It's regrettable that some of the authors are losing sales, but I think that Amazon is basically in the right, for the following reasons:
1. Their arguments with regards to price elasticity are supported by (admittedly, Amazon's) data, and are intuitively plausible. Cheaper books sell more, yielding more revenue. The cost of production is substantially lower for ebooks, so passing on some of the savings to consumers seems fair, and further, so long as a literate public is seen as a good thing, there's intangible benefits to consider as well.
2. It's a dispute between two businesses, and Amazon has a legal right to not list/stock books. Honestly, it's like a caricature out of Atlas Shrugged-- you have to sell our books at these prices (of which authors get < 10%) or you're somehow the villain... as opposed to a business that just does not want to sell on those terms. Further, their contribution to the livelihoods of the authors is probably greater than the "value-add" of a publishing house. If sales and distribution from a website is such an easy thing to do, then how is it possible that a single company feels reasonably secure with delisting so many supposedly desirable books? The amount of effort necessary to make 2-day delivery so much cheaper than going to Borders is immense. They also built the Kindle (as well as its ecosystem) and sold the device at a loss, which has helped make the ebook market so big.
3. The "authors" are the only really sympathetic characters in this drama, but they appear to have no agency of their own. Why not move to a different publisher, or publish on Amazon? Because Hachette won't let them out of their contract? I can see why they would want to group together to avoid getting trampled between the two companies, but why side with Hachette? Unless their objective is "fewer books sold, higher prices, and smaller royalty payments", their collective bargaining power would seem to be better put towards forcing Hachette to either agree to terms or release them to find other representation. Agitating on Hachette's behalf is probably the easiest way to get money flowing again, but it's hardly the right thing to do.
Given that Amazon's suggested model could be more profitable for all parties, why are the publishers resisting? I suspect that it comes down to the fact that if ebooks become the main method of book distribution, the value of being a publisher would decrease substantially. Amazon (or similar businesses) could handle the printing and distribution, marketing, editing, type-setting, and similar tasks could be passed to firms whose sole purpose is that task.
Regardless of how this shakes out between Hachette and Amazon, I can't really see a future for monolithic publishers.
It could just be bad writing, but Amazon's point about elasticity reads like a sleight-of-hand trick to me. They say:
> So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99.
So, 74,000 people choose to buy the cheaper book. Great! But without the price cut, those people might have bought other books. Maybe some other $9.99 book, maybe some $12.99 book, maybe none at all. Growing the market for an individual book is only impressive if you're selling the book to people who would not have bought a book at all, not if you're competing with other books on price.
> The pie is simply bigger.
The 'pie' they're referring to here is not publishing revenues in total, but revenues for a single book. This feels sneaky because when people refer to the 'pie' as an economic metaphor, they generally mean the total across a sector or the economy as a whole. That's probably not codified anywhere, so it's not possible to say that Amazon's usage is definitively wrong, but it's something that can be easy to misinterpret in a way very favourable to Amazon's argument.
Now, maybe Amazon really does mean that revenues across the whole industry would go up if prices were lower, as books take market share away from other sources of entertainment and information. If so, their example case is a bad one, because it doesn't demonstrate this. It feels a bit like they're talking a big talk about promoting books against other forms of entertainment, but when talking facts and numbers they're giving a subtly different story.
EDIT: I should say that I broadly agree with the rest of the OP. Ebook pricing does look high to me, and I would like to see lower prices. The general 'vision' that the OP puts across is one that I like, I'm just not sure how much it aligns with the reality of what's happening.
But without the price cut, those people might have bought other books.
As the article says:
But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more
Amazon has data that shows eBooks are better sold at lower prices because books aren't just competing with books. If that is not good enough, basic fairness states that a virtual good with no manufacturing, spoilage or delivery costs without a secondary market should be sold for substantially less than a physical good with manufacturing, spoilage and delivery costs with a secondary market that competes with new goods sold.
I think what you're missing is that Amazon's point, that lower ebook prices are generally good for all parties, applies to all ebooks. They do use the phrase "a particular e-book" in their example, but I assumed that the real desire is for all ebooks to get a similarly proportional discount.
Of course, even if we just consider a price drop on a single ebook, it's still a valid point that this helps that ebook compete against other ebooks that don't change their prices, and there's nothing wrong with that.
Some goods are price elastic and some aren't. All Steam Sales have proven is that lowering prices of video games -over time- leads to a larger total profit. You shouldn't try to apply one item's price elasticity to another, especially since it is also highly dependent on the buying audience.
Well, if I buy two books at $15 each I would probably buy three at €10 each. So the individual book has more readers and some other book has more readers.
Who, exactly, is saying amazon is acting illegally not listing or stocking Hachette books? I doubt you can find much of anyone; I'm not sure how debating strawman adds anything.
Further, cheaper books sell more yields more revenue is econ for tots version of capitalism. What book publishers are doing is classic price discrimination, and amazon is damaging it. Note that amazons statistics -- such as they are, and they certainly come with no backing data, and are hard to take at face value since they (stunningly!) support amazon's goals -- exclude sales off amazon.
Authors have seen how apple, amazon, walmart, etc behave towards suppliers. Where amazon to become more of a monopoly, they'll turn their price cutting on authors. It's well within authors' interests (and frankly mine, as a reader) to preserve a price structure that supports writing. Finally, assuming that authors somehow are agitating for "fewer books sold, higher prices, and smaller royalty payments" assumes that authors are all somehow stupid. Perhaps you should revisit your assumptions that lead you to assume that's what authors desire.
ps: since we're almost all developers here -- selling, in one form or another, software with nearly 0 marginal cost -- there's not a person here with any ground to stand on to claim that prices should reflect underlying costs.
Price elasticity is only part of it. Another major factor is consumer surplus. Consumer surplus manifests itself in book sales largely through hardcover sales. The existence of hardcover editions and the fact that they are initially first to market (typically by many months to a year) provide a window of opportunity to tap the consumer surplus in the market, which they do. You'll notice that many hardcover editions are often discounted extremely after the paperback comes out, sometimes to nearly comparable values.
There is no such market segmentation or opportunity to capture the consumer surplus with e-books, so potentially that money is just lost. Does greater volume of sales make up for that? Who knows, Amazon hasn't provided enough data. On the plus side, Amazon is incented to maximize their own revenue and since authors get a percentage of the book sales revenue in theory that means Amazon should be incented to maximize author revenue as well. Though, as always, it's not quite so simple.
"There is no such market segmentation or opportunity to capture the consumer surplus with e-books"
What? If anything, it's MUCH easier to do so with e-books, with elastic pricing. Maybe it's not Amazon's current proposal, but I disagree with that part of your argument.
You do make a good point about consumer surplus.
Edit: I'm pretty sure e-book publishers can get creative ways to add to consumer surplus (be among the first 100 to buy the "premium" edition and get a character named after you in the sequel!), maybe something like kickstarter's model.
Well, yes and no. The price can be allowed to fluctuate and it can be held at one level while encouraging people to buy during a deeply discounted sale (the Steam model), and that captures some of the consumer surplus through segmentation based on availability. Though most of the gains there are actually in volume (during the sales), especially since it's a virtual good. In terms of capturing the entirety of what everyone would be willing to pay, it falls short. Compare the amount of revenue per sale on a hardcover novel vs an e-book, for example. On the one hand the publisher and author may take home tens of dollars, on the other it's unlikely to be more than 10. With e-books using the Amazon model basically all of the consumer surplus from anyone willing to pay hardcover prices is lost. Is that made up for by volume? We don't know.
As for alternate e-book models, as you point out, there are many. And actually crowd funding is a major way to capture that latent consumer surplus (which is one of the big reasons behind its success), but even that is not necessarily a panacea.
Giving Amazon pricing power over your product, whatever that is, is a bad idea.
The publishers would like to set a price. That is their right. Amazon can pay that or not. That is their right. What's happening now is that a near monopoly on book distribution is throwing their weight around. The little players on the margins are going to get hurt.
> I can't really see a future for monolithic publishers.
What about monolithic retailers? I might be totally mistaken, but I think Amazon has a near-monopoly on selling ebooks at this point. Here is their Kindle VP saying they have 70-80% of the market (http://www.cnet.com/news/amazon-we-have-70-80-percent-of-e-b...).
I don't understand antitrust regulation very well, but could Amazon have some sort of obligation to accept Hachette's terms because they have this near-monopoly (on what will almost certainly be the dominant form of reading in the next 20 years)?
This article [0] seems to put B&N and Apple around 20% each earlier this year pitting for no. 2 - with Apple (and Amazon) gaining against B&N. While Apple have decent market share (that's probably roughly comparable to iOS smartphone share worldwide?) and continue to sell a zillion iPads probably with iBooks installed and certainly with iBooks the only app you can buy ebooks in Amazon are probably pretty protected at a guess.
1. Their arguments with regards to price elasticity are supported by (admittedly, Amazon's) data, and are intuitively plausible. Cheaper books sell more, yielding more revenue. The cost of production is substantially lower for ebooks, so passing on some of the savings to consumers seems fair, and further, so long as a literate public is seen as a good thing, there's intangible benefits to consider as well.
2. It's a dispute between two businesses, and Amazon has a legal right to not list/stock books. Honestly, it's like a caricature out of Atlas Shrugged-- you have to sell our books at these prices (of which authors get < 10%) or you're somehow the villain... as opposed to a business that just does not want to sell on those terms. Further, their contribution to the livelihoods of the authors is probably greater than the "value-add" of a publishing house. If sales and distribution from a website is such an easy thing to do, then how is it possible that a single company feels reasonably secure with delisting so many supposedly desirable books? The amount of effort necessary to make 2-day delivery so much cheaper than going to Borders is immense. They also built the Kindle (as well as its ecosystem) and sold the device at a loss, which has helped make the ebook market so big.
3. The "authors" are the only really sympathetic characters in this drama, but they appear to have no agency of their own. Why not move to a different publisher, or publish on Amazon? Because Hachette won't let them out of their contract? I can see why they would want to group together to avoid getting trampled between the two companies, but why side with Hachette? Unless their objective is "fewer books sold, higher prices, and smaller royalty payments", their collective bargaining power would seem to be better put towards forcing Hachette to either agree to terms or release them to find other representation. Agitating on Hachette's behalf is probably the easiest way to get money flowing again, but it's hardly the right thing to do.
Given that Amazon's suggested model could be more profitable for all parties, why are the publishers resisting? I suspect that it comes down to the fact that if ebooks become the main method of book distribution, the value of being a publisher would decrease substantially. Amazon (or similar businesses) could handle the printing and distribution, marketing, editing, type-setting, and similar tasks could be passed to firms whose sole purpose is that task.
Regardless of how this shakes out between Hachette and Amazon, I can't really see a future for monolithic publishers.