03/18/2010 05:12 am ET Updated May 25, 2011

Predators in the Book Biz

In PW this week Jim Milliott writes that

The board of directors of the American Booksellers Association requested that the government begin an investigation into what the organization believes is the illegal predatory pricing policies being carried out by Amazon, Wal-Mart and Target in selling 10 hardcover titles for as low as $8.98. The ABA requested a meeting with officials as soon as possible, arguing that left unchecked, the predatory pricing policies "will devastate not only the book industry, but our collective ability to remain a society where the widest range of ideas are always made available to the public."

Amazon started all this by pricing e-books as loss leaders at $9.99.

The US Supreme Court established that prices are considered predatory if they fall below the seller's cost and these plainly are.

Most economists believe that predatory pricing does not happen often because it is an irrational practice. So then why, with all the thousands of products that they sell, have the retailing behemoths gone to war with each other over not bread, cell phones or clothing but ....books??

The simple answer is that books are one of the last items in these giant stores (virtual or brick and mortar) that have a price printed on the product itself. Think about it, what else other than a car, (where you are sure you'll get a discount), comes with a manufacturer's suggested list price label?

The pre-printed price, establishing the value of a book, is the temptress that has seduced the biggest merchants in the country to go for each other's jugular. The humble print on paper book is the product that pricing geniuses at Wal Mart think will underline their reputation for offering the lowest price on everything. They are hoping that consumers will confuse low prices with value.

One definition of a cynic is a person who knows the price of everything and the value of nothing. So will book buyer's perception of value now come into play? Will readers begin to expect that every hardcover book should cost $8.98? That every e-book is worth $9.98?
Will consumers decide to buy only bestsellers and resist spending $37.50 on a wonderful book like TJ Stiles The First Tycoon: The Epic Life of Cornelius Vanderbilt which has 720 pages and took over 5 years to write and publish? (More about this in my next blog.)

Actually, Vanderbilt is germane to this topic since his favorite strategy for building business and destroying his rivals, first in steamships and then in railroads, was to engage in predatory pricing and slash fares. At one point, when he was competing with Jay Gould's Erie Railroad, he charged only $1.00 to ship a stockcar full of cattle. It was such a good deal that Gould diverted his cattle to Vanderbilt's NY Central and made money on the arrangement.

Should Borders and Barnes and Noble now buy the Sarah Palin and Stephen King books from Wal Mart instead of the publisher? We know that many independent stores supplement their stock with purchases from Costco so will we now see B&N frugalistas doing stock replenishment from Target? What will this do to the current supply chain?

For years, many publishers have disguised the low growth in the number of books sold by raising cover prices. The argument has always been that each book is unique and the readers, who want to read The First Tycoon, will pay the $37.50 and not want to switch to Sarah Palin's autobiography even if it costs $27.49 less. Probably true for these two titles but this new price war opens yet another front in what seems like a total war on traditional publishing.

So here's my solution.
Stop printing prices on all books: hardcover and paperbacks. Just print a bar code as on every other item in the store and let each store owner set their own price. That will stop the deep discounting by outlets that just want to emphasize price but care nothing about the health of the book business.

It might be a good idea to then peg new author contracts to the price the publishing company receives instead of the current arrangement pegged to retail.
I can hear the agents shrieking now.