Sunday, September 26, 2010
E-Pricing: On Agency Models, Generic Drugs and Anti-Trust Agreements
Meanwhile, writers like Konrath and small e-publishers are stocking the virtual shelves with cheaply priced product in direct competition.
I keep hearing how publishing is a unique beast with unique sales and distribution models. But aside from the whole antiquated returns business, is it really that different?
Other industries deal with unique manufacture and distribution issues, too. Two that readily come to mind are pharmaceuticals and car manufacturers.
An established pharmaceutical may spend hundred of millions of dollars in R&D to develop and test a new drug. There's generally a mandated period of a few years when the company can pretty much set its own price and try to earn back its costs without worry of competition. When that period expires, other companies may begin producing generic versions of the drug and start undercutting Big PharmaCo's prices. Some of these generic products are inferior and a few may even prove harmful. Most, however, are perfectly good substitutions at a price point that lures consumers their way.
Like publishing, the pharmaceutical industry has a high-price justifier in its back pocket. Instead of a returns wildcard playing in the equation, it has initial co-op subsidizing from insurance overshadowed by the question of when insurance company formularies will de-list their brand names and replace with generics.
American and European car manufacturers went through a similar crisis of conscience when upstarts from Japan introduced cheaper and more economical models. The old guard held its ground through eroding margins and profits.
Technology manufacturers also go through this same pricing cycle with every new device released.
So what do you call a consortium of publishers declaring a minumum price and trying to force competitors into compliance? Terms like "monopoly" and "antitrust" come readily to the non-legal mind. Is it a worrisome practice or just good business?
Logically, I can see all three sides to this triangle:
Side 1: Development - wants an acknowledgement that intellectual capital should be compensated throughout the productive lifecycle. Feels the consumer is paying not only for the end product but for all the creativity/research/whatever that went into producing the product to begin with.
Side 2: Business - wants a return on development costs without worry about competition undercutting the value of the item over the life of the product.
Side 3: Consumer - wants to pay the least amount possible for a product that satisfies their needs. Some people "need" a Mercedes, others are happy with a Hyundai.