Update: Race to the bottom, the book pricing wars

This is an update to an earlier post I wrote Race to the bottom: Amazon, Wal-Mart see who can sell the cheapest books. Now Target has entered the game and a lot of people aren’t happy about new release hardcovers being priced so cheap at these retailers. The first sign of protest comes from the American Booksellers Association (ABA), who wrote a complaint to the antitrust division of the U.S. Department of Justice.

I first learned of the letter from an email I received from Publishers Weekly. The PW article says in part:

…the board of directors of the American Booksellers Association requested that the government begin an investigation into what the organization believes is the illegal predatory pricing policies being carried out by Amazon, Wal-Mart and Target in selling 10 hardcover titles for as low as $8.98.

The letter in its entirety can be found at the ABA website. The  ABA makes an interesting and valid argument about what the large retailers are doing:

What’s so troubling in the current situation is that none of the companies involved are engaged primarily in the sale of books. They’re using our most important products — mega bestsellers, which, ironically, are the most expensive books for publishers to bring to market — as a loss leader to attract customers to buy other, more profitable merchandise. The entire book industry is in danger of becoming collateral damage in this war.

The ABA is right. These books they’re selling at rock-bottom prices are loss leaders for these retailers. Amazon, Wal-Mart, and Target will not make any money off these books and will actually lose money. However, the theory is that they’ll use these low book prices to get customers into the store, or Amazon’s website, with the idea that customers will buy more profitable goods along with the new release hardcovers.

This puts all booksellers in a bind, from the independent bookshop to the large chain bookstores like Barnes & Noble. Bookstores only sell books and they can’t depend on customers buying other merchandise that is more profitable. I think this new ‘race to the bottom’ pricing scheme for hardcovers is unsustainable.

The Ebook Angle

The ABA doesn’t stop at the low prices of hardcover books. They also take a jab at ebooks:

It’s also important to note that this episode was precipitated by below-cost pricing of digital editions of new hardcover books by Amazon.com, many of those titles retailing for $9.99, and released simultaneously with the much higher-priced print editions. We believe the loss-leader pricing of digital content also bears scrutiny.

This is where I think the ABA is wrong. Ebooks do not take sales away from hardcovers. First, there are still far more people reading hardcovers than ebooks (although the marketshare for ebooks is growing). Second, ebooks increase an author’s overall book sales because new readers are more likely to take a chance on an author with a cheaper ebook version then the more expensive hardcover.

Furthermore, as I have argued before, ebooks have the advantage of ‘infinite supply.’ Once the cost of producing the final manuscript, editing, formatting, marketing and promotion has been spent on an ebook, then only X number need to be sold to recoup those costs. Every ebook sold after that is profit. With print books, every book sold means printing, binding, shipping and storing – all which eats into the profit margins.

I agree with the ABA’s letter regarding this price war since I think it gives these retailers an unfair advantage. Could there be collusion involved? I doubt it, but given today’s highly corrupt corporate culture, anything is possible. At the very least, it is worth the DOJ taking a look at.

Is the ABA overreacting to these super-low prices? Is this just capitalism at its finest? Or is there something more sinister going on? Leave a comment below and share your thoughts about the race to the bottom.

Related posts

• Race to the bottom – Amazon, Wal-Mart see who can sell the cheapest books
• Why are some publishers raising ebook prices?
• Kindle 2 ships to first customers: Content pricing still too high
• How can we standardize ebook pricing?
• UPDATE: Indiana Judge strikes down registration law for retailers

Read More: Publishing News, Reading, eBooks