Why Do Ebooks Cost So Much?

Do you think ebooks cost too much? The U. S. Department of Justice  (DOJ) thinks so. This week it filed suit against Apple and five publishers charging them with price fixing: colluding to jack up the price of ebooks.

I’ve certainly noticed the price escalation. When I bought a Kindle in October 2010, Amazon priced most bestsellers at $ 9.99. This fit my price point for impulse buying. Ebooks were cheaper than hardcovers. They often cost more than paperbacks, but I didn’t have to wait a year. I could get the book right now.

Why Did Ebook Prices Increase?

After a few months, I noticed that the price of ebooks had jumped. Bestsellers were more likely to be $12.99 and some ebooks were priced as high as the hardcover. The higher book prices were coupled with a disclaimer: “The price was set by the publisher.”

What happened? Publishers claim that at $9.99 Amazon was selling ebooks at a loss to increase Kindle sales. The Department of Justice lawsuit alleges that five major publishers reached an agreement with Apple to enable the publishers, not the ebook vendors, to determine the price of ebooks sold at the Apple Bookstore. After reaching this agreement with Apple, publishers demanded the same right to set book prices on Amazon.

Immediately after the suit was filed, three publishers—Hachette, Harper Collins and Simon & Schuster—settled with the Department of Justice. But Apple and two publishers—Macmillan and Penguin—refused to settle, repudiating the price-fixing charge.

A Win For Consumers?

Will ebook prices fall? It’s uncertain. After the DOJ filed suit, Amazon announced plans to lower prices on ebooks. But as of today, many bestsellers on Amazon are priced at more than $9.99 and still carry the disclaimer that the publisher sets the price.

Publishers claim that they make just pennies off each ebook. Since many publishers are privately owned corporations, it is hard to tell how much they earn from ebooks. But a recent survey from the Pew Research Center found that an astounding 21% of adults had read an ebook in the past year. Moreover, ebook users read more and purchase more books—both print and ebooks—than non-ebook users who typically borrow rather than buy books.

Are publishers being penny-wise and pound-foolish by jacking up ebook prices? Time will tell. Clearly the ebook wars are just beginning.