Mainstream publishers are greedy idiots. It's the same issues we've seen with the media industry in general. They first off don't understand the technology, nor do they ever care to. All they see is an opportunity to fleece their customers for insane profits. As the OP pointed out, book reading and purchasing actually went UP when prices were reasonable, and immediately began to tank as soon as prices went up.
Publishers just don't get it. They seem to think that they're being generous by giving you the "privilege" of reading the books they publish, and since ebooks are a digital medium with a "high piracy rate", they justify punishing good, honest readers for the sins of a few, thus justifying (at least in their minds) their fleecing of customers. Of course, the greedy leadership of these companies can't be all that much to blame. In many cases the shareholders equally share that blame.
It's why I went with a smaller publishing house. They know where the buck stops and who provides their bottom line. They care about the author and the reader equally. Yeah, ok, so I don't get the same level of insane nationwide publicity that one of the big houses could provide, and have to do a bunch of the work myself, but I'm finding that I rather like that, and I don't get treated as "just another number" or a "cash cow". I'm a valuable person. When these companies lose site of who it is who actually makes their profits possible (authors and readers alike), they become dead weight that needs to be discarded.
Of course, the trick is finding enough people willing to sacrifice to make something happen these days. Nobody wants to protest (save for small groups like us), nobody wants to go without, to suffer, to experience trouble and worse. The majority seem to want the easy way of life with no problems and no troubles. It's one of the reasons I had so many problems with my tech site. We did a lot of good, but nobody wanted to step up and do anything.
So in that sense, we the readers and authors are somewhat to blame as well. We haven't stepped up to the line and made the big houses take notice and say, "Hey, what we're doing is wrong. If we don't change, we'll lose our shirts." If enough people stepped forward and said something, these problems would be over almost instantly.
Then again, and this is a wild thought out of the blue, it's possible the big houses see ebooks in the same light that the media companies see other digital media. They see it as a wild west world where thieves abound, law and order (aka control over the product) is non-existent, and profits are always in jeopardy. And yet, as the OP pointed out, ebooks actually do more to DRIVE sales and increase profits than their paperback cousins. In fact, as the OP pointed out, they saw a 300% increase in purchases, or better, and instead of sharing the ebook with friends, they recommended them instead, which was also a further 200-500% increase in sales.
So let's do the math. Ebooks are at $5/book. Paperbacks are at $15/book. User one buys one book at $15 but borrows 10. That's $150 in lost sales. User one then goes and switches to ebooks. They now buy all 11 books at $5/book. That's $55 vs $15 in income, and ebooks are almost pure profit!! So if you figure that on a $15, if $6 is the cost of the book, that's $9 remaining. Pay the author 20% (ok, I'm being generous here, as in reality, most big houses only pay 50c a copy in royalties), you now have $6 left. Pay marketing and whatnot for the book, $5. You thus get between 50c and $1 per paperback book. So from user one you've only earned $1 so far, and lost $10. On top of that, they end up sharing their copies with users 2-10, so that's another possible $90 ore more lost, bringing the grand total to about $100 in lost sales.
Now, let's say user one switches to ebooks and buys all 11 books. If you subtract 50% for sales costs to stores, that's $2.50. Remove marketing costs, that's $1/book. You end up with 50c to the author, and $1 in your pocket. Ok, yes, you only made $1, but user one also bought 10 more than before, so where you only made $1 with paperbacks, you just scored $11 with ebooks, and your overhead was nearly zilch. Now, to add a bonus value to that, user one recommends those same books to users 2-10. Suddenly your $11 has turned into (and I'm being realistic on uptake numbers here) $60 in total sales, and maybe even more!! However, as soon as they raise the price to $15/ebook, they return back to the old profit line of $1 per user with limited residuals and referrals, instead of gaining $60 or more in sales they didn't and wouldn't have had before.
But....alas, the big houses can't see this. I mean, come on. I'm not a marketing or economics major, and even *I* can see this. And yet they don't. They're up on the top run and think they know more than we do. And I can understand why. They've been at the top too long and reality has become a bit clouded. I've been on both ends of the spectrum, and have seen the full picture. I was also schooled in business economics by some very brilliant people who knew their stuff and knew how to maximize profits without even trying. And the simple solution was, "Take care of the customer, and your employees, and everything else will take care of itself." And you know what? That has yet to be proven wrong.
