An American Editor

June 25, 2012

Why Aren’t Kindles Free-Marketed?

In all the hullaballoo over agency ebook pricing and how terrible it is to not allow ebooksellers like Amazon to discount ebooks and sell them at whatever price they want, even if it is at a loss, ebookers haven’t questioned the lack of dynamic pricing of ereaders themselves, especially that of Amazon’s Kindles.

Consider this: Every store that sells an Amazon Kindle sells it for exactly the same price as Amazon and every other retailer. And when one retailer has it on sale for $20 off, so does every other retailer. (This is also true of the Sony, Kobo, and Nook devices.)

Why aren’t ebookers complaining about this price-fixing? No, I’m not suggesting there is collusion between the companies to prohibit discounting of the devices. Rather, I find it disingenuous that agency pricing, which is a form of price-fixing, is so disliked among some ebookers that they complain about it and want it banned, yet no one has complained about the lack of price competition when it comes to the device to read the ebooks. Why is it OK for Amazon to price fix but not Macmillan?

I’m sure the immediate response will be that there is no complaint because the prices on these devices have dropped to where they are now half or less of the original cost. If that is the key to salvation, then all Macmillan needs to do is drop the price of an ebook from $12.99 to $10.99 and ebookers should be satisfied — after all a drop in price is a drop in price — but I know that would not satisfy. Why? Because the argument would be made that the ebook price would be even lower if true free-market competition were allowed.

So why isn’t that the ebooker argument when it comes to the devices? I could see, for example, Staples offering a free Kindle with the purchase of a $150 paper shredder, or Target offering a 50% discount on a Kindle with the purchase of Stephen King’s newest novel. But we don’t see those sales because Amazon is not ready to sell at those prices itself and no one is allowed to undersell Amazon.

If the argument against agency pricing is legitimately one against price-fixing, why doesn’t the argument carry over to the devices? What makes it OK in one category of product but not in a related category of product? When agency pricing is attacked, it is usually on the basis that it has caused ebook prices to rise.

There has been no comprehensive pricing study done, that I am aware of, to determine whether the cost of ebooks has risen, fallen, or stayed the same since the introduction of agency pricing across the entire spectrum of ebooks published by agency-pricing publishers. I know, for example, that many of the ebooks I buy cost less under agency pricing and I also know that the prices of bestsellers that Amazon sold at $9.99 have risen under agency pricing. What I don’t know is whether across the spectrum of agency-pricing publishers’ ebooks, as opposed to niches, prices have risen, fallen, or stayed the same. I think this is important information to have so that we can intelligently determine whether agency pricing is consequential or inconsequential.

It seems fairly clear to me that opponents to agency pricing fall into a few groups. There is a small group of ebookers who are free-marketers and believe everything should be priced elastically, based on demand — the libertarians of the marketplace who oppose agency pricing because it is controlled pricing. A second group of opponents are those whose reading now costs more because they only read/buy books that fall into the niches where agency pricing has caused prices to rise, such as the Amazon bestseller niche. It isn’t so much that they are opposed to agency pricing as they are opposed to the increase in pricing and assume that Amazon would, if it could, charge a lot less for the books they want to read and buy in the absence of agency pricing. The third group assumes that because prices in one niche increased under agency pricing that all prices increased and thus are opposed to agency pricing because it caused a rising tide of prices.

These same arguments can be made when it comes to the devices: In the absence of Amazon price-fixing its Kindles, WalMart would sell the Kindles for less; there would be a Kindle price war between WalMart and Target; Staples would offer package deals; and so on. On this, I would think all of the anti-agency-pricing ebookers would unite to lambast the device price-fixing. But here silence reigns.

I’m sure someone will point out to me how different these products are; how one doesn’t have to buy a Kindle to read an ebook bought from Amazon; how, instead, one could download a free app and read the ebook on one’s computer or tablet. I’m sure the point will be made that you don’t need the Kindle but you need the ebook in order to read it. It’s all true, but doesn’t change the fundamental points:

  1. There are no objective data to demonstrate whether agency pricing overall has raised, lowered, or done nothing to ebook prices except in niches.
  2. There are no objective data to demonstrate that in the absence of Amazon’s device price-fixing that the Kindle would not be available for less, even free.
  3. Whether price-fixing is OK or not OK should not be dependant on who is doing the fixing; that is, OK if Amazon is doing it, not OK if the big publishers are doing it.

Never discussed are what obligations the price fixers have, if any, to the consumer. Do publishers have an obligation to sell ebooks at price points that consumers want? Does Amazon have an obligation to free-market its Kindles?

Isn’t it interesting that without meeting ebooker demands as regards agency pricing the sales of agency-priced ebooks steadily grow? Isn’t it interesting that the freedom Amazon wants to price ebooks as it wishes Amazon isn’t willing to give to retailers of its Kindles? Isn’t it interesting that ebookers see no conflict in their demand for the end of agency pricing and their willingness to accept Amazon’s control of Kindle pricing?

We live in fascinating times!

5 Comments »

  1. My issue with the agency price case isn’t agency pricing. From everything I’ve read, agency pricing perfectly legal. What gave me concern when agency pricing for ebooks came out was the appearance of collusion and the probable reasons for implementing agency pricing:

    1. Make ebooks less desirable to support hardcover sales.

    I don’t buy paper books, and making ebooks more expensive won’t force me to buy paper. It just forces me to buy fewer books. There are books I would buy instead of borrow from the library if the prices were lower and the books were DRM-free.

    2. Punishing Amazon pricing model

    Amazon has done a pretty good job of giving readers what they want: easy access, low prices and a good e-reader product. There was nothing stopping publishers from competing “honestly.” Assuming the case holds up and publishers were engaged in illegal price fixing, I don’t see any reason to break the law as a way to support an outdated business model.

    Lots of hardware companies have fixed prices for their products. Would I rather see a sale and be able to compare? Sure. But individual companies can structure their pricing how they want. It’s only a problem for me when several companies get together and stop price competition illegally. I wish we didn’t have to wait until the middle of next year to find out how this plays out in the courts.

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    Comment by Juli Monroe (@1to1Discovery) — June 25, 2012 @ 9:59 am | Reply

  2. Iff depends, as I understand it, on who has title to the devices or books. If a store or site buys the devices or books from the vendor, then they can price it at what they want as long as it is not, in many states, under their costs. If the vendor puts the devices or books on consignment to stores/sites the vendor is “owner” and can set the price. When it is sold, the store/site pays the vendor at an agreed upon discount from the retail price.

    As for eBooks, my understanding that no one “buys” an eBook, they buy a license to read it and the vendor can put limits on its — DRM– use. Or, if an eBook does not have DRM imbedded, then the eBook becan be shared with others who have readers that can read the same digital format . . . not unlike a pBook can be shared.

    Like

    Comment by Alan J. Zell — June 25, 2012 @ 10:51 am | Reply

  3. Yes, that is the case with e-books. You are licensing a right to read the e-book on your reader. Much like you license a version of software to run on your computer

    Like

    Comment by Michael Ashford - ROI for Sales — November 19, 2012 @ 9:39 pm | Reply


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