Amazon's Comical Kindle Pricing Catch-22

Today, this popped up on my Twitter feed.

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Bill Amend, the author of Foxtrot, was trying to use the Kindle Comic Creator tool to publish his successful collections on the Kindle. He took a close look at the terms and conditions and found that (a) because his collection was over 10MB the minimum price permitted was $2.99 and (b) to comply with this condition — “You must set your Digital Book’s List Price (and change it from time-to-time if necessary) so that it is no higher than the list price in any sales channel for any digital or physical edition of the Digital Book.” — he could not set the price of his book more than $1.99. The reason for that was that his book was listed on the iTunes book store for $1.99. Let me tell you, this was all strewn over multiple pages so kudos to Amend for being able to realise the issue.

I originally thought that this was a set of restrictions imposed if you opted for a 70% rather than a 35% royalty from Amazon but no, the infeasible set of pricing inequalities held regardless. What that meant was (i) Amend would have to raise the price of his book on iTunes or (ii) Amend could not offer the book at all on the Kindle.

Here is the calculations for that decision. The key is that Amazon sometimes charges for ‘delivery.’

1. Kindle option with 70% royalty. In this situation, Amend gets 0.7(p – $0.15*31.2MB) or 0.7(p – $4.68) per book. So he needs to price above $4.68 (namely, at $4.99) just to break even.

2. Kindle option with 35% royalty. In this situation, Amend can get 0.35*$2.99 = $1.0465 (assuming he wants the minimum price). He will have to raise his price at Apple to $2.99 but he receives a 70% royalty on that with no delivery charges.

To make as much from Option 1 as Option 2, at a minimum (assuming inelastic demand), Amend will have to charge $6.99. Of course, Amend already has revealed that $1.99 is optimal for him so both of these options will sacrifice that for the opportunity to sell to Kindle owners. What is more, Amazon is presuming that Kindle owners will download books over cellular (paid by Amazon) and not WiFi in charging for delivery so there is something funny going on there. One can imagine that Kindle tablet or app owners will be more likely to buy comics than eReader owners.

The point here is pretty clear. In this situation, Amazon’s pricing is reducing competitive benefits. Either it leads to higher prices or it leads to a reduced selection for Amazon customers. The latter, of course, is something that will harm Amazon while the former is one that will benefit it. Interestingly here, Amazon manages to both give authors a worse deal and not pass on any savings to consumers; indeed, the opposite. Either way, the notion that antitrust authorities are pursuing Apple for causing eBook prices to rise has an important counter-example here.


One Reply to “Amazon's Comical Kindle Pricing Catch-22”

  1. I was recently looking for a copy of “The Road From Mont Pelerin,” a history of the neoliberal philosophical/economic policy movement that has created such a disaster. The list price for it is $57.13. The price for a used copy is $61.24. The Kindle price is $54.28. I don’t think there’s a heck of a lot of demand for this book, and I don’t think they’re going to sell very many. I know textbooks are priced much worse, and I guess the publishers are hoping to keep this as a cult classic, known by only a handful of Ayn Rand acolytes.

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