In the case of a free market economy, prices are supposed to rise and fall with the numbers of players in the system, and the value a product has in the market. Generally speaking, more people selling the same product should mean a price push downwards. That over-simplistic explanation of free markets just took a wacky hit the last couple of days. Apple should be falling all over themselves to make sure the price of their e-books is competitive with Amazon’s prices. But instead, Amazon is finding themselves in a world of re-negotiation with book publishers because companies like Macmillian think e-book prices should be more than $9.99. It’s not really coming as a surprise, considering a business wants to maximize their profits, and the quickest way to do that is to raise their prices, but what is coming as a suprise is that instead of Apple fighting with publishers to get prices comparable to the $9.99 price point that Amazon had negotiated, they’ve instead decided that more expensive ebooks were fine by them.
Now Amazon has been finding themselves under increased pressure to give into the demands of publishers who favor Apple Inc’s model over the Amazon model. These price changes directly affect a major area of Amazon’s business. Kindle sales will be the only potential loss in this move. Having cheaper e-books and a cheaper e-book reader means a lot to financially conscientious consumers. Could this be a case of a company taking the profit from one sector and moving it to another group? An increase in price generally means a decrease in sales, and finding the market equilibrium (aka economic sweet spot) where sales and price meet up is going to be crucial in determining the success of their product, because apparently the iPad has become a Veblen good.
Editor’s Note: Just in case you have absolutely no idea what a Veblen good is, wikipedia defines it as follows: “Veblen goods are a group of commodities for which peoples’ preference for buying them increases as a direct function of their price, as greater price confers greater status, instead of decreasing according to the law of demand.”
Sounds a little bit like Apple products doesn’t it?