Cory Doctorow has an article in Publishers Weekly (linked and discussed on BoingBoing) looking at the Amazon and Macmillan pricing dispute in economic terms. Doctorow feels that there are good points on both sides: Macmillan is right to fear Amazon’s domination of the e-book field, but Amazon’s pricing might not be as bad an idea as Macmillan thinks.
Doctorow talks about price discrimination (the idea that segmenting the market maximizes profit—in this case, the publishing industry practice of releasing a more expensive book first, then a cheaper one later) and demand elasticity (the idea that lowering prices brings in new customers) and how they apply to books.
He points out that, since digital items like e-books have almost no marginal cost, this could allow taking advantage of that elasticity to a greater degree than is possible with physical products.
Could the pool of people willing to buy books—the total number of regular readers—be increased by dropping the price? And could that increase in new customers be large enough to offset losses from smaller margins? Amazon clearly thinks so.
The problem, Doctorow says, is that Amazon’s desire to lock readers into using its Kindle may be at odds with the publishers’ own best interests. He compares the Kindle to a roach motel (“books can check in, but they can’t check out”) in this respect. Even when publishers want to allow consumers to move the Kindle editions of their e-books to other devices, Amazon will not allow it—and Apple probably won’t be much better.