Quote:
Originally Posted by TallMomof2
Many US retailers use loss leaders to draw in customers with the expectation that the customer will purchase other items that give the retailer a profit and offset the loss of profit from the loss leaders.
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In this case the loss leaders are to get more people to buy Kindles, as well as to buy more non-discounted ebooks (and potentially other stuff too, but the Kindle was sold primarily to Amazon's existing customers until they started advertizing on TV before Christmas). In any case, it isn't clear if Amazon is loosing money overall on ebooks (they offer many titles that are not heavily discounted, but we don't know how many of these are actually sold vs the bestsellers). They have a lot of experience with "loss leaders" and optimizing prices to get the best result overall. This is what is lost under the agency model, the publishers simply can't optimize prices this way. They can also raise prices whenever they want, and all the customer can do is buy at that price or not at all.