On the other hand, as long as publishers insist on DRM, the cost of setup for the encryption software and serialization of a new encrypted file for download -- including payments to the company that produced the DRM server -- may exceed the cost of that paperback.
For contractual reasons book pricing is set on the basis of the current edition in print (royalty percentages aren't static but vary with the paper edition's binding, the number sold, the discount channel, and so on), and publishers are required to provide transparent accounting to authors if challenged. So their accounting workflow for shipping ebook units has to shadow the workflow for shipping SKUs. Hachette spent roughly 20M euros building a "digital warehouse" for ebook serialization and accounting a few years ago; I'm sure the other big six did likewise. They can't do anything else, unless they renegotiate their contract boilerplate with the authors.
Meanwhile, fixed costs for editing, typesetting, design, proofreading, and marketing are identical for paper books and ebooks.
This is the second comment here that brought up editing, typesetting, &c. Is it the view of people in the publishing industry that books should be priced at a % markup over total costs? Because that seems crazy.
However, thanks to the evolution of printing technology, the auction only hits a few (typically 2-3) price points, and they're geared against physical format -- hardcover, A format paperback, C format, and so on. So consumers confuse the reverse auction process with the cost of a physical product.
To make matters worse, between 45% and 75% of the cover price of a physical book in a bookstore goes to the distribution chain -- bookshops and wholesalers (not the publisher or author). The chains do deep discounting for commercial reasons of their own, e.g. price wars with each other, special promotions, need to get rid of old stock to make room for new, and so on.
Thus, the actual price the publisher and author get for a book may bear little or no relationship to the price the consumers are charged for it in the shops or from Amazon.
(EDIT) People in this thread are making the common mistake of assuming the publishing industry is structured this way for some reason. It isn't. Things just happen this way because they're the sum intersecting set of business practices that didn't result in someone going bust at some point in the past 200 years. And they're locked in by contracts, established processes, and custom. This isn't a modern industry like software development: it's an ancient set of practices that have evolved over time, and many of its patterns reflect obsolete constraints that no longer exist.
Putting that aside, in the brave new future where StrossCorp publishes all Stross-approved titles: do you envision pricing according to a small industrywide set of price points, and, in particular, adhering to a fixed "ebooks cost $9.99" price?
Unfortunately for a publisher to try this would require (a) all new contractual boilerplate (which will be a whole barrel of laughs as they try to get the authors and their agents to accept it) and (b) new accounting procedures to calculate royalties based not on the net volume of sales but on the time from publication date of those sales.
And even then, this is only going to work out if customers are willing to wait until the book meets their criteria for affordability rather than going in search of a pirate copy of the text.
There are e-books worth $100. Harris' _Trading and Exchanges_ is a great example (although it's stupidly priced at roughly half that). It is clearly worth more in Kindle format than it is in giant-ass hardcover format. And yet it costs them $0 marginal dollars to make a new copy.
http://www.amazon.com/2SO4-family-K3BiCl6-KH3F4-ebook/dp/B00...
Obviously paper books have their benefits. But some books are far better suited to be digital.
I'm thinking of the situation when you would buy something like this. I'm guessing most individuals would not buy one, and any corporation or other institution would have some kind of purchasing policy that would affect a purchase of this size.
An institution would probably not want a non-shareable Kindle copy - rather than buy each individual a Kindle copy, they would buy the hardcopy and stick it on the shelf.
Institutions that I am familiar with, anyway.
http://www.amazon.com/review/R1WUN3F61QZD5Y/ref=cm_cr_dp_per...
What is the "value" you're talking about here? Certainly not fair market value, when DRM and device lock-in leave little semblance of a free market. Or maybe you mean utility to the purchaser, but that varies wildly.
Your last sentence is an instance of price points. Yes, price points are part of what goes into perceived value. If you want to break out of a price point, you have many opportunities to change packaging, promotion, or pricing models to do that.
Clearly, for example, textbooks don't honor book store price points. Neither do magazines or serialized books. Neither do standards documents or technical books (as graphically illustrated upthread by the $6,000 metals book). Neither do graphic novels.
The 250-page bound novel is also an artifact of the book store distribution channel. It may indeed be that to command a $20 price instead of a $9.99 Kindle standard price, authors will need to break out of the straightjacket of 250 page bound novels.
That's all beside the point that utility determines price, not cost, although I'm not sure that's strictly true: I think that the perception of utility determines price. Because the perceived utility of an ebook is less for many people, party for practical reasons and partly because they perceive that the cost is less, they perceive that the price should be lower.
It's a beguiling idea. Even realising that production costs for ebooks aren't any lower, I still baulk at ebook pricing.
My point was that those costs don't change, but they're frequently not considered when consumers are thinking about the 'cost' of what they're buying and the perceived cost impacts on people's perceived value for some items.
Arguing that pricing your product based on its cost is mad doesn't really change that consumers feel that digital downloads should be priced less than physical media versions, even if the digital download has greater utility.
There clearly are ways in which bits are less valuable than ink, but my gut sense is that for most people, that's more than made up for by the ways bits are more valuable.