Amazon, Authors, and Asymmetric Information

By James M. Jackson

Asymmetric information occurs any time two parties to a transaction have different levels of knowledge about a situation.

Sometimes that’s a very good thing: When I go to the doctor with bothersome symptoms, I expect her to know a lot more than I do about diagnosing the problem and how to treat the underlying issue.

Sometimes it is not a good thing: for example, when you buy a used car from a stranger, the seller knows much more about the car than the buyer does. The seller knows whether the car had all its routine maintenance, whether the son red-lined the engine drag racing with friends, whether it sat for a week in a flooded garage. Unless you are a mechanic, or hire one to inspect the car, you will suffer from asymmetric information.

Let’s Focus on a self-published author’s relationship with Amazon when using KDP (Kindle Direct Publishing).

What does Amazon provide to self-published authors who use KDP (Amazon’s publishing platform)?

You know your royalty rate depending on choices you make about pricing your book and what markets you want Amazon to sell into. There are no hidden costs.

They provide information about your sales—it’s not always 100% accurate, but it’s reliable, and it’s current (at least reasonably so) to within a day.

If you enroll your books in Kindle Unlimited, you can determine the number of pages members read, again daily, with good accuracy.

Amazon provides these data sooner than what an author receives from traditional publishers.

Where does Amazon use its Asymmetric Information to its advantage?

Book Rankings: No one knows exactly how Amazon determines book rank. Sales have something to do with it: we’re sure of that. But sales over what period? What effect does sales momentum have? Sales memory (past sales)? Pages read by members enrolled in Kindle Unlimited also count toward a book’s ranking, but we don’t know how. Does your book share a level playing field with big publishers? How about with Amazon’s own imprints? (i.e. How level is the playing field level?)

One example of a non-level playing field is this: If you give your book away, Amazon assigns a separate ranking for free books. However, free downloads of Amazon Imprint books included in their “First Reads” promotion count the same as sales and are not segregated into a separate class, meaning these books can (and do) obtain the coveted #1 status in their categories.

Search Results: When you search for a book on Amazon, how does Amazon determine which books to show? Do they favor Amazon imprints? To what extent do they favor those who advertise? Do they look to maximize possible Amazon profit on a book sale?

For example, does Amazon use an algorithm that calculates their revenue for a book purchase, multiplied times the probability someone will purchase the book after seeing an ad + the profit earned from the ad itself?

Amazon does “manipulate” results to reflect its interests: recently some authors have entered their book’s name in Amazon’s search box and discovered the first page of results did not include any of their books. Most people don’t click past the first page, which means when that happens the affected author’s books become nearly invisible, even to people who specifically searched for the author.

Amazon tells authors to choose seven useful keywords to categorize their books to help readers find them when they search. Yet only Amazon knows how they use this information and what they combine it with when they deliver search results.

Amazon usually shows “Also Boughts” relative to each book. How are these determined? Is it a level playing field (i.e. do Amazon imprints get included more often as also boughts that other books?) Do books with ads automatically get different treatment?

When authors advertise on Amazon, the asymmetry becomes worse.

Only Amazon knows how it determines how much to charge for a click.

Only Amazon knows how it determines which ads it presents and where.

Amazon knows exactly who clicked on your book’s link—you don’t.

Similarly, Amazon knows which book everyone bought—you have no idea who buys your books.

What’s an author to do?

Knowledge and boycott are the primary tactics to counter asymmetric information. If you choose to self-publish, Amazon is too big a marketplace to boycott, leaving knowledge as your only choice. Knowledge takes two forms: First one should understand where asymmetric information exits (and hopefully this blog helped). Then, to the extent possible, learn strategies to counterbalance Amazon’s advantages.

It’s not just authors . . . readers, too!

Amazon’s asymmetric information advantage also affects us as readers. It knows what we read (if we use a Kindle or Kindle App, it even knows when we read). It knows what books you’ve searched for, what ads you click on, and which ad placements attract your attention.

Not that I want you to become paranoid about asymmetric information, but based on your purchases, Amazon might even know if you are naughty or nice–oh wait, that’s Santa Claus—and besides, you already know that about yourself.

Chainsaw Jim signing off

And now it's time to say goodbye to all our family . . .

No, not the Mickey Mouse club . . . This is my final post for Writers Who Kill for the foreseeable future. I've loved being here, but focusing my writing efforts on new projects means I must give something up. However, my alternate Sunday slot will be more than ably filled by Kaye George who I have been friends with for more than a decade. I'm sure you'll be well served.

If you want to stay in touch and see what I'm up to, you can sign up for my newsletter and/or find more information about me and my books at https://jamesmjackson.com/index.html.