Late last week, Amazon and book publisher Macmillan got in a scrap. Macmillan demanded higher prices for it's ebooks on Kindle, and Amazon responded by pulling all books (digital and posthumous tree varieties) from it's store.
The agency model Apple proposed -- and that publishers like Macmillan enthusiastically endorse -- collapses the supply chain in a different direction, so it looks like: author -> publisher -> fixed-price distributor -> reader. In this model Amazon is shoved back into the box labelled 'fixed-price distributor' and get to take the retail cut only. Meanwhile: fewer supply chain links mean lower overheads and, ultimately, cheaper books without cutting into the authors or publishers profits.
Amazon are going to fight this one ruthlessly because if the publishers win, it destroys the profitability of their business and pushes prices down.