Amazon.com believes that pricing e-books at $9.99 will boost sales by over 74% as the books are highly price-elastic.
If customers would buy 100,000 copies of a particular e-book at $14.99, then they would buy 174,000 copies of the same e-book at $9.99, boosting total revenue to $1.7 million from about $1.5 million if the book is sold at $14.99, Amazon said in a post Tuesday.
The company said its estimates of the price-elasticity of e-books were based on repeated measurements across many titles.
Low prices will also help e-books counter the growing threat from alternatives, including social networking sites and television. "Keep in mind that books don't just compete against books," Amazon said. "Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more."
The Internet retailer has a dispute with publisher Hachette which was rumored to be over the pricing of e-books. Amazon is said to have delayed shipments of the publisher's books or listed them as unavailable, which led to allegations that it was misusing its dominance of the online books business.
Amazon proposed the $9.99 price for e-books in an update on the dispute, stating it is providing specific information about Amazon's objectives.
At $9.99, even though the customer is paying less, the total pie is bigger and there is more to share among the parties. Yet, many e-books are being released at $14.99 and even $19.99, a practice Amazon does not entirely plan to discontinue, as it expects that the higher prices may be justified for "a small number of specialized titles."
The transition from print to e-books has changed the economics for the various players in the business, making lower prices possible, according to Amazon. "With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market -- e-books cannot be resold as used books," Amazon said.
The company said it is willing to take 30 percent of the price, with the author and publisher each getting 35 percent. "We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call," it added.
A large number of authors have criticized Amazon in the current dispute, with some claiming that Amazon got implicit sanction for its anticompetitive tactics after the U.S. Department of Justice filed an antitrust suit against Apple and five major U.S. publishers for trying to fix prices in the e-book market.
U.S. District Judge Denise Cote of the U.S. District Court for the Southern District of New York ruled last year that Apple and the publishers including Hachette had conspired to raise prices in the e-book market to counter Amazon. Apple has appealed the order, and also come to an out-of-court settlement with U.S. states and a consumer group in the suit. The settlement amount will depend on the outcome of the appeal.
In its post on Tuesday, Amazon referred to the antitrust dispute, stating that Hachette had forced the retailer to take 30 percent of total revenue in 2010 "when they illegally colluded with their competitors to raise e-book prices." Amazon said it had a problem then with the price increases but not its share of revenue.
Hachette could not be immediately reached for comment.