Sentences to ponder

The topic is consumer protests over price hikes for eBooks and here is one response:

“The sense of entitlement of the American consumer is absolutely astonishing,” said Douglas Preston, whose novel “Impact” reached as high as No. 4 on The New York Times’s hardcover fiction best-seller list earlier this month. “It’s the Wal-Mart mentality, which in my view is very unhealthy for our country. It’s this notion of not wanting to pay the real price of something.”

Here is the article; I giggled when I read that.  Here is a short biography of Douglas Preston.

Comments

Isn't the real price what people are willing to pay for a book?

I could believe that the "real price" of my labor is much higher, but, alas, I too am subject to supply and demand. If only the labor theory of value were correct. *sigh*

That should be very low for an ebook

Considering digital content can be duplicated effortlessly and without limitation... I'm pretty sure an infinite supply of something is going to lower its cost!

Well, I'm not sure books can be called a monopoly. There is nothing stopping someone else from doing the exact same research and writing the exact same book and selling it for slightly less.

People will pay less than what an object is worth to them. My answer to him is to write books that people want to pay more for.

People will pay less than what an object is worth to them. My answer to him is to write books that people want to pay more for then to find a way to charge more.

Do the ebook price hawks desire contextual advertising on every page of their e-books? I'm starting to think that they do.

I can understand the point that Friedman in the earlier post and Preston here are trying to make. What prods me into posting is the fact that, for two people who are richly remunerated for writing, they expressed themselves so poorly and with such a basic lack of knowledge.

The sense of entitlement of American authors is just astounding. The "value" of an item in a free marketplace is the price that a willing seller and a willing buyer agree on. "Knockout" is available in e-edition from both Amazon and B&N for $14.82. Amazon also sells it as a new hardback for $17.79 and in a CD edition for $10.19. It may also be purchased new hardback from AbeBooks for $11.25 or used from Borders for as little as $2.09. The higher price of the e-edition apparently reflects the more restricted number of distributors. This whole thing just seems to be the marketplace at work - if you want the convenience of the e-edition, you pay for it. If you are will to give up some cool points and read a plain old used hardback edition, you can save a bundle. Or you can borrow it from your public library for free.

Interesting thought: in what disciplines does "real price" make sense or nonsense? As other commenters have noted, "real price" doesn't mean much in econ, and even less in marketing.

"real price" seems more like some moral concept, arising out of religious beliefs. Good luck trying religious arguments with Jeff Bezos.

So what is the "real price" in this case?

On the whole this is a marvelous demonstration of how markets work in practice rather than theory.

The old business model of the publishing industry (authors, editors, producers, distributors, promoters) is being turned upside down by very efficient technological advances. Under the old model, each part of the value chain had a place that promoted efficient production and distribution to customers. Add in some more complications: publishers cross subsidize within their portfolio; publishers/distributors/retailers assume a return rate of unsold goods of anywhere from 20 to 45%; publishers invest in authors in the hope that they will become the next Robert Ludlum or Tom Clancey; retailers provide a high touch experience known as browsing, it's a method to drive incremental sales.

I don't pretend to know who will be the winners and the losers. And I also am not totally convinced that the path of the CD industry is a preview of what will happen to books. What I do anticipate is the bulk of the benefits of these changes will redound to the consumers and whatever parts of the value chain can adapt to the new normal.

Cut the author a bit of slack - he's not an economist. "Real" in this case almost certainly means sustainable. And he is correct in that a sustainable price for e-books (i.e. one that allows authors and publishers to make a living) may be only marginally lower than paper version prices, as pricing of books does seem rather inelastic and fixed costs must be covered.

Sadly, while people purchase books for their contents, the perceived value of a book is in its physical construction. There's no law that says the customer has to be economically rational from the suppliers point of view.

Unfortunately for authors, it's quite possible that e-books can never have the value that is sufficiently high to consumers that they will be willing to pay a price that makes it economical to create books of sufficient quality that people are willing to buy them.

i.e. you can create books for next to nothing, but they're bad and nobody buys them, or you can create books that are good, but then they're expensive and nobody buys them.

There's no law that says a market *has* to exist. There are many countries without a commercial movie industry because the price that its citizens are willing to pay to see those movies is less than the cost of producing the movie. (I believe the Hong Kong movie industry is pretty much dead now because that price was only marginally above free.) The populace can exist on imported fare alone.

If the American public doesn't think it's worth paying for books of the electronic variety, then they don't get books written for them. They may well exist as an after-market for publishers from other countries where the cultural expectations are different and people are willing to pay higher prices for books.

Some commenters are continuing the mistake of only looking at supply-side influences on price. Here are some demand-side influences that would drive *up* the price of ebooks relative to ink-on-paper books:

http://akinokure.blogspot.com/2010/02/are-ebooks-too-expensive-or-too-cheap.html

If nothing else, surely you agree that most people would find ebooks more convenient, in exactly the same way that most people find mp3s stored on an iPod more convenient than CDs, cassettes, or records that require a larger and less portable CD player, tape player, or record player.

That substantially greater value that buyers place on convenience could well make ebooks *more* expensive than ink-on-paper books. We can't predict the future, so I don't claim that will happen, but you can't ignore demand-side influences on price.

For some reason, nobody seems to attach much significance to the fact that ebooks kill the used book market. If you buy an ebook, as opposed to a paperback or hard-cover, you can't resell it or even loan it or give it away. An ebook is much less likely to be read by anyone other than the owner of the device it is locked to.

This inability to sell, loan, or give away books is much better for the authors and publishers and much worse for readers. Because of these limitations, an ebook is worth less and the customer is likely to be willing to pay less.

Publishers have long set the difference in price between hardcover and paperback substantially greater than the difference in cost between producing and marketing the two editions. It's a good price discrimination tactic that has made decent profits. But the side effect is that it has taught the consumer that the form of the book matters more than it actually does from the point of view of the supply-side cost structure.

But the publisher's solution is simple. Sell ebooks at paperback prices, because that's what the consumer is willing to pay. But delay the electronic release date until the paperback release. (Or when it would have been, if there had been a paperback edition.)

One wonders, if Mr. Preston could get $3 straight to him, from the iPad store, if that would be a "real price."

This inability to sell, loan, or give away books...

... is being explored by hackers. When the ability becomes available, then what will the price of e-books be? Will the TSA scan your Kindle for copyright violations?

Publishers are an intermediary. Like any intermediary, they run the risk of disintermediation.

The real threat to publishers isn't ebooks per se, but popular authors like Stephen King or Sue Grafton selling direct. Selling direct is much easier for ebooks, since there is no need to print or ship or store physical product.

A summary of why e-book should be cheaper than paper books:
1) Hundreds of dollars paid upfront for a book reader. That cost is far from trivial.
2) In both cases the fixed cost of writing and editing a book is the same but the cost to produce and distribute an electronic copy is miniscule compared to the cost to bring a paper copy to the market.
3) There is convenience in using an e-book reader but that is already paid for when you forked a few hundred dollars for the device in the first place. Everything else actually reduces the value of an e-book: you cannot read it on all the PCs, laptops and devices that you own/use; you cannot sell it; you cannot lend it to a friend. Can anybody explain to me why shouldn’t I be able to do these things with an e-book but it is perfectly okay to do that with a paper copy?

quick takes:
(1) I urge all of you to read the original article - the consumers sound as crazy as Preston.
(2) As for those arguing that the cost of ebooks should be less due to cost of ebook reader... uh... this isn't really what sets the price...
(3) "I see only small, superficial value in buying an e-reader when the e-books are not reasonably discounted" - uh, do you ever fly to places? especially when it involves crossing international borders? I already limit the number of books I carry due to airline weight restrictions...
(4) Fascinating topic, interesting to see how all this evolves. Will it be like music?

This is a copy of the email I sent to Douglas Preston (incidentally, I sent it before I learned of his privileged upbringing and education):

The comments posted to your home page appear to be contradictory to those you made to NY Times journalists, Motoko Rich and Brad Stone. In that article, you betrayed your utter disdain for your readers:

"The sense of entitlement of the American consumer is absolutely astonishing," . . . "It's the Wal-Mart mentality, which in my view is very unhealthy for our country. It's this notion of not wanting to pay the real price of something."

Perhaps my comments to Simon and Schuster will help you understand where I and thousands (if not millions) of other readers stand on this matter:

"Your decision to force Amazon, Barnes and Noble and others into raising eBook prices is yet another flagrant example of corporate America's greed. In today's New York Times Article, Mark Gompertz betrays his utter contempt for the consumer, without whom your publishing empire would not exist. His veiled threat to produce books with "no quality" does not go unnoticed. Charging more for newly-published books makes sense only when applied to hard cover copies. The eBook is the equivalent of a paperback copy and should be priced at that level, which is often less than the $9.99 currently charged by Amazon and Barnes and Noble. Does the value of the written word depreciate over time? Does an author's message mean less in paperback than in eBook? It's time for you and other publishers to move into the 21st century.

Perhaps Americans do have a WalMart mentality. I don't know. I've only been in one once. We as Americans have many options available to us and companies that wish to remain in business would be wise to recognize that and adapt their marketing and pricing strategies accordingly. Americans are used to "big box" stores and competitive pricing. Perhaps Mr. Gompertz could use a refresher course in the basics of economics."

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