Monday, February 1, 2010

A Logical Fallacy in eBook Price Competition

Over the weekend, Macmillian strong-armed Amazon into selling its eBooks for $14.99, instead of Amazon's preferred $9.99.

PaidContent report argues that the move will hurt Macmillian in the long run:
Publishers will ultimately be compelled to bring e-book prices down. If Macmillan is the only publisher to move to an agency model, its e-books will be at a disadvantage compared to other publishers in the Kindle store, which is a bad place to be when you’re trying to sell to the more than 5 million people who will own a Kindle by year-end 2010. But even if the other publishers move to the same model, they’ll suddenly realize that with great (pricing) power, comes great (pricing) responsibility, and some will start to lower prices, promotionally at first and then on a more lasting basis. Because there is always a publisher who is hungrier than the rest. 
I acknowledge that there is a drastic difference between a free eBook and one that costs a few dollars, but it's likely that a price increase of $5 isn't going to drive away many sales. Almost everyone willing to buy a Macmillian book for $9.99 is still willing at $14.99.

Books are not homogenous goods, and they make poor substitutes for one another. If I want a book on Sandy Koufax, I wouldn't substitute away from a higher-price Koufax and instead buy a cheaper book on Don Drysdale. Fans of Twilight aren't going to switch to a different series to save a few dollars.

Of course, there are limits: if an eBook costs $60, that's going to be a large deterrence. But for small price differences, the Kindle crowd is not very price sensitive (they've already shelled out $259 for the device, after all).

Update 2/3: The Onion has a sarcastic quote to this point:
"Macmillan's loss. I would have bought Everything Ravaged, Everything Burned for $9.99, but at $12.99, I'm going with NCIS and, for commercial breaks, an old copy of People."

3 comments:

Josh said...

It still seems silly that publishers want to charge the same prices for digital copies that they do for the physical variety, as the latter almost certainly builds in costs related to materials and shipping, while the former can be distributed practically for free. A price hike like this is essentially income padding for the publisher (good for them) with no added value for the consumer (bad for them).

I do tend to believe that, in the long run, digital distribution methods will keep prices lower. This will likely become more noticeable as soon as it becomes easier for authors to independently distribute their work in mainstream channels without the help of a publisher. There have been talks of Apple allowing for just such a process on the iTMS--akin to what they do with independent musicians currently.

Adam Gurri said...

I disagree with your point about books as substitutes. It may be that they're not homogeneous, but they serve much of the same function. When I'm at a Borders (something I try to avoid to stay away from temptation) I consciously choose between very different books--whether I'm going to buy a scifi book that is in pulp paperback and therefore quite cheap, or the slightly more expensive economics book that will also take me longer to read.

Also, while someone who was willing to pay $9.99 may also be willing to pay $14.99, they may not be willing to buy two $14.99 books where they would have bought two $9.99 ones.

Greg said...

That's a fair point. Yes, when readers are browsing for new stuff and don't have a particular title in mind, then pricing will definitely be a factor.

Also, unrelated, but does anyone else think it's weird that Amazon's home page has been promoting the Henry Paulson book for a few days now? It doesn't seem like it would have mass appeal.