Interestingly, despite your example, it was best sellers that Amazon chose as loss leaders.
And that's what made (makes) Amazon's policy so damaging to publishers.
The Best-Selling Fiction business works like this: Most popular authors have their devoted fans. People who anxiously await the publication of their next novel: The latest Patricia Cornwall or Stephen King, etc. And
in the past these books were first published in hardcover, with a gap of anywhere from six months to a year before they came out in paperback. Fans would pay the $25 or $30 to buy these hardcover books, providing a decent profit for both the publisher and the retailer. The paperback edition, when they came out, would be sold to casual readers, people at airports, etc. Still providing a decent royalty stream for the author, but considerably less revenue and profit for the publisher.
The e-book business destroyed that model. By selling new releases at $10, it not only gave devoted fans a chance to read their favorite authors' latest work for a fraction of the hardcover price, it also all but eliminated their need to even
go into a bricks-and-mortar bookstore. Which in turn was destroying retailers "impulse" sales of book lights, notebooks, magazines, etc.
The book publishers had accepted that they were going to get less revenue from e-books. They rationalized this by a) accepting they wouldn't have the expense of printing and shipping physical books and b) hoping that lower prices would make up some of that up in volume. But by pricing new releases at ten dollars,
less than the cover price of most trade paperbacks, Amazon was successfully destroying publishers' physical retail channel.
Apple's "Agency" model worked well. It not only raised retail prices for new releases to at least make them competitive with paperbacks; but it also allowed
other retailers of digital books (such as Barnes & Noble and Google) to sell new titles at a profit. This, in turn, meant that the publishers didn't simply have to accept whatever terms Amazon (as a near monopoly buyer) would have dictated to them.
Of course, in terms of the overall book market, things are more complicated still. Because, contrary to what most people think, publishers and retailers don't actually make that much selling best-sellers. They actually make most of their profit selling "back catalog" titles: A $10 copy of
Catcher In The Rye or (better yet)
A Christmas Carol (out of copyright, so no author royalties to pay.) But if you look at Amazon's e-book listings, you'll find that in most cases, they are selling the Kindle version for considerably
more than they sell the physical book.
Amazon was hoping to "hook" people on buying the Kindle version by offering super-low prices on best-sellers. And hoped they wouldn't notice they were paying far over the market on everything else.
