Indies kind of screwed up e-book pricing right out of the gate. Traditional publishing's prices were consistent with market expectations. The important thing to remember is that a $17.99 price is for the story, the content, not the package. There is no reason a digital version should be priced any different than a physical copy. Sure, there's more profit on the digital version, but that's an internal thing, not a market consideration.
So anyway, when Indies came on the scene, we priced as low as the various distribution channels would allow - thereby changing reader expectations. The reason that pricing is so tough to figure out is because it's an analytical clusterf*ck - the logic circuits have been disconnected. Last I heard, $2.99 was the sweet spot, but that's not due to market considerations, rather it’s because it’s the lowest price we could publish at and still get the 70% royalty rate.
While the reasoning behind it may vary, the unifying philosophy that drives self-publishing pricing has been: how cheap can I go? While lots of Indies have raised their prices over the last couple of years, the majority are still super low, and once the price floor has been met, they add more content to drive the price down even further. Instead of one novel for 99 cents, they do a 10 novel box set, which makes the effective price for each novel a dime.
When we combine nearly a decade of this with ultra-cheap streaming services for music, we end up with an audience that is extremely price-sensitive. The goofy thing is, while some will accept lower quality for the lower price, most still expect a super high-quality product.
At the end of the day, there's very little consistency from genre to genre or even author to author, sometimes not even within the same oeuvre.
The problem with using market expectations in this context is that indies didn't have the same kind of product to market in the beginning. Trad pubbed authors at the highest price points were also typically already bestsellers with enormous fan bases. In other words, the market expectation for Jim Bestseller trad author would have to be a lot different than it was for Joe You-Never-Heard-Of-Me indie author. There really wasn't a market expectation for Joe because there was no past history with Joe's kind of brand.
Another thing to consider is that trad published prices are often a reflection of the trads desire to influence consumer behavior in a given way. Documents made public during the collusion suit which Amazon won made it clear that one of the motivations for pricing ebooks high was to slow the adoption of the format. Ebooks, not having the same production costs, could always have been sold more cheaply, but the trads were eager (and still are) to sell as many paper books as possible. By artificially keeping ebook prices high, trads hope to keep the focus on paper. Production costs would normally have influenced retail price to some extent, but trads broke with that model to keep ebooks from getting too popular. Some of that may also have been due to the trads not changing very fast with the times. They weren't quite gutsy enough to just not offer ebooks, but I think many of them would have preferred to do that.
We shouldn't be surprised, because this kind of thing has happened before. When studios wanted to shift consumers from buying VHS tapes to buying DVDs, they started artificially pricing VHS tapes (which were cheaper to manufacture) higher. In some cases, they even resorted to the strategy of pretending to assume that people buying VHS tapes were in fact buyers for rental stores and charging them the rental store price (several times what a VHS tape used to sell for to end consumers). Similarly, when studios wanted to shift people from DVDs to Blu Rays, they often used a combination of pricing the DVD slightly higher and the Blu Ray slightly lower. Now that we have streaming video, prices are virtually always lower than buying the physical media. The "market expectation" principle hasn't been applied in the video field at all. The principle is either what the studios want to sell, or what's cheaper to produce.
What was the result of the trad publishing pricing strategy? At least in the short term, the trad published share of ebook unit sales and revenues fell considerably, leading to the false claim in industry sources that ebooks were losing ground. Ebooks were actually gaining grounds, but trad-pubbed ebooks (disproportionately represented in the stats, which were based only on books with ISBNs) were losing ground.
All of that said, yes, indies have set a lower expectation over time, and that has created problems. I wonder if there was any realistic alternative, though. In earlier years, many indies built careers on strategic use of free days (which trad pubs never did), and even now, a lot of people swear by permafree first-in-series (which trads never do, either). Also, indies made a habit of pricing lower than trads to encourage people to try their books. More established indies with larger fan bases seem not to have to do this as much--they've built a brand already. But how many of them would have a brand if they'd started out with ebooks priced like hardcovers? How many new indies would be able to break in at a higher price point? Authors on this very board have said they won't try new authors unless they can do so cheaply or even for free. A lot of consumers would react in the same way.
We'll never know for sure what might have happened, but I think at the very least self-publishing would have been much slower getting off the ground and that fewer authors would have been able to make a living at it.
