Are the interests of book authors aligned with Amazon's?

I understand that the elevator pitch of Joshua Gans is something like "I am arguably the world’s leading economic expert in the area of digitization and its implications for antitrust". So it is not a surprise that he wrote to Hachette's CEO regarding the fight with Amazon. He raised interesting points about elasticity of demand and Amazon possibly abusing his quasi-monopolistic power.

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 Digitopoly.org 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. 

Sincerely 

Joshua Gans

The probable answer to the first question is: Amazon does not calculate the impact of lower ebook prices on sales of print books sold in the Amazon store. For sure it does not calculate the loss of revenue from print books sold in independent stores (or ebooks sold by rival distributors).

So, even if lower prices for ebooks increase revenue from ebook titles, this does not mean that the combined ebook and print book revenue from those titles increase. The lower ebook price can simply shift demand from a format to the other. In this case the royalties for authors do not increase. Indeed, they probably go down, due to the lower price of the ebook format.

If authors and publishers are locked in the Amazon ebook platform (second and third questions), Amazon will cash in all the increase in revenue from the ebook sales, while the smaller revenue from the print book sales will be shared with other sellers, especially independent bookstores. In this scenario Amazon wins and everybody else loses.

There are many ifs in this argument, but it shows that authors should think twice before assuming that their interests and Amazon's are aligned.