Will All Books Become $.99?

In general, the cheaper the price, the more inclined the consumer will be to buy.

However, when it comes to books, I’m not convinced that prices always drive down. (It’s possible economists are laughing at me right now.) But as I tried (badly) to explain on Konrath’s blog, I think price pressure can also drive prices up.

Suppose the consumer has a flat budget of $10 and a choice between two books, a $10 book by Author A and a $1 book by Author B. If books were completely interchangable, the consumer would always choose the $1 book. But we know that books are not completely interchangable. Let’s say that the consumer prefers the $10 book, and so buys that one. The consumer will not have enough money left to buy the $1 book, despite how cheap it is. The author of the $10 book makes $7. (I am assuming both authors are indie and make 70% royalty.)

Now suppose the consumer does buy the $1 book. This author, however, only makes $.70. (Actually, it is worse, because on Amazon right now this author will only make $0.35). So even if the cheap book beats out the expensive book 9 times out of 10, the author of the $1 book will only make $6.30 for every $7.00 the other author makes. At the lower royalty rate, the difference is even more stark. The author makes only $3.15.

If all authors charge $1, then all consumers can buy 9 extra books. The consumer can buy Author A and Author B. So instead of 9 sales, the author with the lower price makes 10 sales, which, at least if royalties were at $.70, is equal to selling one book at $10. For consumers, this is a much better situation, obviously. So maybe all books will float down to the $1 price, as music and games have.

But what if price is not the only restraint?