[miguel1626]

The lesson is important, and it (almost) fully applies to ebooks:

http://www.geekwire.com/2011/experim...es-gabe-newell

Highlights from the interview:

One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.

Now we did something where we decided to look at price elasticity. Without making announcements, we varied the price of one of our products. (...) What we saw was that pricing was perfectly elastic. In other words, our gross revenue would remain constant.

But then we did this different experiment where we did a sale. The sale is a highly promoted event that has ancillary media like comic books and movies associated with it. We do a 75 percent price reduction, our Counter-Strike experience tells us that our gross revenue would remain constant. Instead what we saw was our gross revenue increased by a factor of 40. Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation.

We don’t understand what’s going on. All we know is we’re going to keep running these experiments to try and understand better what it is that our customers are telling us. And there are clearly things that we don’t understand because a simple analysis of these statistics implies very contradictory yet reproducible results. So clearly there are things that we don’t understand, and we’re trying to develop theories for them.

Read the full interview. Its certainly worth your time.

Anyway, too many times I've seen people claim that a sharp reduction in ebook prices would lead to an increase in revenue. As the Steam experiment shows, this isn't always true (sometimes demand is perfectly elastic). In many cases, I think that total revenue would decrease, due to demand inelasticity.

The point is, it is nigh impossible to reach accurate conclusions without experimental data (and its not fair to call publishing execs stupid - you don't know whether they have the data). Unfortunately, most businesses keep a close lid on their data (with good reason - competition is fierce). But maybe indie publishers would be willing to be more forthcoming about their natural experiments. I'm sure it would be quite enlightening.