{"id":267187,"date":"2010-02-02T12:22:24","date_gmt":"2010-02-02T17:22:24","guid":{"rendered":"tag:business.theatlantic.com,2010:\/\/3.35131"},"modified":"2010-02-02T12:38:23","modified_gmt":"2010-02-02T17:38:23","slug":"amazon-vs-apple-what-should-e-book-prices-be","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/267187","title":{"rendered":"Amazon vs. Apple: What Should E-Book Prices Be?"},"content":{"rendered":"

Amazon has backed down<\/a> from its weekend dispute with Macmillan, agreeing to charge the publisher’s higher prices for Kindle editions rather than its preferred $9.99. But the long-term questions about e-book pricing remain.<\/p>\n

Amazon still calls Macmillan’s prices–generally $12.99 to $14.99 for new books–“needlessly high<\/a>.” Apple, meanwhile, has made deals with publishers like the one Macmillan demanded from Amazon: higher prices for books<\/a>, with Apple keeping a percentage of sales.<\/p>\n

Who, in fact, has the better strategy? To maximize revenue, what should prices for e-books look like?<\/p>\n

The common intuition is that e-books should be cheap because they aren’t physical–no printing, no shipping. Ah, say contrarians<\/a>, printing and shipping make up only a tiny fraction of a book’s costs. E-books aren’t really cheap.<\/div>\n
<\/div>\n
Like
\npublishers themselves apparently, these wise guys are using the wrong
\ncost figures. To calculate the cost of a copy, they’re loading on fixed
\n“pre-production” costs like the editor’s salary and the publisher’s
\nrent. They’re including the marketing budget. But these are fixed <\/i>costs.
\nThey don’t change when you produce another copy. They may be important
\nwhen deciding whether to publish a book at all, but once the money has
\nbeen spent they’re irrelevant to what you charge for a given copy.
\nOptimal pricing should be based on the marginal<\/i> cost of that
\nincremental copy. Cover that incremental cost, and selling one more
\ncopy is profitable. The common intuition that e-books should be cheap
\nreflects this basic microeconomics: Producing and delivering another
\ne-copy costs next to nothing.<\/div>\n
<\/div>\n
The other side
\nof the equation is consumer response: How many more copies will people
\nbuy if the price goes down? Or, in economic lingo, what is the price elasticity of demand<\/a>? Book publishers talk<\/a>
\n(and often act) as though book buyers aren’t particularly price
\nsensitive. The Borders and Barnes & Noble coupons in my email
\nsuggest otherwise. So does what little academic research exists on the
\nsubject. In a paper looking at people buying physical books using a shopbot<\/a>, economists Erik
\nBrynjolfsson, Astrid Andrea Dick, and Michael D. Smith found very large
\nelasticities: A 1 percent drop in price increased units sold by 7
\npercent to 10 percent.<\/div>\n
<\/div>\n
Of course, people who
\nuse shopbots are likely to be more price sensitive than average. But
\nthere’s anecdotal evidence that prices matter a lot for e-books. As The New York Times<\/i> reported recently<\/a>, most of the books on the Kindle bestseller list are being given away for free. And comments on various<\/a> discussion<\/a> threads<\/a> among<\/a> Kindle<\/a> users<\/a> suggest that many are bargain hunters looking for a good, cheap read rather than a specific title.<\/div>\n
<\/div>\n
Rather
\nthan cut prices for everyone, Macmillan hopes to be able to price
\ndiscriminate, so that eager readers pay more than casual ones. It’s a
\nreasonable strategy. But the publisher seems to envision a traditional
\nmethod of dividing the market: charging more for brand-new titles and lowering prices over time<\/a>.
\nThat approach works for paperbacks, which come out roughly a year after
\nhardback editions. But paperbacks are, of course, physically inferior
\nto hardbacks, while e-books are all the same. Discriminating by
\npublication date works only for titles that are fashion items–you
\nwant to talk about Game Change<\/i> this week, not in six months–or blockbusters with impatient fans (the latest Twilight<\/i> installment). Most books fall into neither category.<\/div>\n
\n
<\/div>\n<\/div>\n
If
\nlower book prices would generate more revenue, why, then, has Apple so
\nwillingly adopted higher prices? Here it’s worth considering the
\ndifference between Amazon’s books-plus-reader system and Apple’s.<\/div>\n
<\/div>\n
As
\nmany commentators have noted, Amazon is not just selling e-books. It’s
\nalso selling the Kindle. To encourage sales of its device, the company
\nhas even been willing to sell Kindle editions for less than the
\nwholesale price it pays for them. It’s presumably maximizing profit on
\nthe whole system, not just each individual title.<\/div>\n
<\/div>\n
Apple,
\ntoo, is a system seller, and a device company to boot. But it doesn’t
\nhave to sell a single book for the iPad to succeed. Books are just one
\napp among many. If you’re one of those old-fashioned people who read
\nbooks without pictures, you can download a novel between watching
\nvideos, playing games, visiting websites, or looking at photos–all the
\nthings the visually oriented iPad was really designed for. The iPad is
\nexciting not as a way to sell or read books as they currently exist but
\nas a tool for reinventing them as multimedia<\/a>.
\nThe book angle also helps generate good press, since journalists are
\ndesperate for any evidence that writing will pay in the future.<\/div>\n
<\/div>\n
Apple
\ndoesn’t need to maximize book sales. It simply needs to keep publishers
\nhappy enough to maintain an impressive sounding inventory of titles
\nwhile waiting for entirely new forms of publishing to develop. After
\nall, as Steve Jobs famously put it, “people don’t read anymore.”<\/a><\/div>\n



\n

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\n\"\"<\/p>\n","protected":false},"excerpt":{"rendered":"

Amazon has backed down from its weekend dispute with Macmillan, agreeing to charge the publisher’s higher prices for Kindle editions rather than its preferred $9.99. But the long-term questions about e-book pricing remain. Amazon still calls Macmillan’s prices–generally $12.99 to $14.99 for new books–“needlessly high.” Apple, meanwhile, has made deals with publishers like the one Macmillan […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-267187","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/267187","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=267187"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/267187\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=267187"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=267187"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=267187"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}