Originally Posted by nogle
This all assumes that the price at which the product is offered is a function of its cost to produce. This relationship holds true in the case of commodities; goods that are perfectly substitutable between producers.
If you want to read an eBook, and don't care which eBook, then by all means the price should be a function of the cost to produce the book (per page or per word if you so desire).
But, if you want a particular book, then eBooks are not perfectly substitutable. Now the pricing decision revolves around maximizing profit. And in fact, you are giving the opportunity to price disciminate. Are there consumers that will pay more to be the first to read a book? can you offer it at a high price first then gradually offer discounts, thereby getting consumers to pay the highest price they are willing to pay and maximizing profits? Are there books that are preferred over other books and can you charge a premium for them?
The production costs of a Cadillac are about the same as for a Chevrolet; shouldn't they be priced the same if production cost is the determinant of retail price?
I think that your comparison between Cadillac and Chevrolet is not on point. After all, we are not comparing different books - e.g. one by Nora Roberts and one by Steven King. We are comparing the same book by the same author, but offered in a different format - print or digital. Higher prices of hardbacks are justified by higher production costs than paperbacks, at the same time we don't see such price differentiation bettween paperbacks and ebooks, even though it costs more to get a paper copy to the user than a digital copy.
I agree with you that in principle production costs do not determine retail prices (provided that prices>costs in the long run). Publishers charge a lot for ebooks because they can, not because they have to
(or else they will not cover their costs and will be out of business). And my impression is (as far as I follow the issue) that they try to justify ebook prices with the need to cover production costs (for content creation) - but this claim does not stand on its own. Yes, if you sell ebooks, you need to cover for the content, but then, if you sell paperbooks you need to cover for both content + printing, so I don't see how you can justify higher (or even the same) prices for ebooks compared with paperbacks based on the costs needed to produce them.