When the Justice Department announced in March that it intended to sue Apple and five book publishers for collusion over the pricing of eBooks, David Boaz of the Cato Institute could be heard to say “Here we go again.” Boaz wrote about Washington regulators and busybodies two years ago, calling them “parasites” and expressing the hope that Apple would avoid the absorption into the Washington “Borg” suffered first by Microsoft and then Google.

Now it’s Apple’s turn. The irony is that Apple’s success has been built by providing products that their customers didn’t know they wanted – until they existed. Here’s the insanity: the company creates whole new products and industries and jobs, and the federal government is now upset that somehow Apple is going to “limit” competition in the industry it created.

At issue is Apple’s move into eBook publishing. Hard cover books used to be marketed using the “traditional model” where the publisher determines the retail price and then sells distributors the books at wholesale, usually about half the list price on the cover. Retailers, like Barnes and Noble, are then free to charge whatever they like, even below their cost if they want to.

Along came Apple with its “agency” model whereby the publisher would set the price of the book and Apple would take 30% on each book sold. The “agency” model took over the industry and the feds have concluded that there had to have been some collusion involved, so they’re threatening to sue.

The impact of the suit, if successful, or any “negotiated settlement” beforehand, is likely to have a large impact on the eBook industry, with higher prices and fewer books likely to be available to the reading public. As The Reporter editorialized, “This shows how little the federal government knows about what’s going on out there in innovative companies. The iPad, the platform most of these books appear on, is only two years old. It already has competitors, most based on Google’s Android system. And the five biggest U.S. publishers themselves face competition from dozens of smaller companies.”

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