Kindle and Price Elasticity
Professor Bezos teaching Econ 101 to the publishers...
July 31, 2014 - 11:30 am
Amazon posted an explanation of the economics behind their row with book publisher Hachette:
It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. 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. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.
The important thing to note here is that at the lower price, total revenue increases 16%. This is good for all the parties involved.
Of course. This is Econ 101 stuff, and it’s deeply weird that Amazon should have to explain it to a profitable publisher. And a wider audience for a writer gives him better luck of having another hit with his next book, too.
More interesting was this last bit:
One more note on our proposal for how the total revenue should be shared. While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author. We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.
Message to authors: Go indie and cut out the greedy and ignorant middleman.