I've already considered the way the differences between ebooks and paper books affect the price that a publisher should charge (see Pricing ebooks) but there is another side to the coin, what does the reader see as a reasonable price?

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At the moment many publishers seem to want to charge the paper book price minus the production cost of a paper book. As already argued this is not reasonable because of the way digital rights management makes every book read a book sale. However there is a deeper reason why this pricing model cannot be sustained in the long run – the psychology of the reader.

You go into a book shop or you order online but the result is the same – a thick paper book with clear signs that some one has done something to produce it. It's a manufactured item and it not only has a value that the publisher puts on it, it also has a market value. After you have bought a paper book you are at liberty to resell it or lend it or give it away. Whatever you do it has a reuse value and what this means is that its cost to you isn't completely used up the instant you make the purchase.

The reader, even the economically unsophisticated reader has a deep sense that when they buy a book they hand over some money and get something that is near the same value in exchange. I buy a textbook for $40 and after using it carefully I resell it for $25 so the book only cost me $15. Even if I don't sell it there is a sense in which my buying of the book feels like a good economic transaction and my perception of the cost is as an investment that yields knowledge plus a tangible object that has a resale or reuse value. If I choose to lend it to another reader then I've saved that reader the cost of the book and so we have, as a group, gained something.

What is more, the higher the initial cost of the book the more it should retain its value. Overall the cost of a book isn't what you pay for it at the time of purchase but the difference between this and its residual, or reuse, value and this makes buying a book, even an expensive book, seems like a good deal.

Now compare this to a typical ebook. The first and most obvious psychological effect is that there is no book. It is just bits that get downloaded. This in itself isn't an insurmountable problem because we already have a certain familiarity with buying bits when we buy software. However, many publishers don't help the situation by offering poor, simple-minded, automatic ports of the original paper book. In most cases an ebook is not only an insubstantial thing it is often inferior to the paper edition.

This defect could and should change as ebooks become an increasingly important market force. What is not going to change is the psychology of value that is imposed by the use of digital rights management. When you buy an ebook you can sometimes lend it to another reader – provided that they use the same reading hardware and satisfy a few other reasonable conditions. At the very worse you can hand them your ebook reader so that they can read what you have read. What is completely destroyed, however, is any second-hand market. Of course, this has to be so – what is the difference between a second-hand ebook and a brand new copy? From this point of view of course it's reasonable that digital rights management stops the reader from reselling but in doing so it also reduces the open market value of the book to zero. Now when I buy the $40 text ebook – that's it, I'm $40 down. An ebook has no residual value and limited reuse potential. This changes the feel of the entire transaction and rubs the reader's nose in the fact that they are buying bits of nothingness rather than something substantial.

This is the second reason that publishers have to reduce the price of ebooks to the point where the reader feels that the price pays for the information or pleasure they are about to receive.

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