I have a feeling two very different trends are being considered simultaneously because they are spurred by the same technological change - ebooks - but, really, we are talking about two different things here:
1) ebooks are almost free to replicate. There is some cost (memory, data transmission, etc.) but all of it pales compared to printing and shipping. In that sense, the cost of production should really drop - at least, if the market was truly competitive and not collusive as it seems to be. I am confident competition will eventually lead to a price drop. Simplistically, if the price of a book is dissected into various components, one being the author's compensation, another being the costs related to physical printing and shipping, the overall price should decline if we eliminate the latter part. So far, I think this is all good - and I see no reason why, in such a model, the author's compensation should drop.
2) ebooks are easier to steal. There lies the real problem. I see this, however, as a temporary problem. Technology catches up - and stealing becomes riskier. Morals eventually catch up to technology as well. Asimov said:
“The saddest aspect of life right now is that science gathers knowledge faster than society gathers wisdom.”
Society has not yet caught up to the fact that stealing digital goods is a real crime. But it will.
Time will fix things. People have been predicting the death of literature since Gutenberg invented the press. Sure, manuscript-transcribing-monks are not around anymore. But writers are - and will be for a long time to come, even if books disappear.
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