Historical romance novelist Courtney Milan has written an essay on her blog demolishing one of the economic arguments that tends to come up in discussions over e-book price. This argument suggests that the price of e-books should drop to nothing because “in a perfectly competitive marketplace, the price will tend towards the marginal cost of distribution, which for digital goods is zero.”
The problem with this argument, Milan points out, is that it only applies in situations where competing goods are perfect substitutes for each other. In e-books, that is not the case. Because each book is different and there are no exact substitutes for an exact book, sellers of those books can still charge premium prices even though a considerable number of books—such as the public domain titles on Project Gutenberg—are free.
For instance, I have a vast amount of empirical data demonstrating that at least some people would rather pay $7.99 to read my book than spend $0.00 to read Moby Dick for free. This is because Moby Dick is a really, really bad economic substitute for a historical romance. I like to think that even in historical romance, there is no perfect substitute for a book by Courtney. Heck, my books aren’t perfect substitutes for each other. Most people don’t read Unveiled a second time and say, “Well, now I feel just as good as if I’d read Unclaimed, so why bother?”
She notes that books are imperfect substitutes for each other, and that does result in some price competition, but the better the author the harder it is to find a substitute, and readers have a lot more time to read in than they do really good books to read in it. So there’s still room for writers to charge what the market will bear.
I do think there are some ramifications to the e-revolution. I do think that there’s unmet demand for more reasonably-priced works. And I do think that price-competition will force the price of many books down. But I don’t think that having 500,000 books on Amazon priced at $0.99 will so transform the book industry that everyone will have to drop their prices to $0.99 and will still only sell 100 copies. The book industry has managed to survive against a backdrop where every single excellent book from a century ago is available for free.
There has been a lot of discussion of e-book pricing lately, between the publishers’ agency grab and self-publishers’ 99-cent deals. We’re still in early days yet as far as pricing goes; it will probably take a little longer to settle down and be what it will finally be.