Quote:
Originally Posted by HarryT
Could you explain what "agency pricing" is, and why it's bad?
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Under "retail pricing" a retailer buys a book for let's say 50% of the list price and then the retailer sells the book for any price he desires. He doesn't have to sell the book at list price, but can discount the book by 20% or more. He doesn't make as much as if he had sold it at the full retail price, but he can still make a healthy profit. The consumer benefits because retailers are forced to compete with one another by offering the consumer the best price. Retailers also compete with one another through figuring out ways to reduce their costs, so that they can offer consumers the lower prices.
Under "agency pricing" the publisher sets the "sales price" of the book and the retailer gets a commission for each sale. Of course the price is set by the publisher will likely be much higher than if it had been set by the retailer. Less competition definately hurts the consumer in the form of high prices.
There is also less insentive for retailers to cut costs. Retailers like Amazon have been able to cut cost when compared to their brick and mortar counterparts. They pass these cost savings to the consumer so as to increase their volume, with the intention of making their profit on volume. Without the ability to lower prices a retailer can't substancially increase his volume, so he has no insentive to make the investments required to make the kind of cost cutting that is only feasable at high volumes. Once again, this harms the consumer since it results in higher costs.
There may be some anti-trust issues arising from the "agency pricing" model. Imagine if all retailers sold their products through the "agency pricing" model. Software, clothing, appliances, cars, etc. all with prices set by the manufacturer. Shopping around for the best price would come to an end. This is especially relevant in the case of books, where a publisher has
exclusive rights to an author's work -- this heightens the anti-trust concerns in my mind.