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Kindle and Price Elasticity

Professor Bezos teaching Econ 101 to the publishers...

by
Stephen Green

Bio

July 31, 2014 - 11:30 am

BEZOS

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.

*****

Cross-posted from Vodkapundit

Stephen Green began blogging at VodkaPundit.com in early 2002, and has served as PJMedia's Denver editor since 2008. He's one of the hosts on PJTV, and one-third of PJTV's Trifecta team with Scott Ott and Bill Whittle. Steve lives with his wife and sons in the hills and woods of Monument, Colorado, where he enjoys the occasional lovely adult beverage.
All Comments   (10)
All Comments   (10)
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I like the Kindle but wish they had an inbuilt mechanism for managing the highighlights I've made. For now am using Clippings.io which is great but wish I didn't have to go to a third party site.
4 weeks ago
4 weeks ago Link To Comment
When I have an option of $9.99 for a Kindle electronic version which I do not OWN, merely the right to access it on my device, versus a hard copy print edition I will own as long as I am breathing and then someone else gets to have it for their own, that second option costing eleven bucks, why on earth would I shell out for the Kindle?
11 weeks ago
11 weeks ago Link To Comment
I have one book published in the Kindle system (in three languages) and a few more coming. I was able to reach my public and make some money thanks to Amazon. The likes of Hachette or Carlos Slim's Planeta pay nearly nothing and it takes a miracle to get published by them. They are also guilty or ruining countless books with bad - I mean horrible - translations into French, Spanish, Portuguese, etc. done by bad & cheap translators. Amazon is doing a great job. I hope many follow their example and soon the Hachettes of this world follow the way of the New York Times and the Boston Globe into final non-existence.
11 weeks ago
11 weeks ago Link To Comment
So should the publisher be allowed to sell at a higher price under an agency model if a middleman thinks a lower price would be more profitable?
11 weeks ago
11 weeks ago Link To Comment
Greetings:

At the risk of presuming to teach you a bit of Econ 101, while I have no great love for "greedy and ignorant middle"persons, middlepersons do serve an valuable economic function. I spent most of my work life in the printing industry and buying paper from local merchants rather than the mills was overall a good thing and worth the cost especially in not having to keep extensive inventories on hand.

I don't know much about the publishing industry and it may well be struggling with this fundamental transformation, but isn't that where services such as editing and marketing, with their benefits to authors, originate ???
11 weeks ago
11 weeks ago Link To Comment
If they were benefits to authors, you would have a point.

Unless you are already a major author (AND politically correct), you get little to no marketing. After wasting an inordinate amount of time with an "editor" that is desperate to keep his or her job by generating a lot of useless hours (AND keep you politically correct).

Exception to the above (at most publishers) - if you are their politician, you get a huge advance - cf. Clintons, Obama, etc. Doesn't matter whether the book sells or not, since the purpose is to slide the bribe past the "ethics" laws.
11 weeks ago
11 weeks ago Link To Comment
He is teaching Econ 101 but not the way you think. He is using monopsony power to extort publishers. But what do you expect from an Apple fanboy.
11 weeks ago
11 weeks ago Link To Comment
Poor Hachette. Couldn't get away with their price fixing conspiracy in 2012, now they're being bullied by nasty Amazon.
11 weeks ago
11 weeks ago Link To Comment
FWIW, I find my iPad (not to mention iPhone) to be strictly second-rate book readers. I much prefer to read on my Kindle, using the iOS Kindle app only as an emergency backup.

And, yes, Amazon's motives are far from "pure." They expect to make money. But when did that become such a bad thing?
11 weeks ago
11 weeks ago Link To Comment
The publishers had their chance to create an e presence and look what they did with it...

Amazon has no where near monopsony power.

11 weeks ago
11 weeks ago Link To Comment
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