New York Times - Pros and cons of e-book pricing. "Publishers are caught between authors who want to be paid high advances and consumers who believe they should pay less for a digital edition, largely because the publishers save on printing and shipping costs. But publishers argue that those costs, which generally run about 12.5 percent of the average hardcover retail list price, do not entirely disappear with e-books. What’s more, the costs of writing, editing and marketing remain the same."While consumers don't find that argument particularly credible, publishers worry that Amazon is subsidizing the $9.99 price - as a loss leader - but won't want to take any such losses for long and will then pressure publishers to accept lower payments.
Competition from other e-book readers can be a mitigating factor for them, but there's also the real possibility that cheaper e-books will result in readers buying more titles. The NYTimes cites the success of cheap, mass paperbacks at airport bookstores and grocery checkout racks.
From what I've seen on Kindle forums and from my own habits since getting my Kindle, the hope of publishers and writers that e-book-owners will buy more titles if they cost less, compensating for the lower margins, is not an unrealistic one.
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