An article in the New York Times (April 12, 2012) describes a Justice department lawsuit accusing Apple and five publishers of e-books price fixing. Given declining e-book prices, five large publishers agreed to an “agency model” of pricing whereby Apple was paid 30% of retail, with publishers setting prices. Apple also got a “most favored nation” clause so that no other retailer could sell e-books for less. The result was higher prices, which, Amazon.com claims, was forced on them. But authors and publishers claim that the models enabled them to maintain reasonable margins upstream. Are the approaches by Apple an attempt to coordinate the channel or derive an unfair advantage and dampen retail competition ? Why would higher retail prices and 30% margin hurt Amazon.com – is it because of the lower demand levels or the reduction in the margins that Amazon gets from cross selling other products ? Will steps by the Justice department ultimately be bad for consumers due to lower book variety associated with prices that are too low ?