prices

Economists believe in the power of prices, but sometimes even we have to admit prices can do some strange things.  Take the discount book battle described in last Saturday's New York Times. Wal-Mart and Amazon have battled each other down to $8.99 for advance orders of certain leading best sellers.  Fifty percent discounts by those two are normal.  These represent up to a 74% discount.  Authors, publishers, and independent book sellers are justifiably terrified about being driven out of business by such competition for market share.  It's easy to sit back and say these prices won't last and that the sale of complementary goods at Wal-Mart and Amazon are also at stake, but that's little solace for the authors, publishers, and independent booksellers.  This is a good example of the discontinuities that can drive prices crazy in the short-run in the quest for long-run advantage.