[growse]

When Amazon decides to discount a product, who swallows the loss? Does the supplier still get a fixed cut per sale regardless of sale price, or do they get a fraction of whatever the sale price was?

I ask because I believe in things like grocery retail, the retailers have immense power over the suppliers. If you see pasta sauce at 2-4-1, it's the supplier picking up the cost of that. Favourable placement in store? The supplier pays. The big retailers can hit the supplier over the head with the threat of simply stopping selling the suppliers entire catalog, which would cause massive revenue loss for the supplier. With this stick, the retailer can ensure that they're getting a fixed income for every unit sold, regardless of the actual unit sale price. They pretty much have the suppliers completely over a barrel.

Seems like the balance of power between retailer and supplier is drastically different between sectors.

[ghshephard]

Amazon swallows the loss. For example, with eBooks, they were purchasing wholesale from the book publishers for $15, and then selling them to customers for $9.99.

As much as I love my Kindle, and Amazon, and as much as I realize that the publishers probably extract more value from the entire chain than is reasonable given their contribution (as compared to the author, who I believe should be rewarded a great deal more) - I realize that we will face dark times in the future if Amazon is able to corner the eBook market.

[pbhjpbhj]

>Amazon swallows the loss. For example, with eBooks, they were purchasing wholesale from the book publishers for $15, and then selling them to customers for $9.99. //

What were the books selling for in paperback? I'm guessing less than $15 - I know it's priced to the market and the utility improves the value, and thus a higher price can be attained. But, I didn't think that Amazon would let publishers rip them off in this way - paying more for something that costs less to produce.

Amazon if ebooks are even marginally above paperback costs should just buy the paperback, format shift to ebook, sell the paperbacks as pulp.

I don't think anyone wants to hand over the ebook market entirely to Amazon; all the publishing houses needed to do was not be evil and not try to squeeze the system dry ... oh well. Death and taxes and human greed can always be relied upon.

[ghshephard]

I remember when "Under the Dome" was selling wholesale (Hardcover) for $13 and I ended up buying it from Walmart for $6.99 - because (A) it was $3.00 less than the eBook, and (B), well, I then could, in theory, resell the book.

It's odd watching two book sellers compete with each other to sell a book at loss.

But, your comment, "Amazon would let publishers rip them off in this way - paying more for something that costs less to produce." brings to mind Scalzi's comment,

http://whatever.scalzi.com/2014/07/30/amazons-latest-volley/

"(This is where many people decide to opine that the cost of eBooks should reflect the cost of production in some way that allows them to say that whatever price point they prefer is the naturally correct one. This is where I say: You know what, if you’ve ever paid more than twenty cents for a soda at a fast food restaurant, or have ever bought bottled water at a store, then I feel perfectly justified in considering your cost of production position vis a vis publishing as entirely hypocritical. Please stop making the cost of production argument for books and apparently nothing else in your daily consumer life. I think less of you when you do.)"

Think about the software that I purchase online that costs $0.001 to deliver and I pay $595 - it costs 1/10,000th what the old version with paper books, and CDs, and nice glossy boxes.

I agree with Scalzi - the argument about "it costs less to produce" is bogus. Something should be worth whatever value it has to the person buying it intersecting with whatever price the person willing to sell it wants, plain and simple. The cost of creation is not particularly interesting.

[pbhjpbhj]

>Think about the software that I purchase online that costs $0.001 to deliver and I pay $595 - it costs 1/10,000th what the old version with paper books, and CDs, and nice glossy boxes. //

Er, what? The software doesn't cost $0.001 to produce.

This is more akin to being able to buy that software in a Staples store for $595 in a box with a DVD and manual. Then the producer starts selling it online for $650, because after all you no longer have to go to the store. They just refuse to cut the consumer in on the savings of not producing boxes, not producing media, not creating manuals and instead only focus on the added utility.

When you're dealing in cultural arts and informational products that can benefit society and instead of allowing the benefit of new technology to enrich you further and enrich society more you instead steal the whole benefit for yourself that's evil.

In terms of Scalzi's example: Yes a soda that's sold for $2 in a can might cost 20c to produce, fine no problem. But then recycling takes off and tech develops and that can now costs 12c less to produce so you put the price up to $3 because you're using more recycled material and that's now a selling point. That's what's wrong here. You already had more profit by selling at the same price point, the move in tech and society created the benefit and you leached it and cynically did one over on your customers because you knew that their desire to improve the world could allow you to get a better price.

[ghshephard]

The thing is - I've always been willing to pay a great deal more for software online than on CD - it has more value to me.

The fact that it costs zero dollars to produce (on the margin) is immaterial.

One good argument though, against eBooks being more expensive - you can't resell them, or ven easily give them away, or lend them. That issue, right there, should make eBooks worth less to the person buying them - but having nothing whatsoever to do with the fact that they cost less to produce.

[pbhjpbhj]

>software online than on CD

FWIW I meant to be downloaded, not to be available via internet/web (as that would be a different product and the analogy wouldn't work).

It's not the zero dollars extra, it's the fact there is no actual publishing and so there is a huge cost-saving through - in most cases - no effort of the publisher. Instead of sharing that cost saving to the benefit of society they swallow it and add extra charges which undoes the benefits that the technological move has created. The only reason an ebook costs more than a paperback is greed; allowing the greedy to dictate access to arts (eg fiction books) and informational sources is not right IMO.

I'm not at all arguing that publishing houses can't abuse the power but when they do like this it makes it hard to side against Amazon coming along to whip them in to line. The publishing houses could have set less greedy ebook prices first and Amazon wouldn't then get to do their knight-in-shining-[consumer-championing]-armour act.

Ebook sellers may think you can't resell but first-sale doctrine disagrees. Of course media companies are lobbying to ensure that such established doctrine get reinterpreted to their favour but that again is not acceptable. Again the rich moulding the law to their favour ...

As an aside IMO there should be no copyright protection granted to sellers who lock up their wares in such a way as to prevent them being resold. In addition as such wares aren't going to enter the public domain (so far as is known at the time the copyright is being granted) we - the people - owe them nothing in protection of their works.

[cwyers]

There's two costs at work here -- marginal cost and absolute cost. eBooks don't reduce the absolute costs of any of Scalzi's books -- the work he and his editor put into it and the marketing expense, principally. But they do reduce the marginal cost, and so if you sell eBooks at the same price as physical books, that's more profit, split up however the parties involved agree to.

Scalzi's comparison to fountain sodas missed the mark -- the reason those cost so much more than the cost of the good itself is that the soda needs to cover the costs of owning, maintaining and providing utilities to the building where the fountain is, and the employees who work in that building. Amazon doesn't HAVE that kind of overhead, and they want to pass the savings on to the consumer. The publishers want Amazon to hold onto those savings (or share them with the publishers), so that Amazon can't undercut the other retailers who DO have that kind of overhead.

[justincormack]

Well there is a reduction, in printing, warehousing and perhaps pulping costs. For some books that is a lot, those on the long tail end of the book market in particular.

[deegles]

> Amazon doesn't HAVE that kind of overhead ...

Apparently servers, bandwidth, electricity and developers are free now?

[pbhjpbhj]

What do you think the relative costs of distributing 1,000 [one thousand] ebooks vs. distributing 1,000 paperbacks are? We're talking after all production costs, the book has been typeset and rendered to a print/ebook file on a publishers computer system.

Once set up what's the additional cost involved for the publisher in shipping the next 10,000,000 ebook files vs the next 10,000,000 paperbacks. Just the act of transferring the book from the computer system to the ebook reader or the owners bookcase.

I personally distributed > 50,000 computer files this month so far for a marginal cost of < £1. Getting 50,000 DL flyers printed would cost me about £1000 without distribution. It's not entirely comparable but I think it gives the flavour of the savings in production costs available to publishers.

[delecti]

Certainly not free, but the absolute cost invested in Amazon's ebook marketplace pales in comparison to that for their retail book infrastructure, and the marginal cost is nearly negligible for each new ebook they sell.

Similarly, both the absolute and marginal costs of producing ebooks for a publisher are nearly free (at least on top of the physical publishing process).

[cwyers]

I didn't say Amazon didn't have ANY overhead, I said Amazon doesn't have "that kind" of overhead where you have to actually have a physical retail presence everywhere you want to sell something. And in the case of eBooks, Amazon doesn't need to deliver a physical object at all.

[ganeumann]

Scalzi is arguing that the packaging is the important thing, not the contents, which is a funny thing for an author to argue. Because if the content is the important thing, then there is now a system that delivers the exact same thing more efficiently. We, as consumers, should definitely push to benefit from that efficiency with lower prices. To do otherwise would be irrational.

Aside from being a straw-man, Scalzi's just wrong. We pay less for a soda at the fountain than we do in a bottle. That's the comparison that should be made. When you buy Coca-Cola, you are buying more than just the raw ingredients processed. Otherwise you'd be buying Store Brand Cola.

[ghshephard]

Yeah - I thought his examples were actually not very good. The other one is water - you pay a certain amount of money for bottled water (which presumably doesn't have the crappy lead / metals from the pipes, and ideally will store well, and be available in a disaster, etc...) - but you pay less when you fill up your water containers at the store, for water of roughly the same quality.

[UnfalseDesign]

I agree. If Scalzi is saying that the cost of production should not alter the price of the product, then I would ask him why paperback and mass market prints of books are less than hardback books in regards to the price. According to his argument, paperback books and hardcover books should be set at the same price regardless of what it takes to produce them.

[voyou]

The difference in price between hardback and paperback books is not due to the difference in production costs (which is minimal). The difference in price is because it provides a way to capture consumer surplus. Some people are willing to pay $20 to read a given book, and some more people are willing to pay $15. If you charge everyone $15, you get the largest number of sales, but you don't get the extra $5 that some people would have paid. But you can give people an excuse to pay that extra $5 which they would have been happy to pay for the regular version of the product, by providing a slightly superior product at the higher price.

[jobu]

Skalzi may tearing apart Amazon's arguments through most of that article, but I think the last paragraph is most important part:

"Authors: Amazon is not your friend. Neither is any other publisher or retailer. They are all business entities with their own goals, only some of which may benefit you. When any of them starts invoking your own interest, while promoting their own, look to your wallet."

Hachette isn't working in the authors' best interest here either - they're looking out for themselves.

[pbhjpbhj]

And Skalzi we must presume is looking to his best interests which are apparently vested in the established system and may deteriorate if that system is disturbed.

[justincormack]

And there are perhaps long term contracts involved.

[graeme]

It's amazon's choice to sell for less. The publishers didn't want to price e-books low. So they refused to sell at a $9.99 price. Which is their right.

Amazon believe a low priced e-book market would generate more profits overall. So they priced low anyway. That, in turn, was their right.

I don't see how the publishers are evil in that situation. What would you do if a reseller was convinced your product was priced too high, and they wanted you to slash prices? The standard advice on Hacker News is "raise your prices".

Amazon appears to have been right, but it was hardly obvious. And low pricing may not apply to all books. For instance, I don't release my books on kindle because of the low pricing structure for self published books.

(Amazon gives 70% royalties for kindle books priced $2.99-$9.99, but only 30% for pricing above and below that, IIRC. The optimal price for my books on my own site is above $9.99, so I don't want that deal)

[pbhjpbhj]

>I don't see how the publishers are evil in that situation. //

[Some made up numbers!]

The paperback costs $10. The publisher removes virtually all the direct production costs of creating the book itself (but obv. not the author, editor, type-setting, marketing and such which remain the same or lower). The publisher puts up the price of books because, hey, why use technology to open access to arts and information when you can use it instead to increase the wealth gap.

Yes, as I indicated, there may be extra utility in ebooks and that enables them to increase the price. But, with no price increase they still make more profit.

Yes, it's just capitalism; it's evil.

[res0nat0r]

Capitalism is now evil?

[Joeri]

No, it's a tool, and like any tool it's intrinsically amoral. The morality is derived by the wielder. When capitalism is used as an excuse for immoral behavior, the tool becomes how it is wielded.