>There was one other important aspect to the agency model that Apple established with the publishers — it included a most-favored-nation (MFN) clause. An MFN pr

>There was one other important aspect to the agency model that Apple established with the publishers — it included a most-favored-nation (MFN) clause. An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer. >This meant that the iBookstore would always have the e-book at the cheapest price. It also meant that if a retailer was offering the book for a cheaper price, the publisher would have to lower the retail price to match it. If that meant the price was below what it cost to produce, the publisher would take the loss, not Apple — they would still get their 30% cut. >The traditional purpose of MFNs are used to protect a retailer’s ability to compete, ensuring that they aren’t disadvantaged by the wholesaler giving their competitors a better deal. The DOJ contends that the way this MFN works, it was designed to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.” Those are strong words, but there is certainly a kernel of truth to that. http://www.macstories.net/stories/understanding-the-agency-model-and-the-dojs-allegations-against-apple-and-those-publishers/ http://www.macstories.net/stories/understanding-the-agency-m...