .

A brief history of price listing on books

Dust jackets have been especially conducive to the act of price listing. One of the earliest-known jackets, from 1830, covers a British book called “Friendship’s Offering” and has the words “Price Twelve Shillings” printed on there.

. . . .

Jonathan Senchyne, an associate professor of book history and print culture at the University of Wisconsin-Madison, said he thinks a price might have been listed because this type of book would have been put on display at a holiday fair.

For more than a century, American publishers have often listed the price of a book on the inside flap of a hardcover book’s dust jacket (sometimes on the spine).

You can see prices on the dust jackets of Mark Twain’s “Extracts from Adam’s Diary” from 1906, Edith Wharton’s “The Age of Innocence” from 1920, Ernest Hemingway’s “For Whom the Bell Tolls” from 1940 and Harper Lee’s “To Kill a Mockingbird” from 1960.

. . . .

Tom Congalton, founder of Between the Covers Rare Books, said that around 1830, publishers started to make books in uniform cloth bindings, which helped to standardize the prices.

“Before that, it was more customary to issue books in unbound sheets or in cheap cardboard covers (meant to be discarded) and the buyer would then have the books bound to their taste, usually in some sort of leather, and at what were probably widely varying prices depending on the quality of the leather, decorations, titling, etc.,” Congalton said over email.

That explains the conditions that enabled publishers to print prices. But publishers’ motivations for including them in the first place are less clear, with scholars providing different theories.

Beth Kilmarx, the director of Texas A&M’s Cushing Memorial Library and Archives, said this practice began to gain momentum during the Industrial Revolution, when it became easier to mass produce books and they became more affordable.

Publishers produced different editions of books at varying prices. By having the price listed on the book, this signaled to the customer the quality of the type of book they would be getting, which helped make the purchasing process easier for some people, according to Kilmarx.

But Michael Winship, a bibliographer and professor emeritus at the University of Texas at Austin, argues that dust jackets with prices were listed for salespeople, not customers.

“Certainly in the 19th century,” he said. “In the second half of the 19th century, American books typically had the price printed — not on the corner of the flap as they do now — but on the spine. You will see surviving dust jackets that have been mutilated. The bottom of the spine has been removed.”

As the standard practice for price listing changed to placing it on the corner flap of a book, some would then “clip” that section.

“If you’re going to give a present, you really don’t want someone to know what you paid for it, and that’s why they put it up in the flap where they could cut it off,” Kilmarx said. (The irony being that now, intact dust jackets are an essential component of a rare book’s value.)

. . . .

Some scholars also have a theory that they think encouraged the uniform printing of prices: the existence of book cartels.

Jonathan Senchyne and Michael Winship say price fixing could have helped influence this practice’s popularity.

“So publishers and booksellers kind of form an agreement around 1900 — both in England and in the United States — to not discount books,” Senchyne said. “And the big and powerful publishers essentially all agree to not stock booksellers who discount prices.”

In the U.K. and Ireland, it was known as the Net Book Agreement, which operated up until 1990, according to Senchyne.

. . . .

Price listing on the front cover of books has also been a mainstay of mass paperback novels, which Kilmarx calls “the common person’s book, so to speak.”

In the 1860s, the American publisher Irwin P. Beadle & Company began printing mass paperback novels and labeled them as “Beadle’s Dime Novels” on their covers, which sold for, obviously, 10 cents. In effect, price and branding became intertwined.

. . . .

Alex Grand, founder of the online fanzine Comic Book Historians, said this choice also stems from the newsstand distribution days of the late 1930s.

“The covers having the prices on the front made it a lot easier for customers to know how much something was before touching it. The newsstand dealers also would rather have it on the cover so that people weren’t thumbing through their product to look for the price,” Grand said. “It’s a great symbol of comic art being a commercial art — as something that combines a sequential visual beauty with a hard money price.”

. . . .

“A book barcode gets scanned at many points in its journey from printer to publisher warehouse to distributor warehouse to bookstore. The price gets scanned so that all trading partners in the sale of a book can easily record the value of the book. That 5-digit barcode enables a ton of efficiency in this process,” Dawson said. “Before standardized pricing barcodes, people would have to manually key in these prices into whatever system they were using for inventory, or sales, or shipping and receiving.” 

Brian O’ Leary, executive director of the Book Industry Study Group, explained that having a list price is important because the discount that retailers receive is based on that price, and because retailers can return unsold books to publishers for credit at the net price.

“Books have many different prices, so sales and credits for returns require both parties to keep track of which book is sold or returned at a given price,” O’Leary said.

But while many publishers follow that rule, you can technically opt out of a pricing barcode. Some books have the ISBN, and an add-on with the digits 90000, which the barcode services company Bowker states is a “null code which indicates that there is no pricing information encoded in the barcode.” 

“Some publishers don’t want to commit to a stable book price,” Dawson said. “It’s kind of a ‘cheat code’ in a way — this way the scanners can still scan, but the publisher can retain some control over pricing.” 

You’ll see this with college textbooks, which Dawson said is due to publishers wanting to control their prices and raise them year to year if they wanted to.

“We know that textbook publishers in particular are notorious for overcharging on their textbooks,” Dawson said.

Barnes & Noble also sells movies and music, so why didn’t the practice of including a pricing barcode jump to those items? 

Dawson explained that those products had UPC barcodes, and the UPC scanning system already had their prices in a database. “The EAN barcode system did not work that way, and had to have the prices sort of ‘tacked on’ separately so the scanners could recognize them,” she said.

. . . .

Charles Robinson, who co-owns Eagle Eye Book Shop in Atlanta, said he finds the marked price to put his business at a disadvantage. 

His bookstore gets between a 46% to 48% discount on the suggested retail price of books that are purchased from publishers, and a 41% discount on books that are purchased from the shop’s distributor.

Some of his competitors (e.g. Amazon) can mark the price down from there, while he said his business would struggle to survive if it did. 

“As an independent business, I cannot afford to offer a discount on essentially the only products that I sell,” Robinson said. “If we tried to match Amazon’s prices — we call Amazon ‘Voldemort’ here — we would definitely not be able to sustain our brick and mortar business.” (In some bookselling circles, you’ll find that the mere utterance of Amazon’s name is blasphemous.) 

But Kate Jacobs — co-owner of Little City Books in Hoboken, New Jersey — said her store prefers having a printed price on their books.

“We almost never discount anything so we just ring books up as priced,” Jacobs said. “It’s also very helpful when people question the price, or show us the Amazon price on their phone. We can say, ‘This is the price of the book.’”

Mary Williams, general manager at Skylight Books in Los Angeles, said she also likes having a printed price for those reasons. Whenever a customer feels like they’re being overcharged — especially as prices inch up over the years — they can simply note that it’s the price listed by the publisher.

“I don’t think it’s a good idea to take something as valuable as literature and treat it like anything else where you should be bargain shopping,” she said.

Link to the rest at Marketplace and thanks to DM for the tip.

PG suggests that, after reading the OP, a reasonable person might conclude that nobody really knows why publishers print prices on their books, including publishers.

It’s one of the many examples of a lack of rational business thinking throughout traditional publishing. PG suggests that doing something because it’s always been done is not the optimal way to operate any business enterprise.

He suspects that not thinking about one aspect of doing business might tend to breed more not thinking elsewhere in the enterprise.

PG’s jaundiced view of traditional publishing is that it’s an empire built upon thoughtless habits.

But he could be wrong. There could be an evil madperson at the root of it all.

Amazon.com and ‘Big Five’ publishers accused of ebook price-fixing

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From The Guardian:

Amazon.com and the “Big Five” publishers – Penguin Random House, Hachette, HarperCollins, Macmillan and Simon & Schuster – have been accused of colluding to fix ebook prices, in a class action filed by the law firm that successfully sued Apple and the Big Five on the same charge 10 years ago.

The lawsuit, filed in district court in New York on Thursday by Seattle firm Hagens Berman, on behalf of consumers in several US states, names the retail giant as the sole defendant but labels the publishers “co-conspirators”. It alleges Amazon and the publishers use a clause known as “Most Favored Nations” (MFN) to keep ebook prices artificially high, by agreeing to price restraints that force consumers to pay more for ebooks purchased on retail platforms that are not Amazon.com.

The lawsuit claims that almost 90% of all ebooks sold in the US are sold on Amazon, in addition to over 50% of all print books. The suit alleges that ebook prices dropped in 2013 and 2014 after Apple and major publishers were successfully sued for conspiring to set ebook prices, but rose again after Amazon renegotiated their contracts in 2015.

“In violation of Section 1 of the Sherman Antitrust Act, Defendant and the Big Five Co-conspirators agreed to various anti-competitive MFNs and anti-competitive provisions that functioned the same as MFNs,” the complaint states. “Amazon’s agreement with its Co-conspirators is an unreasonable restraint of trade that prevents competitive pricing and causes Plaintiffs and other consumers to overpay when they purchase ebooks from the Big Five through an ebook retailer that competes with Amazon. That harm persists and will not abate unless Amazon and the Big Five are stopped.”

. . . .

Hagens Berman sued Apple and the Big Five publishers for fixing ebook prices in 2011, in a case that would eventually lead to suits from several US states and the Department of Justice, which accused Apple of colluding in order to break up Amazon.com’s dominance in the ebook market.

Link to the rest at The Guardian

Trainwreck Fall Edition

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From Kristine Kathryn Rus ch:

I adore a good gothic and a somewhat creepy novel (but not too creepy, mind you), so in June, when a reliable friend recommended Simone St. James’s The Sun Down Motel, I ordered a copy immediately, and read it the moment it arrived. Loved it. It’s in my recommended reading list for July.

As soon as I finished, I ordered a copy for my sister, who also likes this type of book. Immediately, a notice flashed on my screen: she wouldn’t get the book until September. I was stunned. I looked at the publisher, thinking I was dealing with a specialty press, but no. I wasn’t. How odd.

That was my entire reaction: How odd. The book had released in February, so I should have been able to get my hands on a copy quickly. But I couldn’t.

That same thing had happened with a couple of other books I had ordered for my sister back in May. They were backlist for an author I knew my sister hadn’t tried, but would love. It took six weeks for her to get the books, with the shipment getting delayed more than once.

Because so many other things were going on, I hadn’t put my experiences together with something I wrote about at the end of April. Traditional publishing was headed for a trainwreck, and I was worried about it.

Part of the trainwreck was—and is—the closed bookstores. Many are still closed. But a lot of that trainwreck had to do with publisher panic, old systems, supply chains, and more.

When the pandemic hit, everyone thought we would get through the damn thing in a few months. We’d club that virus into submission, and return to normal life—or close to normal—by summer.

. . . .

Some industries aren’t very nimble. They can’t just shuffle one thing to accommodate something else. Traditional publishing is like that.

(This is where a handful of my indie-writer readers usually check out. I suggest you don’t, because I’ll be talking to you below. We’re part of an industry and a large part of the industry is mismanaging a crisis, which will have an impact on you. So, breathe, and dive back in.)

With the bookstores closed, some companies moved their biggest spring and summer releases to the fall, hoping that all would be better by then. There was some wiggle room, because traditional publishers had tried to avoid publishing anything important in November since it is a presidential election year. So there were some empty weeks.

But not enough of them. The schedule got shuffled, then reshuffled, then shuffled again. I know some books got canceled entirely, but many have just been moved to the next available slot on the schedule.

That is, they got moved to an available slot on the schedule, if the book is expected to do well. If it was a standard midlist book, it got shoved somewhere random, so that it can be printed, shipped, and sent to bookstores—who ordered their copies pre-pandemic.

Yeah, even if the book doesn’t come out now until fall of 2021, many of those orders remain exactly as they were. Even if the bookstore isn’t selling as many copies in its brick-and-mortar store. Or if the bookstore has shuttered its brick-and-mortar store—or closed entirely.

Here’s what a lot of readers don’t know—consciously anyway. Traditional publishing is built on velocity—that is, how many books sell in a short period of time.

The system that traditional publishing is using was designed post-World War II (or as I said to a friend yesterday, after the World War II generation survived its once-in-a-lifetime crisis). Back then, there were very few bookstores, and those that existed had limited space. Most books were sold in other retail venues—drug stores, department stores, magazine stands, and the like—which again, had limited space. In other words, there was only so much room for books in those places. Rather than keep old inventory on the shelf, retailers who sold books churned them—getting rid of those that were still on the racks after a month or two, and replacing them with new inventory.

This was easy to do, because in the Great Depression, the publishing companies subsidized anyone who sold a book by removing cost of excess inventory. Retailers could return books for full credit within a specific window. Which meant that retailers could make bad decision after bad decision, and not lose a heck of a lot of money.

They could also churn at no cost to them, replacing the old inventory with the new.

That practice created the idea that books were like bananas; they spoiled if they didn’t sell within a few weeks. And, indeed, there are horrid photos from the 1990s of Dumpsters filled with books behind shopping malls, because many publishers allowed retailers to strip the cover off books (and toss the rest of the book away) and still get full credit. Saves shipping costs, doncha know.

Even though it’s a stupid 75-year-old business model, traditional publishing still banks on velocity. And traditional publishing is fairly stupid about velocity. If an author’s sales numbers go down, no matter what the reason (y’know, like closed bookstores and a pandemic), that author will be offered a smaller advance next time—or will be cut loose. It’s brutal and unrealistic, and it’s on the horizon for so many writers.

. . . .

In addition to the messing up of the schedule, there were supply chain problems and the bankruptcy and auction of the two remaining major web press printers here in the States.

. . . .

The best way to sell books (as demonstrated by study after study) is word of mouth. My sister is at the end of a recommendation chain that went from my friend to me to my sister. My sister hasn’t even had a chance to read and recommend yet. By the time I wanted to give a copy to my sister, the book was out of print. The reason for the nearly three-month delay was because there were no copies of the hardcover in the warehouse—and no printing scheduled until September.

That September printing was probably ordered in May, which meant that the May numbers might not reflect the actual interest. The Times noted that one of the hot political books of August, which I had actually forgotten about (because so many hot political books have followed) had a similar problem:

The CNN anchor Brian Stelter’s new book “Hoax,” about the relationship between Donald Trump and Fox, was out of stock on Amazon this week shortly after its August 25 publication date, and showed a ship time of one to two months. Mr. Stelter’s publisher, One Signal, a Simon & Schuster imprint, which initially printed 50,000 copies, has ordered another 100,000 copies.

Two-month delay from August 25 on a political book places that 100,000 copy rerelease at the end of October, a week from the November election. 

. . . .

Ah, I hear you all now. What about the ebooks?

This is where traditional publishers have—pardon my crudity—fucked themselves blue. Stelter’s ebook costs $14.99. The ebook for the St. James that I mentioned above is $13.99.

Ridiculous, right? But it’s part of traditional publishing think. They want readers to buy the hardcovers, so they’ve priced ebooks unbelievably high, which is causing another problem. From that same New York Times article:

Some worry that the current crunch could reverse the yearlong trend of stable and sometimes rising print sales, sending readers back to digital books, which are less lucrative for publishers and authors, and especially brick and mortar retailers.Sa

Less lucrative for authors? On what planet? Oh, yeah, right. The traditional publishing planet. I’ve seen article after article that talks about how ebooks are a bust, that they don’t make money, and that sales of ebooks are “depressed.”

Yeah, if you overcharge for them.

. . . .

So, if the reader can’t get the novel that caught their attention this week by ordering it online, and if the reader won’t pay over $10 for an ebook, and if the reader can’t get the book from their library, what does the reader do?

The reader moves on to a different writer, another book, something new and different. Sales—and fans—aren’t allowed to build.

At all.

. . . .

As The Guardian noted, the blockbusters will make it into the retail stores. But those midlisters won’t. There just isn’t room. And with overpriced ebooks and no library access, there’s no way to discover these writers.

So many writers have gone to traditional publishing because those writers believe traditional is better at getting books into stores (really?) and is better at promotion. Let’s ignore the first part, shall we, and assume that some poor traditionally published writer was actually slated to get promotion on their book.

First, as The Guardian notes, there’s not enough room in the literary press to cover all 600 books that were released on September 3. There isn’t enough room to cover the books that will be released after September 3.

And if you were lucky enough to get a rave review from a reputable publication? Well, you better hope your publication date remained the same. Because review copies were mailed months in advance, and the review was written months in advance and published to time with your original release.

The Times quotes Sasha Issenberg whose book The Engagement: America’s Quarter-Century Struggle Over Same-Sex Marriage was slated to release in June for Pride Month. He got a stellar review in Publisher’s Weekly. Only his book got pushed to early September, then late September, and now won’t come out until June of 2021.

Will the bookstores that ordered the book even open the boxes when it arrives? Remember the order at all? Will the bookstore even be in existence when the book arrives? Will readers remember that they wanted the book in June of 2020? Will the publishing company redo their promotional efforts for the book?

Oh, wait. I can answer that last one. No, they won’t. They’ll expect Issenberg to do it, and maybe he might be able to finagle some interviews and additional reviews on his own, the way an indie writer would do things. But his book is going to tank, unless someone does an intervention. And believe me, there will be a lot of other things that will have grabbed our attention by Pride Month 2021, and none of them will be his book.

. . . .

[N]ewly published traditional writers? They’re screwed. They really are.

A handful of them will be resilient enough—and smart enough—to learn how to indie publish their next books. But most of these traditional writers won’t be that resilient. Their dreams are going to die a horrid, horrid death.

I empathize…up to a point. If they want to learn how to publish books, point them to our Publishing 101 class, and then stay out of their way. They’ve had years of warning to stay away from traditional publishing, and they didn’t listen. They’re probably not going to listen now. You know the rules about drowning victims, right? Send them a lifeline. Don’t get close enough to let them grab you and pull you down.

After I published the first Trainwreck piece, I heard from indie writers who panicked. They asked if they should stay away from the crowded fall schedule. I said no.

Because the real business model for publishing in the 21st century is this: readers will discover books over years, not weeks. Put your book out there. Yeah, maybe some reader won’t find it until 2022. That’s okay. Then they get to read your entire backlist.

Indie writers aren’t dependent on velocity. To have a successful career, we need widespread availability. We need to be in all the possible markets we can. We want our readers to find reasonably priced ebooks from all the major vendors

Link to the rest at Kristine Kathryn Rusch

This is a first-class Kris Rusch analysis of traditional publishing and PG strongly suggests reading the entire OP (which is substantially longer than this excerpt).

PG will add only a bit of reinforcement for the main point Kris makes in the OP: Traditional publishing is a very poorly-run business. It might be compared to that great restaurant you used to enjoy, but don’t think about much any more because the prices are steep and the last time you went, the kitchen wasn’t doing the job it used to.

The other factor PG has mentioned before is that even if the New York top brass was inclined to really innovate and make aggressive changes, the companies that own the large New York publishers – large European media conglomerates plus CBS (Simon & Schuster) are not going to be receptive to innovative changes, particularly if such changes might possibly result in lower short-term profits.

The CEOs of the major New York trade publishers are really middle-management in their business organizations. From PG’s prior personal experience with large European media conglomerates, he is 99.99% confident that cutting ebook prices to potentially goose sales numbers is a non-starter. The people who own the NYC publishers are just as locked into traditional strategies and practices as the NYC underlings Kris describes.

Here’s a link to Kris Rusch’s books. If you like the thoughts Kris shares, you can show your appreciation by checking out her books.

If you want to make a contribution directly to Kris for her insights, here’s a link to her Patreon page.

#1 Most Popular Book

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In connection with the release of Mrs. PG’s latest book, she ran a price promotion on the first book in this series, featuring a female Oxford professor/amateur sleuth.

Yesterday, early in the evening, she checked the performance of An Oxford Murder, Book 1 of her series, and was pleased to discover that it had a Best-sellers rank in the US Free Kindle Store of #1 for all ebooks, regardless of genre.

A bit earlier this morning, her book was still ranked #1 overall in the US and, on Amazon UK, #3 for Historical Mysteries.

When PG just checked, the book was ranked #4 overall for free books and #1 in Historical Mysteries, #1 in Women Sleuths and #2 in Literature & Fiction, each in the Free Kindle Store. It’s still hanging in as #3 for Historical Mysteries in the UK store.

Mrs. PG has always enjoyed good sales at the launch of a new book and for her free book promos, but this one is particularly good.

With respect to her latest book, Murder at Tregowyn Manor (which is priced at $2.99 for the ebook), most of her sales are coming from the US, as usual, but she’s also generating nice sales numbers from Australia and the UK as well.

PG shares these results for the benefit of other indie authors who may find them useful for their launch plans.

PG thanks all the kind visitors to TPV who have continued to support Mrs. PG’s books over the years since the launch of TPV.

E-book VAT: the other side of the story

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From The Bookseller:

In his recent blog, ‘Amazon’s VAT Windfall’, Anthony McGowan expressed concern that the Bezos behemoth had not changed e-book prices following the recent VAT cut, and were set to profit to the tune of millions as a result. He and I have been arguing on Twitter, very politely I might add, about this as I think he’s got it wrong.

Where I do agree with Anthony is regarding Amazon’s monopoly when it comes to e-books. They won’t share figures, so the numbers can’t be confirmed, but I would be amazed if there is any publisher in the UK who doesn’t receive 90% or more of their e-book turnover from Amazon. And for some it will be close to 100%. That is a monopoly, pure and simple.

But are they ignoring the VAT cut and pocketing the difference? In Anthony’s blog he said he had checked and “the prices don’t seem to have come down at all”. I had a look moments after reading his blog and the Kindle charts were full of books at odd prices – £2.07, £3.29, £0.83 – which certainly strike me as ex-VAT. Sure, there were still lots at 99p price points, and I assume Anthony viewed those as evidence of Amazon shenanigans, but there is a perfectly logical explanation for this.

Publishers tend to sell books to Amazon in one of two different ways, using a wholesale or agency model. With the wholesale model, the publisher sets a wholesale price for the e-book – usually an amount that, once VAT is added, results in a .99 RRP – and then sells to Amazon at that price minus any agreed discount. Now that VAT has been scrapped, those 99p prices have dropped by 20%, and that seems to have happened pretty much straight away.

The other prevalent model is the agency model, where publishers set an RRP – again, nearly always a 99p price point – and the retailer sells at that price and deducts a commission. Here the publisher has determined the selling price, in much the same way as they do with RRPs on printed books. Looking through those Kindle charts, I suspect many of the books that have not changed prices are sold on this model.

My take when I first heard about the VAT cut being brought forward was not that Amazon would make a mint, instead I saw it as an opportunity for publishers. Right now, publishers across the UK are deciding what to do with their e-book pricing. Should they reflect the VAT cut so that all e-books are now 20% cheaper than they were? Or do they carry on with a pricing policy that keeps those 99p price points?

If they go with the former, then readers get a 20% saving, which was Rishi Sunak’s intention. If they go with the latter, they increase e-book revenue by 20% and authors will see their royalties go up.

But which is the right thing to do?

Most of our bookshops are closed and the big chains are, it seems, not paying their bills as promptly as they once were. Publishers are facing a big drop in income and this will have a knock-on effect for authors in the next batch of royalty statements. Anecdotally, e-book sales are on the rise during lockdown. If a publisher’s duty is to support its authors, and its own business, then here is a chance to boost one area of turnover when others are taking a beating. It could be argued as the right thing to do.

But the point of the VAT cut was to make digital reading cheaper for consumers. Surely if we don’t ensure e-books are 20% cheaper then we are ripping off readers? And that is a reasonable point but, to be frank, will readers know, or care? The difference between wholesale and agency models means that there is no consistency in e-book pricing at the moment, anyway. And most publishers play around with prices regularly, with promotional offers, so a snapshot of the Kindle charts at any given time will see prices ranging from free to over a tenner.

How can anyone tell if a £3.99 e-book today is actually an old £4.99 e-book minus the VAT or one that has always been £3.99 and the publisher is pocketing the difference? Spoiler: they can’t.

Link to the rest at The Bookseller

As an American who has (alas) only spent several short weeks in Britain, PG doesn’t claim any expertise about the VAT and the ways in which it impacts prices at various stages in the chain between manufacturer and the ultimate consumer of the product and how various participants in that chain may respond to significant changes in the rates at which the VAT is levied.

However, as one who has observed the behavior of Amazon in the US and elsewhere for what has grown to quite a number of years, PG has observed that, with respect to prices for goods which are set by Amazon because Amazon has purchased the goods and is reselling them to consumers (as opposed to retail prices that are set by the owner of the goods when the owner is paying a fee to Amazon for its services in attracting customers, filling and delivering customer orders, processing credit card charges for the purchase, etc.), when Amazon is acquiring the goods and setting the prices, those prices tend to be very competitive when looking at the consumer market as a whole.

(Sorry for the over-long sentence.)

Amazon wants prices for goods on its website to be lower than prices for the same goods when they are sold by other retailers. The Amazon website is designed to highlight and boost the visibility of the lowest-priced vendors. As one of the most basic, but effective examples of this design, when operating in default mode, Amazon’s product presentation engine will usually show it’s best-selling products which tend to highlight the lowest-priced seller of a good at the top of its search results where their offer is most optimally exposed to purchasers.

Should the shopper explicitly want the lowest priced item in the category no matter what, in the upper left corner of the screen, the shopper can easily select “Price: Low to High” where, under some circumstances, the shopper may find that one can of soup is less expensive than four cans of the same brand of soup. In the default best-selling listings, those products that sell best typically provide the best overall value, albeit sometimes requiring the purchase of multiple cans of soup or another product.

This is basically an overly-long explanation that demonstrates that, per one of the claims reported in the OP that lowering or eliminating the VAT on books meant that Amazon would simply increase its profits from the sale of the books by the amount by which the VAT had been lowered is not the way Amazon does business. Even if every other bookseller did not adjust its prices in response to the VAT change, Amazon would do whatever was permitted to sell books at a meaningfully lower price than they were on offer elsewhere.

Amazon makes a great deal of money by maintaining itself as the place where, if a consumer is willing to wait for a couple of days, he/she will acquire a good for less than it could be purchased elsewhere. Amazon is unlikely to endanger that reputation among consumers to grab some money from book purchasers. After all, book purchasers are widely known to purchase other items besides books on a regular basis.

Sam Walton, the founder of Walmart, was an astute observer of human behavior and the ways of making larger profits at retail. His approach? “Pile it high. Sell it cheap.”

“Say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough.”

Due to its online existence and the extraordinary capacity of its cloud computing operation, Amazon can use techniques that Sam Walton would have loved, but Walmart couldn’t accomplish because Walmart stores were physical and Amazon’s store has always been digital.

From Quartz in 2015:

Amazon is famous for changing prices frequently to test the demand for products or undercut a competitor on hot items like Beats headphones or Razor electric scooters.

A generic King James version of the Holy Bible wouldn’t seem like an obvious candidate for such dynamic pricing.

But data show that Amazon has changed the price of the top Bible in a Google search for “Amazon Bible” more than 100 times since May 2010, according to price-tracking site Camelcamelcamel.

. . . .

The price changes have been significant. At its lowest price on Amazon, this version of the Bible cost $8.49, and at its highest, $16.99.

The shifts in pricing are presumably automated, as Amazon’s computer systems react to rising or falling consumer demand and other factors. But the fact that such a standard, age-old item as the Bible can change in price so frequently and dramatically suggests strongly that dynamic pricing affects almost anything a consumer can buy online.

Amazon changes the price on as many as 80 million items on its site throughout day, and went into overdrive to match prices of its competitors during last year’s holiday shopping season, according to Forbes. Amazon spokesman Scott Stanzel declined to discuss how the company’s dynamic pricing works, telling Quartz that it has ”a cost structure that allows us to adjust our pricing quickly.”

The e-commerce giant is apparently using dynamic pricing on other holy books beyond the Bible. Pricing data show that Amazon’s shifts affect the most-Googled Koran, Torah, and to a lesser extent, Bhagavad Gita, on its site.

Stanzel declined to comment on whether Amazon’s prices change in response to real life events. But it’s interesting that the single largest price shift for the Bible happened around the same time as the world was predicted to end in December 2012. And there was a steady increase in its price when The History Channel’s miniseries “The Bible” originally aired in the US in March 2013.

Link to the rest at Quartz

One of Walmart’s most-used advertising slogans during Walton’s lifetime was “Low Prices Every Day.”

Amazon’s version of that same philosophy might be, “Optimum Prices Every Hour.”

The UK Scraps Its 20-Percent VAT on Digital Books

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From Publishing Perspectives:

In the kind of major turnabout that publishing professionals normally can only dream about, Her Majesty’s Treasury in the United Kingdom has issued a statement today (April 30), announcing that as of tomorrow—May 1—the UK’s long-derided value added tax (VAT) on digital publications will be gone.

. . . .

Understandably upbeat, the Publishers Association’s CEO Stephen Lotinga says, “We’re delighted that the government has taken this step to significantly fast-track the plans to scrap VAT on ebooks and journals.

“This is a boost to readers, authors and publishers, especially important at this difficult time,” he says. “We hope that it will enable many more people to easily access and benefit from the comfort, entertainment and knowledge that books provide.”

Until now, the UK’s publishing industry has labored under a 20-percent tax on digital publications, while the print rate had been zeroed.

. . . .

Logic seems to have fallen on the chancellor of the exchequer, Rishi Sunak, who “said the zero rate of VAT will now apply to all e-publications from tomorrow (May 1)—seven months ahead of schedule—potentially slashing the cost of a £12 ebook by £2 and e-newspapers subscriptions by up to £25 a year.” That’s a saving of US$2.52 on a $15 book, and as much as $31 coming off the price of a digital newspaper subscription, by the government’s calculations.

. . . .

“We want to make it as easy as possible for people across the UK to get hold of the books they want whilst they’re staying at home and saving lives. That is why we have fast tracked plans to scrap VAT on all e-publications, which will make it cheaper for publishers to sell their books, magazines and newspapers.”

. . . .

  • The Financial Times has reported that nearly 40 percent of adults surveyed in the UK have said that reading was helping them cope while they stay at home.
  • The Reading Agency released a survey—here written up by our colleague Alison Flood at The Guardian–showing that one in three adults is reading more since the lockdown was announced on March 23.

Link to the rest at Publishing Perspectives

The 2010s were supposed to bring the ebook revolution. It never quite came.

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PG’s last post on December 24 was about the following Vox article that purported to talk about what a bust ebooks have turned out to be.

If you missed it in the holiday rush, there were some good comments and, yes, it is a Vox article, so you can assume the author was born yesterday.

From Vox:

At the beginning of the 2010s, the world seemed to be poised for an ebook revolution.

The Amazon Kindle, which was introduced in 2007, effectively mainstreamed ebooks. By 2010, it was clear that ebooks weren’t just a passing fad, but were here to stay. They appeared poised to disrupt the publishing industry on a fundamental level. Analysts confidently predicted that millennials would embrace ebooks with open arms and abandon print books, that ebook sales would keep rising to take up more and more market share, that the price of ebooks would continue to fall, and that publishing would be forever changed.

Instead, at the other end of the decade, ebook sales seem to have stabilized at around 20 percent of total book sales, with print sales making up the remaining 80 percent. “Five or 10 years ago,” says Andrew Albanese, a senior writer at trade magazine Publishers Weekly and the author of The Battle of $9.99, “you would have thought those numbers would have been reversed.”

And in part, Albanese tells Vox in a phone interview, that’s because the digital natives of Gen Z and the millennial generation have very little interest in buying ebooks. “They’re glued to their phones, they love social media, but when it comes to reading a book, they want John Green in print,” he says. The people who are actually buying ebooks? Mostly boomers. “Older readers are glued to their e-readers,” says Albanese. “They don’t have to go to the bookstore. They can make the font bigger. It’s convenient.”

Ebooks aren’t only selling less than everyone predicted they would at the beginning of the decade. They also cost more than everyone predicted they would — and consistently, they cost more than their print equivalents.

. . . .

When the Kindle entered the marketplace in 2007, Amazon had a simple sales pitch: Anyone with a Kindle could buy all the ebooks they wanted through the online marketplace, and many of those ebooks — in fact, all New York Times best-sellers — would cost no more than $9.99.

$9.99 is a steal for a new book. At the time, most hardcovers were averaging a list price of about $26, and many cost more. But for Amazon, this price point was an apparent no-brainer. The first generation Kindle was expensive, and value conscious customers needed some incentive to buy into it. Why would anyone spend $399 on an e-reader if they couldn’t expect to make up at least part of the cost in a discount on ebooks?

And while this point is often glossed over, Amazon was actually following a precedent set by publishers in its pricing model. In her opinion for US v. Apple, Judge Denise Cote noted that before 2009, most publishers discounted ebooks by 20 percent from the price of a hardcover, which often led to a suggested list price of around $9.99.

But by 2009, publishers had changed their minds. Now they considered the idea of $9.99 ebooks to be an existential threat. Printing and binding and shipping — the costs that ebooks eliminated — accounted for only two dollars of the cost of a hardcover, publishers argued. So the ebook for a $20 hardcover book should cost no less than $18. And according to publishers, by setting the price of an ebook at $9.99, Amazon was training readers to undervalue books.

. . . .

Before we delve further into the weeds here, a quick primer on how book prices are set. Print books are generally sold under a wholesale model, which works like this: First, the publisher will set a suggested list price for a book; say, $20. Then it will sell the book to resellers and distributors for a discount off that suggested list price. So if Simon & Schuster wants to sell a $20 book to Amazon, Amazon might negotiate a discount of 40 percent for itself and end up paying Simon & Schuster only $12 for that book.

But once Amazon owns the book, it has the right to set whatever price it would like for consumers. The $20 list price that Simon & Schuster set was just a suggestion. Under the wholesale model, Amazon is free to decide to sell the book to readers for as little as a single dollar if it chooses to.

Until 2010, ebooks were sold through the wholesale model too. So if Simon & Schuster was publishing a $20 hardcover, they could choose to set a suggested list price of $18 for the ebook — two dollars less than the hardcover — and then sell that ebook to Amazon at a 40 percent discount for $10.80. And Amazon could, in turn, feel free to sell that ebook for $9.99 and swallow a loss of 81 cents.

To be clear, the numbers we’re using here to get a handle on how pricing works are imaginary. (Amazon negotiates different discounts for itself at different times from different publishers, sometimes around 40 percent, but at other times higher and at other times lower.) But we do know that Amazon was making very, very little money off ebook sales in 2010, and was in fact probably losing money on most of them.

. . . .

“Amazon can still discount whatever they like on the print side,” explains Jane Friedman, a publishing consultant and the author of The Business of Being a Writer. On the ebook side, however, Amazon now lists publisher-mandated prices, often with the petulant italic addition “Price set by seller.” “So the market is very weird, and often the ebook costs more than the print,” Friedman says. “Sometimes it feels like Amazon is trying to make the publishers look ridiculous.”

And because ebooks are often more expensive than Amazon’s heavily discounted print books, traditional publishing’s ebook sales seem to have fallen off — and Amazon is more dominant than ever in the print book market. “It’s so much cheaper,” says Friedman.

In this new market, high ebook prices make it harder than ever for young authors in particular to survive. “The split has really hurt debut novelists,” says Friedman. “It’s hard to ask readers to take a chance on someone unproven at that high price point, and since the ebook market does lean towards fiction, it’s hurting the new people.”

Self-published authors, meanwhile, are flourishing. They’re allowed to set their own ebook prices just like publishers are — and consistently, they set their prices very, very low. “It’s a shadow market,” Friedman says. “Novelists with huge backlists go and put them out as ebooks independently. And if a reader has a choice between reading this great series at $2.99 a pop or a $12 novel, what are they going to pick?”

Antitrust law professor Christopher Sagers argues that the outcome of the DOJ’sebooks case shows that the real problem with the industry is not just that Amazon has a monopoly. The big trade publishers, he says, have a monopoly too.

“There used to be hundreds of publishing companies. They’re now mostly owned by five,” Sagers says. (After that Department of Justice lawsuit, Penguin merged with Random House, and the Big Six became the Big Five.) “Why are ebooks expensive? It’s not because Amazon is vicious. It’s because there’s no competition at the wholesale level.”

. . . .

The Big Five publishers “are huge, and they have been able to put in place practices that are kind of unfair and that authors have to put up with,” Friedman allows. “That said, they need that kind of size to be able to effectively deal with something like Amazon. If you look at an indie publisher, I wouldn’t want to be one of them.”

Link to the rest at Vox and thanks to DM for the tip.

PG notes that the OP devotes one paragraph to independent authors and that paragraph implies that indie authors are primarily publishing their revered backlist titles.

Unlike Big Publishing, nobody is really beating any publicity drums for indie authors.

One other point the OP doesn’t discuss is that Barnes & Noble is still cratering and, when it finally goes down the drain, retail bookselling via physical bookstores will take a huge hit and publishers who have failed to develop their chops selling ebooks and encouraging readers to buy them will regret that their profitability will take an enormous hit.

Fixed Book Prices in Germany

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From Publishing Perspectives:

A new defense of Germany’s fixed prices for books has been issued this morning (November 8) by the Börsenverein des Deutschen Buchhandels—the country’s publishers and booksellers association.

In 2018, the Börsenverein commissioned new research on the issue—described as a team of economists and a legal scholar—to study what the organization today calls “the impact and legitimacy of Germany’s fixed book price system in an independent and comprehensive manner using the most up-to-date information possible.”

. . . .

For some brief background on the issue, fixed prices on books in Germany have long been a tradition and were codified in law in 2002. The effect of the fixed price is that a book—whether sold online or in a physical retail setting—has exactly the same price nationwide. A publisher sets the price for its books in each format. After 18 months, that publisher can cancel the fixed price, and discounting is allowed in cases of defective copies or bulk pricing.

As today’s media messaging points out, 13 European countries have fixed pricing on books, and those nations include Austria, Spain, Italy, the Netherlands, Norway, and Hungary. Outside of Europe, books are sold on a fixed price system in markets including Mexico, Argentina, and Japan.

And as it turns out, the Börsenverein’s study is a kickoff to a campaign hashtagged #dankbuchpreisbindung, or “thank fixed book prices.”

The organization is offering posters, site banners, email signature graphics, and other collateral materials to spread messages—in bookstores and other venues—such as “Price Comparisons Are Futile” and “We Have More [Books] for the Same Price.” This signage also reads, “You pay the same for a book anywhere in Germany. With us you get competent advice and a smile for free.”

. . . .

And the release of the new pro-price-fixing report today—in news reports characterized as costing some €300,00—is an answer, in part, to a report from the country’s Monopolies Commission which, in 2018, recommended discarding fixed prices on books. In very general terms, the commission’s opinion last year indicated that price fixing wasn’t based on a clear demonstration of its value and was out of step with contemporary market dynamics.

. . . .

The key statement issued today by the Börsenverein is: “Germany’s system of fixed book prices and the extensive landscape of bookshops it supports play a key role in the dissemination of books as essential cultural goods, while also fostering the quality and variety of books available to consumers. The system is also in line with EU law.”

. . . .

In a prepared statement, Skipis is quoted, saying, “Once again, it’s all there in black and white. Germany’s fixed book price system acts as a guarantor of quality and diversity on the book market.

“It’s one of the factors contributing to Germany’s reputation as a role model across the globe and its status as the second-largest book market in the world.

“The findings show very clearly that fixed book prices fulfill their obligation to protect books, especially in the contemporary market situation.”

. . . .

“For almost 150 years now, Germany has had a system of fixed book prices. The system guarantees a dense network of bookshops that act as key locations for the dissemination of literature and as indispensable distribution channels, especially for small and medium-sized publishers. Precisely because of this key role, price fixing for books is also widely supported in the political sphere.”

. . . .

Beurich, the bookseller, adds, “The research findings show how indispensable the stationary book trade is, especially for cultural diversity in our country. When bookstores disappear, people lose important contact points and thus access to books. Bookstores are places that foster exchange among local residents, while also promoting literary education, cultural work, literacy and a love of reading.

“The study also showed that a number of highly interesting books and authors would never have been discovered without stationary bookstores.”

. . . .

“Fixed book prices make books less expensive on average. Following the abolition of the system of fixed book prices in the UK, the average price of books there rose by 80 percent between 1996 and 2018. The increase was much stronger than in the same time period in countries that have fixed books prices, such as France (+24 percent) and Germany (+29 percent).

“Only bestsellers are less expensive in the UK than in Germany. With roughly the same share in overall sales, the 500 top-selling books make up roughly 26.6 percent of total revenue in Germany; in the UK, they make up 21.5 percent of total revenue. The analysis of the 50,000 best-selling books in the UK from 2005 to 2018 showed that the higher the sales rank a book has, the higher the average discount retailers offer on the publishers’ suggested retail price, and therefore the less expensive the book will be for the client.”

. . . .

“The stationary book trade fosters the discovery of unknown titles and authors. The studies showed that sales at stationary bookshops foster the future success of a large number of lesser-known titles and authors. Out of 420 fiction titles that did not reach the top twenty spots on the bestseller lists until after three weeks or more between 2011 and 2018, sales in local bookshops were solely responsible for that rise in 237 cases (56.4 percent) and largely responsible for that rise in the case of 171 other titles (40.7 percent).”

. . . .

  • “The system of fixed book prices in Germany does not hinder market access for foreign mail-order companies or online sellers;
  • “If, in a hypothetical case, there was an existing interference with the free movement of goods, it would be justified by the protection of books as essential cultural goods; and
  • “Germany’s system of fixed book prices is compatible with European competition law.”

Link to the rest at Publishing Perspectives

“[A]ll is in a man’s hands and he lets it all slip from cowardice, that’s an axiom. It would be interesting to know what it is men are most afraid of. Taking a new step, uttering a new word is what they fear most.”

– Fyodor Dostoevsky, Crime and Punishment

New Ways of Selling Books Clash with France’s Old Pricing Rules

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From The Economist:

A book is so much more than mere ink and paper. So insist French booksellers, who for nearly four decades have successfully lobbied to keep the forces of the free market at bay. A law passed in 1981 bans the sale of any book at anything other than the price decreed by its publisher. Authorities are cracking down on those trying to flog the latest Thomas Piketty or j.k. Rowling at a discount.

The fixed-price rule is meant to keep customers loyal to their local bookshop and out of the clutches of supermarkets and hypercapitaliste American corporations. But the advent of e-commerce and e-readers has prompted questions worthy of their own tomes. Can you fix the price of a book if it is part of an all-you-can-read subscription service? Are audiobooks books at all? And what of authors who self-publish?

Tweaks have been made to preserve the principle of one book, one price. In 2011 the rule began to apply to digital tomes. Free delivery by online sellers was prohibited on the grounds it implied a subsidy on the delivered books (prompting websites to charge all of €0.01 for postage). But a new challenge to the policy is proving thornier.

Used books are exempt from the pricing rule. Third-party sellers on Amazon are accused of using this as a way to apply forbidden discounts: selling brand-new books as “second-hand” to make them cheaper. So fans of bleak fiction can purchase a copy of the latest Michel Houellebecq novel, “Sérotonine”, for €11.71 ($13.21) on Amazon, roughly half its mandated price. Its seller claims it is in “perfectly new” condition.

Amazon claims its practices are legal. But booksellers are fuming, and their political allies with them.

. . . .

Even with a plethora of subsidies, bookshops are among the least profitable retail businesses. Books are expensive in France—an odd way to encourage people to buy more. For now, constraining the market in the name of l’exception culturelle remains an article of faith for French policymakers. “On the internet you find what you look for,” Mr Riester told his literary allies. “But only in a bookshop do you find what you were not looking for.”

Link to the rest at The Economist

PG suggests that ebooks and the Internet make protectionist laws difficult, if not impossible, to enforce without governments attempting to disable the Internet.

PG has always loved books and bookstores, but acquiring a book through a physical bookstore is becoming a rarer and rarer practice for him (and, from the looks of the physical bookstores he has entered in the past couple of years, for a lot of other readers as well).

Amazon has spoiled PG by feeding his appetite for books on obscure and exotic topics (as perceived by most other readers) and, fortunately, PG’s local library offers an enormous online collection of ebooks through a regional library association, so an unrealistically high online price set by a publisher can also be avoided.

As an example, via Overdrive through his local library, PG is currently reading the ebook version of the English translation of Stalingrad, by Ukranian author (and Jew) Vasily Grossman, a long-suppressed book about the epic siege of that city by the German army during World War II. (PG first mentioned the book here.)

Given the publisher’s price for the printed version of Stalingrad, PG might not have risked adding it to his large collection of abandoned-partway-through-because-it-turned-out-not-to-be-PG’s-cup-of-tea physical books. Also, PG is less entranced by the chest-loading involved in reading thousand-page printed books while lying in bed than he was in former days.

Regarding the OP’s characterization of happy accidents of discovery in price-fixed physical bookstore, PG thinks most readers are far more likely to experience such discoveries online rather than in meatspace.

 

Yes, Retailers Are Colluding to Inflate Prices Online

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From Fast Company:

Have you ever searched for a product online in the morning and gone back to look at it again in the evening only to find the price has changed? In which case you may have been subject to the retailer’s pricing algorithm.

Traditionally when deciding the price of a product, marketers consider its value to the buyer and how much similar products cost, and establish if potential buyers are sensitive to changes in price. But in today’s technologically driven marketplace, things have changed. Pricing algorithms are most often conducting these activities and setting the price of products within the digital environment. What’s more, these algorithms may effectively be colluding in a way that’s bad for consumers.

Originally, online shopping was hailed as a benefit to consumers because it allowed them to easily compare prices. The increase in competition this would cause (along with the growing number of retailers) would also force prices down. But what are known as revenue management pricing systems have allowed online retailers to use market data to predict demand and set prices accordingly to maximize profit.

These systems have been exceptionally popular within the hospitality and tourism industry, particularly because hotels have fixed costs, perishable inventory (food that needs to be eaten before it goes off), and fluctuating levels of demand. In most cases, revenue management systems allow hotels to quickly and accurately calculate ideal room rates using sophisticated algorithms, past performance data and current market data. Room rates can then be easily adjusted everywhere they’re advertised.

. . . .

These revenue management systems have led to the term “dynamic pricing.” This refers to online providers’ ability to instantly alter the price of goods or services in response to the slightest shifts in supply and demand, whether it’s an unpopular product in a full warehouse or an Uber ride during a late-night surge.

. . . .

However, new algorithmic pricing programs are becoming far more sophisticated than the original revenue management systems because of developments in artificial intelligence. Humans still played an important role in revenue management systems by analyzing the collected data and making the final decision about prices. But algorithmic pricing systems largely work by themselves.

. . . .

The algorithms study the activity of online shops to learn the economic dynamics of the marketplace (how products are priced, normal consumption patterns, levels of supply and demand). But they can also unintentionally “talk” to other pricing programs by constantly watching the price points of other sellers in order to learn what works in the marketplace.

These algorithms are not necessarily programmed to monitor other algorithms in this way. But they learn that it’s the best thing to do to reach their goal of maximizing profit. This results in an unintended collusion of pricing, where prices are set within a very close boundary of each other. If one firm raises prices, competitor systems will immediately respond by raising theirs, creating a colluded non-competitive market.

Monitoring the prices of competitors and reacting to price changes is normal and legal activity for businesses. But algorithmic pricing systems can take things a step further by setting prices above where they would otherwise be in a competitive market because they are all operating in the same way to maximize profits.

This might be good from the perspective of companies, but is a problem for consumers who have to pay the same everywhere they go, even if prices could be lower. Non-competitive markets also result in less innovation, lower productivity and, ultimately, less economic growth.

. . . .

The European Commission has warned that the widespread use of pricing algorithms in e-commerce could result in artificially high prices throughout the marketplace, and the software should be built in a way that doesn’t allow it to collude.

Link to the rest at Fast Company

In the US, price-fixing is illegal under U.S. antitrust laws.

From The Federal Trade Commission:

Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.

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.

Not all price similarities, or price changes that occur at the same time, are the result of price fixing. On the contrary, they often result from normal market conditions. For example, prices of commodities such as wheat are often identical because the products are virtually identical, and the prices that farmers charge all rise and fall together without any agreement among them. If a drought causes the supply of wheat to decline, the price to all affected farmers will increase. An increase in consumer demand can also cause uniformly high prices for a product in limited supply.

. . . .

Antitrust scrutiny may occur when competitors discuss the following topics:

  • Present or future prices
  • Pricing policies
  • Promotions
  • Bids
  • Costs
  • Capacity
  • Terms or conditions of sale, including credit terms
  • Discounts
  • Identity of customers
  • Allocation of customers or sales areas
  • Production quotas
  • R&D plans

A defendant is allowed to argue that there was no agreement, but if the government or a private party proves a plain price-fixing agreement, there is no defense to it. Defendants may not justify their behavior by arguing that the prices were reasonable to consumers, were necessary to avoid cut-throat competition, or stimulated competition.

. . . .

Q: The gasoline stations in my area have increased their prices the same amount and at the same time. Is that price fixing?

A: A uniform, simultaneous price change could be the result of price fixing, but it could also be the result of independent business responses to the same market conditions. For example, if conditions in the international oil market cause an increase in the price of crude oil, this could lead to an increase in the wholesale price of gasoline. Local gasoline stations may respond to higher wholesale gasoline prices by increasing their prices to cover these higher costs. Other market forces, such as publicly posting current prices (as is common with most gasoline stations), encourages suppliers to adjust their own prices quickly in order not to lose sales. If there is evidence that the gasoline station operators talked to each other about increasing prices and agreed on a common pricing plan, however, that may be an antitrust violation.

Q: Our company monitors competitors’ ads, and we sometimes offer to match special discounts or sales incentives for consumers. Is this a problem?

A: No. Matching competitors’ pricing may be good business, and occurs often in highly competitive markets. Each company is free to set its own prices, and it may charge the same price as its competitors as long as the decision was not based on any agreement or coordination with a competitor.

Link to the rest at The Federal Trade Commission

Price fixing is illegal whether competitors set minimum or maximum prices or establish a range of prices within which they will price their goods.

One of the key elements of illegal price-fixing is an agreement (written, verbal, or inferred from conduct) among competitors. A third party that mediates, organizes or facilitates price-fixing among competitors is also guilty of price fixing. (See, for example, Apple and a group of major publishers agreeing to fix prices on ebooks and force Amazon to increase its ebook prices, in PG’s indescribably humble opinion, one of the more inept attempts at price fixing in the hundred-plus years that the practice has been outlawed in the U.S.).

The OP raises an interesting question about whether pricing systems executed by computers using artificial intelligence constitute illegal price fixing.

Under present law, it is clear that price-fixing agreements established among competitors through a third party are illegal and, per Apple and other cases, the third party is also chargeable with price-fixing. If each competitor appoints a third party and the third parties agree to fix prices or set up a system for establishing uniform prices, PG believes that’s also a slam-dunk price-fixing violation.

The issue of whether artificial intelligence systems that look at the same market data and set prices in a similar manner are engaged in price-fixing is very interesting.

Competitors who each look at market, pricing and available competitor data without using artificial intelligence and set the same prices are not guilty of price-fixing so long as there is no agreement between them to fix prices. Competitor A can look at the prices being charged by Competitor B and use that information to adjust its prices. As described in the OP, that’s how many gas stations typically set prices within a given geographic area.

In the gas station illustration, each station is sending pricing signals to the general public, including other gas stations.

If gas station A reduces its price, other gas stations may respond by matching the price cut, cutting prices below those of A as a competitive move, or leaving prices higher than A and banking on other competitive advantages – a more convenient location or better prices on Diet Coke, for example – to offset A’s pricing advantages.

Not matching a price cut represents a temporary strategy, however, because, based on its own decision factors, a competing station can adjust its prices at any time if it perceives its pricing strategy is less than optimum.

Going back to the OP, PG doesn’t see that AI systems watching the prices other AI systems are setting constitutes illegal collusion. If the AI systems somehow communicated with each other and simultaneously increased or dropped prices, the owners of those systems might be guilty of price-fixing.

However, in the absence of some sort of connection beyond closely watching the public pricing activities of competitors, PG doesn’t see any sort of illegal collusion or conspiracy to fix prices. Setting prices to maximize profits is not, by itself, a violation of any law of which PG is aware. It’s a fundamental principle of capitalist economies.

Back to the gas station example – If two gas stations are located across the street from each other and each station assigns an employee to watch the posted prices of the other station and immediately change prices whenever the station across the street changes its prices, that’s not an illegal price-fixing agreement between the two stations.