There Is No 'True' Price For Anything

from the markets-adjust dept

There's an odd little NY Times article that reader Jake Rome pointed out to us, which seems like a totally random attack on Amazon based on the fact that some publishers don't like the fact that Amazon prices things based on this silly concept known as "what the data suggests will be the most appropriate price," rather than what these publishers insist is the only way to price things: "what publishers say a book's 'true price'" is and "how amazingly special and valuable books are." One of those ways of pricing is based on reality and economics, the other is based on fantasy and ignorance. Guess which one is which.

One consequence of this shift is that soon no one will know what a book’s “real” price is.

No one ever knew what a book's "real price" was, because there's no such thing as a "real price." There's whatever price a willing buyer and a willing seller agree on, and that's the "real price" for that book.

Price will be determined by demand and perhaps by whim.

Supply and demand have always been the key setters of price, so why is that so surprising or troubling here? And I'm not sure where the "whim" comes in, because that's actually much more how book pricing was done before. Amazon appears to be doing the exact opposite of that: it prices things based on data, rather than on a whim.

“And I don’t like the inconsistency of the pricing, either — the raising, the lowering — because it sends a confusing message that good books are worth less, and because it encourages buying based on something other than the quality of the book. It’s just an unhealthy business if people are buying a thing mostly because of its price, not its quality. That’s how you sell widgets, not books.”

Someone doesn't seem to understand the difference between price and value -- nor do they understand price elasticity. But, perhaps that's because they don't understand basic economics, as evidenced by their dismissive concept that books are not "widgets." Price and value are not the same thing. Just because a price is low, it does not mean the value is low. In fact, very cheap things can be incredibly valuable. And, the fact that more people buy stuff when it's cheaper, well, until you change basic human nature, that's never going to change. Pretending otherwise is like pretending you can stop the tide from coming in.

“Discounting, and especially inconsistent or shifting discounting, really messes with a publisher’s ability to price a book fairly and accurately to its cost,” he added. “You have to consider the fact that whatever price you put on the cover, Amazon is going to reduce it by as much as half — unless they don’t — or they may, but only for a while. But in short they’re going to make your book look like a thing with a cost lower than the one you placed on it.

"Fairly" is what the market will bear, and it appears that Amazon knows a lot more about that than this publisher. "Accurately"? What does that even mean? The book is always priced "accurately" because whatever price is put on it is "accurate." The publisher sets the basic cost, and what the retailer sells it at is a separate issue.

“So do you raise the price, knowing they’re going to lower it, so that the price will then appear closer to what you need it to be? But if you do that then you’re screwing the more honest retailers who can’t discount. And we’ve gotten a long way from recognition of the fact that publishers have costs in making books, and that should have something to do with the price.”

This whole discussion seems to suggest this publisher, Dennis Loy Johnson, of Melville House, doesn't seem to recognize the fundamentals of the situation here. He's the publisher: he prices the books at what's the best price for his publishing house to maximize its revenue overall, and what retailers then price the book at is not a huge concern, because he's already set his own price. If Amazon wants to sell the books as a loss leader, so be it. What difference does that make unless you have some faulty notion in your head that books are so stupendously valuable that they "must" be priced higher than most people want to pay?

Filed Under: amazon, books, economics, true price