A Strike Price for Selling e-Books

Have you ever used a buying model like Half.com’s Match My Price? For those who the name doesn’t ring a bell, the basic idea is that you name a strike price at which you commit to buy the item if anyone chooses to sell it to you at that price. It’s rather like an eBay auction, minus the auctioning bit, plus the bit where it is the buyer who names the price and waits for sellers to approach rather than the reverse.

I bring this up because I’m rather curious as to why no publishers sell their e-books in this way. The marginal cost to “producing” and selling one more e-books is close to zero, and if cleverly implemented, such a scheme can bring publishers and/or authors revenues that they would not have earned otherwise. Some cleverness is needed because content providers, indeed any sellers of products, would not want to sell to a person with a strike price of, say, $3.99 if that somebody would’ve been willing to buy the book at $12.99. Cannibalization of higher-margin sales & all & all.

However, it’s not impossible to separate out buyers who have high willingness to pay from buyers who will only buy at the cheaper prices (i.e, me!). One can do this by making the products sold to buyers with low willingness to pay a slightly inferior product by, for instance, deciding to either accept or reject their bids only once a month. Thus a person who wants a book for cheap has to wait a month and face the uncertainty that his strike price is too low, will be rejected, and he will not get the book. This is just carrying the price discrimination strategy that publishers already use to sell hardbacks versus softcovers a bit further.

So why not do it? Perhaps the administrative costs are high. Keeping track of what each person’s strike price is, implementing some sort of rule to decide whether to sell to him at that price, charging him exactly his bid, and thinking of clever techniques to keep high-paying customers from slipping into this poor man’s pool may suck up a good deal from money that would be made from these sales. Nonetheless, there are ways around this. For example, one can limit the strike prices that potential buyers can put in, e.g. whole number dollars only. Although this is contrary to the purpose of this type of business model  — to get people who would not have bought one’s book at a high price to name a price at which they would be willing to buy — one can put a low floor on what bids one is willing to accept to make sure that the cost of processing the transaction is covered. (Alternatively, one can just reject those bids, the equivalent of having hidden floors on eBay.)

If Amazon can have profitable dynamic pricing programs, then why can’t a scheme like this be similarly profitable? Moreover, this scheme has the added advantage that it avoids the backlash created by retailers selling the same goods at different prices to people because those prices are named by the buyers in the first place.

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3 Responses to A Strike Price for Selling e-Books

  1. Amazon may not use a strike price system, but some books are experiencing such frequent price drops such that the system somewhat resembles a strike price model. Take Magill’s Sincerity: How a moral ideal born five hundred years ago inspired religious wars, modern art, hipster chic, and the curious notion that we all have something to say (no matter how dull). This book price has been dropping by a small (and unpredictable) percentage each day (with some inexplicable gaps) for the past month or so. There have been so many price drops that the book which was priced at $14 is now $2.04. By tomorrow, it may well have dropped below $2!

    This whole arrangement resembles a strike price in that because of the smooth price drops, readers could wait for the day in which the price drops exactly below their strike price and swoop in to buy the book. It is inferior to a strike price because it sets up expectations that the price will drop even further, so even if one were willing to buy the book at $1.99, one may wait longer in the expectation that the book will become cheaper. Timing is crucial under this system, and individual price discrimination (same day, different prices for different readers) is foregone.

  2. Roy McCarthy says:

    Wow, complicated. I for one feel pretty guilty at paying $0.99 or something for a new book that someone has worked on for months/years. There should simply be an option for the buyer to throw in an optional donation. Let’s say 1/3 of buyers choose to pay an extra dollar – that’s going to make a real difference to the struggling author. And easy to do.

    • I, heartless I, don’t feel that way at all. Cleverly pricing your book captures sales that authors otherwise wouldn’t have gotten; it helps generate extra revenues for authors, struggling or not, and so is a win-win for everyone. It may also be that my perspective is colored by the fact that I read nonfiction almost exclusively, so pretty much all the authors I run across are affiliated with a university, a research institution, a media outlet of some sort, i.e. they’re not your typical picture of struggling artists.

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