I'm not sure the "bad for the author" thing holds up though does it, wouldn't an author get paid per book sold, a fixed bit of cash worked out in advance "we'll pay you £1 for the first 100k books then 50p for each book sold up to 250k and then 10p per book after 500k" for instance?
Not if Amazon are setting the prices, in which case they are free to discount the
This quote from a publisher:
When ebooks started, we were pricing ebooks at the same price as the print book, and Amazon was selling them all for $9.99. So they were losing like $3-$4 per book. And they weren’t doing it simply to move Kindles, since they don’t actually make any money on the Kindle unit sales. Now with the “agency model” we get to set the ebook price and Amazon simply takes 30% of that. source
The agency model is the one that Apple et al are getting sued for. Before the agency model came along, Amazon bought ebooks wholesale, and sold them as a loss leader:
So for instance, for a new e-book, let's say the list price was around $24.99. Amazon paid publishers $12.50 per copy, but then turned around and sold the e-book for $9.99. They took a loss on e-book copies to help sell Kindles and to build a huge early lead in the e-book market.
Take that $24.99 list price. Let's say the e-book would have sold for $9.99 at Amazon in the old days but now the publisher charges the consumer $12.99:
Wholesale model e-book:
Publisher: $12.50 (roughly 50 percent of $24.99 hardcover retail price)
Amazon: - $2.50 (selling at $9.99)
Agency model e-book:
Publisher: $9.09 (70 percent of $12.99)
E-bookseller: $3.90 (30 percent of $12.99)
This wasn't a story of money-grubbing publishers trying to stick it to consumers. They actually left money on the table.
The result: The e-book marketplace competition that publishers wanted began to take place. Rather than competing on price, e-book sellers like Apple, Barnes & Noble, Amazon, and others have, up until now, mainly been competing on user experience. source
Amazon subsidize all their ebooks sold under the wholesale model by selling related kit, and generally encouraging people to buy stuff from Amazon. Because they, in effect, are not competing means that there is no effective competition in the ebook marketplace. The only way to get an ebook would be from Amazon.
I don't agree with 'favoured nation' status, that seems like anti competition bullshit to me, but allowing Amazon to scoop up all the ebook market by default would be bad, I feel. The agency model, without 'favoured nations', allows all publishers and sellers to behave fairly, where as with that clause, the sellers are protected against price wars against other sellers, with the publishers taking the hit if a non favoured seller lowers their prices below the favoured seller.
If Amazon then wanted to compete on price, they could only do so by reducing their cut, discounting the cost to consumer out of their cut, and publishers have a measure of reliability about what they will receive. They would still be able to undercut other stores by selling as a loss leader, but they wouldn't be able to screw the publisher.