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Taiwan's Prime View International (8069.TW) has grabbed a stranglehold in the nascent electronic book reader market by acquiring a small company that holds key patents for the displays used in Amazon.com Inc.'s (AMZN) Kindle and Sony Corp.'s (SNE) Reader devices.

Prime View said Monday it had agreed to acquire E Ink Corp., a Cambridge, Mass.-based company that pioneered the core display technology used in almost every e-reader now sold. The deal, scheduled to close in the fourth quarter, is valued at $215 million.

The acquisition will give Prime View, already the world's dominant e-reader display maker, control of a larger segment of the manufacturing value chain. Some critics said that might enable the company to wield an inordinate amount of pricing power in the market.

Prime View currently licenses E Ink's technology, which creates a black and white ink-on-paper look, and incorporates it into its displays. The two companies supply nearly 20 e-book manufacturers worldwide. The market for e-readers is expected to grow as more material is available in a digital format.

One industry insider, who asked not to be named, was worried the acquisition would enable Prime View to squeeze out emerging competitors, such as South Korea's LG Corp. (003550.SE), which recently began to manufacture e-reader displays based on E Ink's technology. Samsung Electronics Co. (005930.SE), NEC Corp. (6701.TO) and Seiko Epson Corp. (6724.TO) are also moving into the market.

The person, who works at a company making e-readers, said the acquisition would allow Prime View to keep the price of displays using the technology high.

Prime View sells its display modules for about $60, roughly twice as much as it costs the company to manufacture them, according to people familiar with the industry. Displays account for about one-third of the cost to manufacture an e-reader device, those people said.

Prime View officials were not immediately available for comment.

E Ink Chief Executive Russ Wilcox downplayed critics' concerns. He said Prime View would continue to supply its technology to other display makers, adding that rivals would surely emerge if the company tried to squeeze out competitors.

"There will be lots of innovation and diversity," he said. "It's rare in consumer electronics to see pricing go up."

The market for electronic book devices is forecast to grow from 1.1 million units in 2008 to 20 million units in 2012, according to iSuppli analyst Vinita Jakhanwal. E Ink sales were $18M in the first quarter of 2009, up 157% over the same quarter in 2008.

Forrester analyst Sarah Epps said it was "potentially problematic" for one company to have that much power in the market, but she noted that Prime View will be under pressure from partners to make its technology more affordable.

Prime View pushed into the market in 2005 when it acquired the e-paper business of Philips Electronics NV (PHG) and partnered with E Ink. Prime View also invested in dedicated driver chips, touch screens and flexible displays.

-By Scott Morrison; Dow Jones Newswires; 415-765-6118; scott.morrison@dowjones.com