18 Apr 2012

Ebook pricing is about value and not costs

It seems that Consumers [are] Upset and Confused Over E-Book Pricing.

I like Jeremy Greenfield's (@JDGsaid) article on ebook pricing for a couple of reasons. Firstly he highlights the mistaken belief of many readers that ebooks cost nothing to produce. Whilst the marginal cost of producing an ebook is indeed zero, as Greenfield points out there are substantial fixed and first-copy costs associated with publishing (rent, wages, marketing and promotion). Such costs are not unique to digital publishing of course, and are equally applicable in the print world. Greenfield also highlights several of the less visible costs which are associated exclusively with digital publishing: format conversion, project management and the cost of software and distribution platforms. So clearly ebooks are not free that inexpensive to produce after all, and this explains the high prices.

Well yes and no. I wonder why Greenfield appears to base his argument on the direct relationship between cost and price. Cost-plus pricing may be applicable in some sectors but I'm not so sure that it is all that relevant in the digital publishing industry. Obviously costs are a factor in the sense that no producer will sell below cost in the long run (they may do so in the short run for other reasons such as gaining market share). However unless a monopoly with perfectly inelastic demand exists (this typically only applies to essential goods like electricity and water), consumer demand will always have an influence on price.

The more value that readers place on ebooks, the greater their willingness to pay, and the higher the price will be. Conversely, if the price of an ebook exceeds the value that readers place on it (as many argue is in fact the case) they simply won't buy it, so demand will fall dragging down the profits of publishers with it. Thus the argument that publishers are pricing ebooks too highly and therefore making excessive profits does not hold up. There are lots of factors which do affect consumers' willingness to pay including the perceived value of DRM-free content, portability, full-text searching, lower storage costs etc, but I can safely say that fluctuations in the costs faced by publishers do not really influence how much I value ebooks.

In short, cost versus pricing is a largely normative debate. Why are ebooks the price they are? Because that is what the market is willing to pay for them (even if some people find it hard to believe).


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