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But you just re-stated the entire article -- that, despite the obvious increase in utility afforded by e-books, customers are not blind to producer prices and e

But you just re-stated the entire article -- that, despite the obvious increase in utility afforded by e-books, customers are not blind to producer prices and expect (nay, demand) fairness in pricing. Yes, this is common sense. But it is "paradoxical" (or lets' just say, confounding) from the perspective of traditional economics -- i.e., it is hard to construct a model which accounts for this behavior if you consider consumers as rational actors. The behavioral economics movement -- of which the author of this article is a member -- came about to highlight the ways that human behavior is not "rational" in the traditional economics sense, and concepts such as perceived fairness or context have a huge impact. As an aside, I didn't really read his last paragraph until just now, and thus I didn't really understand the undercurrent of anger in the comments here. I do agree that it's a foolish conclusion he makes (I'd summarize it as "bend over") and the whole point I walked away with from his previous discussion was that producers cannot expect to set prices based solely on utility; they must take into consideration perceptions of fairness and producer costs.

gloob 16y ago
I believe I'm in violent agreement with your second paragraph. A mismatch between the predictions of an economic theory and what happens in the real world demonstrates a predictive (and therefore descriptive) inadequacy of that theory, rather than a (moral) failure of the world.
jaysonelliot 16y ago
Sorry, but you insist on phrases like "obvious increase in utility" when that is not at all the case, as I just pointed out. I could just as easily talk about the "obvious increase in utility afforded by real physical books." This isn't even a case of rational or irrational behavior. It's a case of an economist misunderstanding the real value of a product to consumers. Just because people buy ebooks doesn't mean they view them as having greater utility than real books. Does a movie from iTunes have greater utility than a DVD? An MP3 versus a vinyl record with beautiful sleeve art, gatefolds, and liner notes? Is an iPad "magazine" more valuable than a physical one? Digital simulacrum of real-world objects are popular because they can be purchased on a whim, and produce instant gratification. That doesn't make them inherently superior. One author friend of mine, Margaret Weis, has seen ebook sales outpace her physical book sales this year. At the same time, her physical book sales have not suffered at all. What has happened is that people have been buying ebooks for instant gratification, then going back and purchasing the real thing later. That would seem to speak directly against your opinion that ebooks have an "obvious increase in utility."
- siglesias 16y ago
  You need to reexamine the Amazon customer comments that this article is based on. Nobody is saying that ebooks are less useful therefore they should cost less. If that were the case people would simply purchase the hardback copy and be done with it. This is simply outrage over the "fairness" of charging more for something that is cheaper to produce. Here's my evidence: Sunk cost fallacy: http://cl.ly/1V0Y2L3W2Y0l3A3S3F28 http://cl.ly/1V0Y2L3W2Y0l3A3S3F28 Fairness in cost fallacy: http://cl.ly/0i3u0V183e0g273l421e http://cl.ly/0i3u0V183e0g273l421e, http://cl.ly/3s1Z3l3w06291g0N0W15 http://cl.ly/3s1Z3l3w06291g0N0W15 Who is saying that the Kindle version is worse?
deleted 16y ago
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orangecat 16y ago
But it is "paradoxical" (or lets' just say, confounding) from the perspective of traditional economics -- i.e., it is hard to construct a model which accounts for this behavior if you consider consumers as rational actors. Actually it's easy, and the last comment on the article nailed it. Ebook pricing is an iterated "ultimatum game": http://en.wikipedia.org/wiki/Ultimatum_game http://en.wikipedia.org/wiki/Ultimatum_game. A copy costs the publisher essentially nothing, creating a large amount of economic surplus to be divided between the seller and buyer. By setting the price higher than a physical book, the seller is attempting to capture almost all of the surplus, similar to keeping $99 and offering the other player $1 in the ultimatum game. In both cases if it's the only offer you're ever going to get, it's rational to take it because it's the best you can do. But in reality there will be future interactions with sellers. Refusing a slightly beneficial deal (and encouraging others to do so, in the case of reviews) will likely encourage them to offer more favorable deals in the future, producing a net benefit for buyers.
- sid0 16y ago
  Thanks for that. It's good to see some rigour being brought to something that's hopefully intuitive (long-term gain).

gloob 16y ago

I believe I'm in violent agreement with your second paragraph. A mismatch between the predictions of an economic theory and what happens in the real world demonstrates a predictive (and therefore descriptive) inadequacy of that theory, rather than a (moral) failure of the world.

jaysonelliot 16y ago

Sorry, but you insist on phrases like "obvious increase in utility" when that is not at all the case, as I just pointed out. I could just as easily talk about the "obvious increase in utility afforded by real physical books." This isn't even a case of rational or irrational behavior. It's a case of an economist misunderstanding the real value of a product to consumers. Just because people buy ebooks doesn't mean they view them as having greater utility than real books. Does a movie from iTunes have greater utility than a DVD? An MP3 versus a vinyl record with beautiful sleeve art, gatefolds, and liner notes? Is an iPad "magazine" more valuable than a physical one? Digital simulacrum of real-world objects are popular because they can be purchased on a whim, and produce instant gratification. That doesn't make them inherently superior. One author friend of mine, Margaret Weis, has seen ebook sales outpace her physical book sales this year. At the same time, her physical book sales have not suffered at all. What has happened is that people have been buying ebooks for instant gratification, then going back and purchasing the real thing later. That would seem to speak directly against your opinion that ebooks have an "obvious increase in utility."

siglesias 16y ago
You need to reexamine the Amazon customer comments that this article is based on. Nobody is saying that ebooks are less useful therefore they should cost less. If that were the case people would simply purchase the hardback copy and be done with it. This is simply outrage over the "fairness" of charging more for something that is cheaper to produce. Here's my evidence: Sunk cost fallacy: http://cl.ly/1V0Y2L3W2Y0l3A3S3F28 http://cl.ly/1V0Y2L3W2Y0l3A3S3F28 Fairness in cost fallacy: http://cl.ly/0i3u0V183e0g273l421e http://cl.ly/0i3u0V183e0g273l421e, http://cl.ly/3s1Z3l3w06291g0N0W15 http://cl.ly/3s1Z3l3w06291g0N0W15 Who is saying that the Kindle version is worse?

deleted 16y ago

[deleted]

orangecat 16y ago

But it is "paradoxical" (or lets' just say, confounding) from the perspective of traditional economics -- i.e., it is hard to construct a model which accounts for this behavior if you consider consumers as rational actors. Actually it's easy, and the last comment on the article nailed it. Ebook pricing is an iterated "ultimatum game": http://en.wikipedia.org/wiki/Ultimatum_game http://en.wikipedia.org/wiki/Ultimatum_game. A copy costs the publisher essentially nothing, creating a large amount of economic surplus to be divided between the seller and buyer. By setting the price higher than a physical book, the seller is attempting to capture almost all of the surplus, similar to keeping $99 and offering the other player $1 in the ultimatum game. In both cases if it's the only offer you're ever going to get, it's rational to take it because it's the best you can do. But in reality there will be future interactions with sellers. Refusing a slightly beneficial deal (and encouraging others to do so, in the case of reviews) will likely encourage them to offer more favorable deals in the future, producing a net benefit for buyers.

sid0 16y ago
Thanks for that. It's good to see some rigour being brought to something that's hopefully intuitive (long-term gain).