Wednesday, June 27, 2012

Industrial Organization in the E-book industry

Great New Yorker article last week on the e-book publishing industry (article abstract here) provides most of the details. In short Amazon controlled 90% of the e-book market, before Apple entered. It got interesting when Apple wanted to enter the market they would only do so if 4 out of 6 of the major publishing firms agreed  to join them and sell books under an agency model where Apple took 30% and the publisher set the price, compared to Amazon where the publishers could only chose the price they sold Amazon the book for and not what it sold it to consumers for. This is interesting because Amazon bought best seller books for $15 and sold them for $10 (I guess they made it up in volume! ), actually it helped them increase Kindle sales and sales of non-best selling books. The end result of Apple joining was prices fell, the publishers got less, and then publishers were accused of and plead to colluding on prices (it is illegal to get together to set prices).

The article really shows the long run vs short run trade off of sales and the potential worry of a monopsony (a market with one buyer, Amazon the only buyer of books). A great dissertation or series of Industrial Organization pieces could be written about this and I look forward to reading it (hopefully cheaply on my Kindle)

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