This article in the New Yorker reports that Amazon wants Hachette to reduce the prices for most ebooks it offers through Amazon and to increase the percentage of the price paid to authors from 25% to 35%. It is a great introduction to elasticity and pricing.
- What is the arc-price elasticity if Amazon is correct when it wrote, "for every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99."
- Would revenue rise if Hachette cuts price from $14.99 to $9.99?
- Who gains and who loses if price decreases from $14.99 to $9.99, the percentage retained by the author increases from 25% to 35%, Hachette's share falls from 45% to 35%, and Amazon's share remains constant at 30%? Assume that the marginal cost of an additional download of an ebook is $0.
- Are the interests of Hachette, the authors, and Amazon aligned over what price to charge?
- Are the interests of Hachett, the authors, and Amazon aligned over how to share revenues and (fixed) costs?
- Why does Amazon advocate that some books be sold at prices in excess of $9.99?
See this post to learn what happened.
labels= elasticity, pricing
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