A few weeks back, I read Ken Auletta’s New Yorker article on the release of the iPad.  The piece focuses on the future of publishing, ebook pricing and sales; the impression it leaves is one of confusion.  Publishers demand higher prices, consumers expect lower prices, and big distributors, like Amazon and Apple, have their own motives for trying to please both parties without alienating either.  For the time being, there seems to be little agreement about just how much ebooks should cost.

Auletta’s article was clear about one thing though: in the long run, ebook prices must fall.  He closes by quoting “a skeptical literary agent” who says, “You can try to put on wings and defy gravity, but eventually you will be pulled down.”  In other words, eventually, consumer expectations will win.  If buyers think ebooks should be cheap, then they better be cheap or no one buys.

But how cheap?  With no printing or shipping, the cost of making and selling one more ebook is practically nonexistent.  This is the biggest advantage of digital publishing, and maybe also the biggest obstacle to fair ebook pricing.  If one more ebook costs publishers nothing, how much should they charge for it?  They have to charge more than nothing, but how much more?  How low can prices go to meet consumer expectations and still benefit publishers?

Fair warning to the faint of heart: this is about to get intensely nerdy.  It’s about to get economic. …
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