Apple, Amazon, Walmart and the Art of the Killer Deal
Apple has been accused of price-fixing ebooks and working with major publishing houses to raise prices pushed down by Amazon.
As the trial began in New York this week, the Department of Justice's assertion that Apple's practices had cost consumers "hundreds of millions of dollars"—the idea that Americans spent more money on books than they might have—made me think of a story Charles Fishman tells his 2006 book, "The Wal-Mart Effect."
As the story goes, Vlasic agreed in 1998 to sell Walmart 12-pound, 1-gallon jars of pickles that Walmart, wanting a statement item, decided to sell for $2.97. It was little more than consumers were used to paying for quart-size jars and a price so low that Vlasic and Walmart "were only making a penny or two on a jar, if that," wrote Fishman.
Almost instantly, Walmart was selling around 200,000 of the jars each week.
Vlasic reportedly begged Walmart to increase the price, even by pennies, but Walmart wouldn't budge and threatened that if Vlasic stopped making the gallon for Walmart, the retail giant would stop buying Vlasic's other, more profitable products.
Walmart sold the gallon for two and a half years. When it finally relented, Vlasic's business had grown, but profits in pickles were down 50 percent and millions of dollars in potential profit had been lost. Vlasic's head of marketing called the gallon jar a "devastating success."
Fishman explained: "The meaning of the Vlasic story is complicated, but ... it shows the impact of Walmart's scale and power in what we all think is a market economy. Walmart's focus on pricing, and its ability to hold a supplier's business hostage to its own agenda, distorts markets in ways that consumers don't see, and ways that suppliers can't effectively counter. Walmart is so large that it can often defy the laws of supply, demand and competition."
When Apple entered the bookselling business in 2010, Amazon, which had introduced its Kindle e-reader in 2007, was selling ebooks at prices so low it was sometimes taking a loss, according to Reuters.
I'm not defending Apple, or pointing a finger at Amazon. But as the Apple trial gets under way, the idea of readers being robbed of the opportunity of devastatingly cheap books, the state of the publishing industry and the role of the innocent consumer, hauling home unneeded pounds of pickles, all strike me as food for thought.