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Agency pricing assumes ebook readers are converted hardcover readers. (After all, who else has $300 to spend on a book device?)
I think the majority of ebook readers are converted used-paperback readers, the people who are constantly looking for MORE STUFF TO READ and tired of carrying around 2-3 books at a time, and were willing to fork over $$ for a device that held them all at once. Those readers are looking for $1-5 books, and just like they were willing to scour the used book bins looking for authors they'd never heard of that sounded interesting, they're willing to crawl through book listings & take a chance based on cover art & an interesting description.
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