I continue to be baffled and enraged by the cost of e-books.

Why should a text whose distribution/printing/packaging costs are close to zero (not to mention the fact that all that horrid carbon is being saved by not printing it on paper) cost almost as much in an e-version as the clunky dead-tree hard-back version?

The answer is that it should not cost that much. But the publishing industry at each stage of the book production chain, fearing that it is about to vanish, has a strong incentive to keep things much the way they are for as long as possible.

Here is a neat explanation of it all by Charlie Martin:

… eventually, some publisher will realize that a book that would have sold for $29.95 in a physical edition can be sold for the cost of the royalty, plus a small markup for production and administration. Our $29.95 novel would sell instead for $3.95.

When that happens, except for coffee table books and an occasional print-on-demand hard copy, the physical book is dead.

This weekend kerfuffle is really the death throes of a business model — traditional book publishers trying to preserve their traditional publishing methods for a little longer.

A non-MTS scenario (from one of my first-ever posts) if ever there was one.

Update: a rather more sophisticated analysis of the same issues from Virginia Postrel, with some lively exchanges in the comments about how to calculate marginal costs and marginal revenues in such circumstances.

See also Virginia elegantly here on when it makes sense to run off another copy of a book and try to sell it:

Consider the cost of printing an additional copy of a book. Managers often fall prey to the mistake of adding up every expense associated with the book, including overhead like rent and editors’ salaries, and then dividing by the number of copies. (This mistake is by no means unique to publishing.)

But the rent will be the same, regardless of whether the copy is printed. So will the editor’s salary. So will the costs of proofreading and typesetting, which have already been incurred.

These costs are important if the publisher is deciding whether to stay in business or perhaps whether to publish a certain title or how many titles to publish. But they have no bearing on the question of whether printing another copy of a given, already created book is a profitable thing to do.

The only costs that matter to this decision are those that wouldn’t be incurred unless the publisher added another copy to the press run — the costs of printing and distribution. This is what economists mean by "marginal cost."

If those marginal costs are less than the revenue the publisher can expect to get from that last copy, then increasing the run makes sense.

Exactly. And in a word where the marginal costs of running off an e-copy are close to nil, the trend will be for the old pricing model based on physical copies to collapse, sooner or later?

This comment from Dave1310 is also pertinent:

It’s not reasonable to expect a publisher to ignore real costs simply because you wish to purchase in a new format. It also is not reasonable for a publisher to determine the value of an e-book based on what his (or her) original production cost was for a different format.

This is the same struggle that went on when the paperback emerged and will be solved the same way; in the marketplace in a civilized but bloody struggle.