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Originally Posted by murg
This isn't about Amazon pressuring the publisher.
My understanding is that the $9.99 price primarily is for fiction.
And Amazon understands that you will sell proportionally more at a lower price, so that the revenue to the publisher, and thence to the author is increased.
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Economic theory discusses the concept of price elasticity in great detail. For some items, you sell the same number of items, no matter how high or low you set the price. Normally, there is a range where you can sell the item without effecting the number sold. Quite a few companies make a ton of money by selling premium priced items rather than commodity priced items.
Commodity prices hurt name authors. Their fans will buy the books at the current price structures and it's a heck of a lot better to sell 10,000 books at $27 a pop than it is at $1.50 a pop. Unknown authors do better at commodity prices because people are more willing to buy an unknown author at $1.50 than they are at even $10.