The Amazon Kindle Versus Apple’s iPad – Healthy Competition?

As a general rule, in the world of consumer electronics, increased competition is good news for customers. It usually has the double benefit of providing end users with more choice while simultaneously forcing prices downwards. You will see this pattern repeated again and again in any number of markets – exceptions to this rule are few and far between.

There is no obvious reason why the e-book reader and e-book market should be any different. This has been heavily dominated by the Amazon Kindle reader and Kindle books. Since the launch of the Kindle 2.0 in February of 2009, the Kindle has been the clear market leader and Amazon have done a lot to develop the market, for both e-book readers and e-books.

Competing manufacturers, such as Sony, Barnes and Noble and Plastic Logic, either updated or developed their own e-book readers in order to compete with the Kindle and to secure a share of the rapidly developing e-book reader market. Although there was no sign of a “Kindle Killer” and Amazon retained their top spot, the increased competition did lead to lower e-book reader prices. Which is exactly what you would expect – normal market behaviour and good news for customers.

So it seems somewhat strange that now that the Kindle faces some credible competition – in the form of Apple’s new iPad -prices looks set to increase. Amazon has had a policy of pricing Kindle books at $ 9.99 or lower, something which has created friction between Amazon and the big publishing houses who, understandably to some extent, wish to protect profits from their lucrative hardback publications. However, in parallel with the launch of the iPad, Apple will be unveiling their own e-book store – and they have struck agreements with many of the major publishers which allows them to set the prices of their e-books at whatever level they like – just as long as they don’t allow any other retailer access to that same content at a lower price. The result of this is that Amazon have had to back down and let publishers charge more for newly released books.

Apart from protecting the interests and profits of the big publishing houses, it’s hard to see any logic in this. Even disregarding the fact that increased competition should naturally lead to lower prices, why should customers be expected to pay over the odds for a digital product which costs a fraction of the physical product’s cost and has virtually no delivery fees?

Apple do seem to have joined forces with the major publishing houses in order to keep prices and profits high. It may be a tactic that will work in the short term, but it seems unlikely that consumers will tolerate artificially inflated prices for long.