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Originally Posted by pocoreader
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Amazon is hardly the good guy. Under the Agency model, Amazon actually makes money on the sale of each agency priced book, while the publisher makes less money than they used to. It appears that the publishers decided that it was worthwhile to earn less from each sale in exchange for being able to dictate what an ebook should be worth. Before Agency pricing, Amazon was losing money from the sale of each ebook, but they were willing to do so to undercut the competition and drive them out of business.
This post, by former literary agent Nathan Bransford, actually explains the whys of the agency model and the economics behind it. As he states,
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Wholesale model e-book:
Publisher: $12.50 (roughly 50% of $24.99 hardcover retail price)
Amazon: - $2.50 (selling at $9.99)
Agency model e-book:
Publisher: $9.09 (70% of $12.99)
E-bookseller: $3.90 (30% of $12.99)
See what's happening there? Publishers left money on the table to have more control over pricing and so more e-booksellers could compete with the elephant in the Amazon.
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In the short term, I can see people saying, "Who cares that Amazon loses money as long as I get to pay less!" The question, however, is what will happen in the future if one company gains the bulk of all ebook sales. Will Amazon be content to keep losing money forever? I doubt that.