This is simply the wrong way of comparing eBooks to traditional books, and so Harkaway reaches the wrong conclusions. Harkaway, unsurprisingly (not an insult; it just doesn't occur to many people when to do so when looking at microeconomic systems), just isn't looking at the long run. One of the reasons operational costs are so high is because you have to deal with [dis]economies of scale and all of the fun things that producing a physical product entails.

For books, if you're expanding your publishing, you have to build warehouses, buy machinery, rent/buy transport... the cost is staggering (it's made up, of course, and fairly quickly, but it's still huge). For eBooks, you buy or rent some servers.

Completely different. The pricing system works. It's been demonstrated countless times over the past decade. Why do you think iTunes has been so rampantly successful?


Comparing a largely cut-and-dried, largely monopolistic microeconomic system (book publishing) to a hugely complicated macroeconomic system (the economy of friggin' California), and then using the complexity of the latter as a damnation of the free market is at best disingenuous and at worst outright stupid. Taxation has nothing to do with the free market. It's definitely not a good example of an externality.

The success of electronic media is not predicated upon advanced economics. It is very simple economics.