Ebook Pricing Has Nothing to Do with Physical Book Pricing

I was on twitter and someone brought up a logical question that people have asked often:
How can it be that a book has a cheaper physical price at a store than when I buy it on Kindle?
A few supporting points I hear:
Paper costs more than air, so the paper price should be higher.
Restated as a cry from the heart: On general principle there should never be a book that costs more on paper.

Unfortunately, sometimes the things we think are just common sense in fact aren't true. The prices of ebooks and paper books have nothing to do with one another.

Let's completely set aside, by the way, the cost of network bandwidth and content management. We'll pretend a world where ebook and paper book costs of delivery are equal.

The price of ebooks depends on a lot of things, such as the price suggested by the retailer, the actual price paid by the retailer to the publisher, and any standard price the retailer pays. There are lots and lots of details in here, but basically the thing to know is that ebooks are a product like downloadable games that have a price. The price could vary widely from day to day and hour to hour, though as a matter of policy these prices generally are stable.
The price of paper books depends on a lot of things, such as such as the price suggested by the retailer, the actual price paid by the retailer to the publisher, and any standard price the retailer pays. There are lots and lots of details in here, but basically the thing to know is that paper books are a product like slacks that have a price. The price could vary widely from day to day and hour to hour, though as a matter of policy these prices generally are stable.

You know what these two don't have anything to do with? One another. Sams sells paper books. On Tuesday they might decide, "It's back to school time! Today, paper books will be the thing that brings people in the door. Let's make all paper books half off. We'll lose money on the paper books, but we'll make money on pencils and pens." And Voila, a $15 book is $7. The Ebook on Amazon is still $9.99. Let the cry of the heart begin. They don't have anything to do with one another. They are products, with prices. They have no more relation to one another than their relation to the price of a soft drink featuring a character from a movie based on the book.

But you know, they could have something to do with one another by choice. In theory a retailer could set up a spider that says, if there's a cheaper price in hardback out there, we will undercut it on the ebook version. But that would still be a marketing choice by the retailer. And anyway, why? They are different products. Tomorrow Sams' sale will end; the paper book will go back up.

I might be in an airport and can't find SOLOMON KANE, but can buy it for $9.99 on my Kindle. My price choices here are $0 for zero books or $9.99 for one ebook. The fact that Solomon Kane is $5 at a store down the street from the airport is completely meaningless in this instance.

I might be in the airport and find Under The Dome marked down to $8 on paper, while the ebook remains $11.77. But the paper book weighs approximately 900 pounds while the ebook weighs nothing. At this point, the ebook is worth the extra money, if we're comparing. I'm paying for a value.

Ebook prices and paper book prices: They don't have anything to do with one another.