On the first point, under the prior system, publishers had total control to set book list prices and Amazon had to pay 50% (or more) of that list price back to the publisher. When the list price is very high, Amazon simply isn’t able to absorb the losses and prices its ebooks higher than $9.99, sometimes significantly so. It’s a myth that Amazon prices all or most ebooks at $9.99. A recent survey found just 16% at that price (and about 30% higher). As a frequent shopper in the Kindle store, I can tell you that over the past two years, ebook prices have been creeping up — an experience validated by some surveys as well. And that flexibility happened in real-time as prices for a single ebook can vary quite widely over time. Amazon is, as you may realize, one of the greatest experiments in pricing feedback and revenue maximization of all time.

What MacMillan has demanded is the right to set retail prices itself and at just three price points, $14.99, $12.99 and $5.99. It will have far less direct information about sales in real time than Amazon had and the company has set on a far less flexible scheme than what prevailed previously. There is also a lot of evidence that MacMillan and the other major publishers have no interest in lowering ebook prices. At ebook stores run by retailers more friendly towards publishers (or, said another way, with much less market sway than Amazon), ebook prices are as high or higher than prices for print versions, even on older titles. It’s been reported that many MacMillan titles on Fictionwise.com which are available in mass market paperbacks sell for $14.99. Scrollmotion, a publisher-financed iPhone app maker, famously failed at trying to sell ebook versions for that platform at full hardcover list prices. And in a quite similar situation, music labels identically said they needed more flexible pricing from Apple and promised 99 cent tracks would be sold at three price points, 69 cents, 99 cents and $1.29. What’s happened since? Most tracks that sell are priced at the high end and you can’t find a popular 69 cent track to save your life, even on pretty old music.

Finally, MacMillan’s incentives are not to maximize revenue from ebook sales. If so, why would they be pushing a scheme that will lower their revenues and lower ebook sales overall? Their incentive is to maximize revenue from all sources. If, as they seem to believe, sales of cheap ebook versions are cannibalizing higher priced (and higher margin) sales of print books, they can maximize their revenue by raising ebook prices and reducing cannibalization.

But on elasticity, what about the time factor? It seems more to me that price is declining on a schedule by time, since the value diminishes. The price is still fixed. If I won’t pay a buck for a day-old stale loaf of bread, and I won’t pay $2 for a fresh one, I’ll never buy the store’s bread.

I’ve seen paperbacks prices lower than the e-book on Amazon, mainly when the cover price of the paperback is $7.99 while the e-book’s “digital list price” from the publisher is still $27, and Amazon sets the e-book price at $14 so it won’t lose $. I find it hard to believe that publishers who do that understand any level of economics.

That’s not even accounting for the fact that the difference in price between an e-book and a hardcover should reflect the reduced value of a non-transferable, non-loanable file.

The e-book “value” is being determined by what hardcovers are selling for. Amazon seems to have a grasp of that. Publishers – not so much.

I think publishers still don’t get it.

I don’t think Amazon prices to sell Kindles, and I dd get the impression (long details here: http://trueslant.com/rogertheriault/2010/02/03/who-wins-the-ebook-wars-amazon-macmillan-apple-publishing/) that publishers are simply trying to hold their e-book prices at unsustainable levels.

1. I pay .99 for a song purchased on iTunes (precedent)
2. According to Amazon Terms & Conditions, you never actually own the Kindle book, only the limited rights to view it. (Amazon has actually removed purchased e-books from user accounts without warning or reimbursement).
3. E-content is cheaper to produce and distribute than print.

I am annoyed that more competition hasn’t so far resulted in cheaper prices, but very interested to see the outcome, and grateful for your well thought out economics lesson.

BTW – My husband argues we consumers should be willing to pay more for the convenience, but what does he know.