My letter to Hachette's CEO

Amazon asked authors and readers to write to Hachette’s CEO regarding this debate. Here is mine:

Dear Mr Pietsch

       I am writing to you at the request of Amazon but, in fact, it is to plea with you to ask them some important, but as yet unasked, questions.
      This is no time for modesty. I am arguably the world’s leading economic expert in the area of digitization and its implications for antitrust.* I’m a Professor at the University of Toronto, an author at and have written and published eight books. Thus, I am in a unique position to consider this debate in economic and business terms.
      Thusfar, Amazon has been straightforward in terms of what it is asking for. Amazon have argued that reducing eBook prices will increase revenue and they want to share that revenue three ways between themselves, yourself and your authors. If it is true that the eBook prices you would prefer are not revenue maximising, then you need to explain why you think that is the case. Amazon have stated that their data reveals that the price elasticity of demand for eBooks, on average, is 2.42. What is Hachette’s corresponding estimate?
      There are, however, many questions that Amazon have not answered that I believe you should ask them.
1. Regarding their stated price elasticity of demand, does this calculation take into account the impact of lower eBook prices on the revenue from print books? Does this calculation take into account the change in revenue that would result if all publishers (not just for the price of one e-Book), moved from $14.99 to $9.99?
2. Regarding Amazon’s claim of promoting a reading culture, why does Amazon require exclusivity from publishers/authors when opting into pricing models such as Amazon’s lending library and Kindle unlimited? This exclusivity reduces the ability of consumers to choose between alternative eBook platforms/retailers for individual e-Books and thus reduces competition at the retail end of the market. Specifically, this (negatively) impacts the very authors that self-publish and bypass traditional publishers.
3. Regarding reader lock-in to the Kindle platform, will Amazon agree to support a diverse array of formats and arrangements with publishers that will permit readers to port their collections across platforms? Once again, reducing lock-in will empower readers to choose platforms that best suit them and to ensure that the bottlenecks — such as those Amazon asserts exist at the publishing level — do not arise elsewhere in the industry.
Hachette has remained silent in this debate and has let authors do the work in promoting their cause. The author statements, however, do not reveal a proper economic foundation and do not answer Amazon’s main claim for lower prices. There may be more nuanced reasons for that but Hachette has, thusfar, failed to demand the answers necessary to move this debate forward.
Joshua Gans
* Well, maybe not ‘the’ but a solid ‘a.’

4 Replies to “My letter to Hachette's CEO”

  1. Regarding question (2) and (3) for Amazon, I doubt Hachette will even broach the subject. On the French market, they have been strong opponents of cross-plartform initatives, trying instead to push their own (closed) platform excluding other publishers.
    As a whole, major French publishers do not like the idea of open platforms in general. They approach the idea with the concept of the physical book market, where their size give them clout over the distribution network. They fear they would loose that advantage with open digital publication platform.
    Also, they are subject to a deep fear of piracy, which means they will prefer to annoy the reader to no end with DRMs rather than trusting their clients.

  2. The reality is there will always be some people losing on any proposed arrangement… It’s the nature of technological progress. However, even though I don’t like Amazon, I do think that US$15 and US$19 e-books is not reasonable.

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