If price is a function of cost why are e-books (which require no printing, binding, shipping or handling) more expensive than their printed equivalents?

At some point in your life you probably heard about something called “cost plus”, a pricing model in which the price of an item is based on the cost of making it.

And if you like to read and have ever tried electronic “e-books” you have likely wondered why they are so expensive relative to printed versions of the same material. Clearly there are no manufacturing or shipping costs with e-books, so shouldn’t they be a lot cheaper than hardcovers and paperbacks?

But they aren’t. E-books are generally just a little less expensive than hardcover books, and are often more expensive than paperback books. If prices are based on costs this makes no sense.

There is a good reason though, one that makes perfect sense. These days the people that make and sell products try and base their prices less on what they cost to provide and more on what consumers are willing to pay.

It’s sometimes referred to as value-based pricing and this post looks at how this explains the high cost of e-books relative to printed versions.  It is great introduction to the concept of value-based pricing, and an even better explanation to the mystery of ebook pricing.