Is there a name for when consumers are willing to pay less for something because they falsely perceive that costs have gone down? This is apparently the conundrum facing publishers, who have found that many consumers believe that a significant portion of the cost of a book is the price of the physical book, and thus expect that without printing costs, e-books should be significantly cheaper. It seems that the cost illusion that publishers have benefitted from for so long is finally coming back to bite them.

I say that the cost illusion has benefited them because I suspect that this perception of prices being largely driven by printing costs is what makes people willing to pay more for a newly released hardcover book than for the paperback version that comes out a few months later. People mistake the hardcover/paperback price difference as simply cost driven, but really there is price discrimination occurring as well. Publishers know people who want the book now will pay more for it, while people who are willing to wait will pay less, and so they charge more for new releases. The fancy packaging of the book is a way for consumers to not feel ripped off by being price discriminated against, and I suspect many, if not most, are completely fooled by this illusion of cost.

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