Engadget writes that iTunes has begun to implement variable pricing while Amazon's MP3 service has not. Meaning popular songs on iTunes cost $1.29 while the same songs cost only $.99 on Amazon.
Amazon has done a good job of always giving its MP3 service an advantage over iTunes. Before this Amazon sold DRM-free tracks for $.89 while iTunes was selling the same tracks, with DRM, for $.10 more. Now Apple has gone to variable pricing in order to sell DRM-free music while Amazon has gotten away with offering those same tracks for a constant $.99
Much of this is rooted in the labels need to build a viable competitor to iTunes. If customer purchase patterns shift significantly to digital music the labels don't want Apple having complete control over the distribution chain. So they give Amazon certain breaks in order to keep the service alive.
Unfortunately even with those breaks most people still choose to buy from iTunes. Amazon's service requires you install a small program which will import your purchases into iTunes and thus far users have not been willing to go through that minor inconvenience.
Which brings us to the next iteration in the story. People weren't willing to suffer that minor inconvenience for DRM-free tracks but will they be willing to do so for a $.30 discount on certain songs?
I suspect not. I can't imagine Apple picked $1.29 at random and I strongly suspect they based their pricing on focus groups that said an extra $.30 was what consumers were willing to pay.
On top of that many people are still uncomfortable with their mp3 players and iTunes makes it painfully simple to put music on your iPod. While experienced users tend to appreciate the fact that iTunes has a much better user interface.
So in the end Apple wins in the same way they always do: By being smarter than the competition and by making things simple. I hope Amazon can gain enough buyers to keep Apple from becoming a monopoly because that would be bad for all of us. But at the same time I sincerely doubt they'll ever come close to matching iTunes sales levels.
Addendum: Well, this post seems kind of silly now. I don't know why the labels gave up on the "prop Amazon up" strategy but it doesn't seem very prudent.