Amazon, Macmillan Fight Over Ebook Prices; After Amazon Removes Macmillan Titles, It Caves To Higher Prices

from the too-bad dept

On Friday, there was a sudden realization that Amazon had removed books published by publishing giant Macmillan, apparently over a dispute concerning ebook pricing. Of course, Amazon wasn't just removing Macmillan ebooks, but the physical books as well. After a bit of back and forth over the weekend, Amazon caved in and accepted the way Macmillan wants to price books, which means that Macmillan sets the retail price, and Amazon gets a cut. Previously, Amazon had paid a wholesale price and then got to set the retail prices itself.

I had been under the impression that when manufacturers tell retailers what the end user price is, it's a form of price fixing, but apparently not...

Of course, what may seem odd about this is that it appears Macmillan will make less per ebook under this model. That's because with its old wholesale pricing, Amazon was actually losing money on every ebook sold. As the NY Times notes:
In the model that Amazon prefers, publishers typically collect $12.50 to $17.50 for new e-books. Under the new agency model, publishers will typically make $9 to $10.50 on new digital editions.
So why are publishers specifically trying to limit their own profits from ebooks? Because they're afraid of ebooks cannibalizing hardcover book sales, which is why they're also looking to delay ebook releases. In fact, in this case, Amazon was given the choice of either increasing the retail price for consumers on Macmillan ebooks, or getting them many months later. All in all, this looks like publishers hurting themselves, yet again, by going against what consumers want in a misguided effort to preserve the way things used to be. Yet, in an age when users are punishing authors and publishers who don't treat them right, this could backfire in a big way.

Filed Under: ebooks, pricing
Companies: amazon, macmillan

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  1. icon
    The Anti-Mike (profile), 1 Feb 2010 @ 10:43am

    Re: Re: TAM the amazing TAMHOLE

    -I believe he completely misunderstands the economic concept of scarcity and its contribution to marginal cost.

    Actually, scarcity has absolutely nothing to do with marginal cost (the cost to create one more unit), but rather it has to do with supply and demand. Scarcity is what limits supply, and the price is created as a result of the demand, particularly when demand is in excess of supply.

    Artificial scarcity is to specifically limit supply where no real supply limit exists. "limited edition" anything where the limit is created only by choice means that supply is constrained only by choice, not by any true shortage.

    A music business example would be putting a major "stadium" act on a small night club tour. Those tickets are exceedingly scarce compared to demand, but that scarcity is artificial, because the band could just as easily play a larger room. The true scarcity is their time, not the number of seats. The seat scarcity would be artificially created.

    Anyway, what the publishers have done for a long time is create an artificial shortage of books. Essentially, they could very easily print new books are lower priced paperbacks right away, and satisfy the market demand in that manner. However, they manage supply, first putting the book out as a higher price (and quality) hardcover book, and then releasing it over time as a lower cost paperback.

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