Economics of hardcover versus paperback

I always thought paperback is economical and it's a no brainer. But this also made me wonder why the hardcover is available in the first place. There has to be someone buying it consistently.

Obviously the content is no different in either version so it effectively boils down to the price you are ready to pay. So fundamentally it is question of your personal choice. I go for paperback because it is cheaper. But have you been in a situation where you are buying a book which you have already read but just want it for your own little collection. Well, that's when your choices swing towards the hardcover option. Psychologically we tend to get a nice and expensive feeling looking at the hardcover, which means you are not just paying for the content of the book but for the feel-good factor as well.

This perception and the reactivity have lot of do with the geography. There are specific areas or countries where it's considered elite to own a library. Infact at times it goes to level where certain authors or book series are expected to be released only on hardcover, otherwise it may withdraw some of the fans. It is like a 5 star hotel cannot charge the same price as 3 star hotel for tea even if the cost of production is pretty much the same. Value is partly because it gives the elite feeling to the customer.

Considering the profit margin - hardcover has a higher cost but they can really be priced much higher than paperback, thereby increasing the profit per unit sold. So the question is - whether to go for low volume / high profit or high volume / low profit or combination of both.

I feel most idealistic scenario would be to have it mixed nicely. If the market reaction cannot be predicted (typically for new authors) then it is best to launch with higher number of paperbacks and minimal hardcover. And in case the book does well in the stands, just reverse the volume ratio. However for more popular authors you can venture out directly with hardcover but you know your customer better.

So end of the day, it is not just the question of which one looks good or which is better for me, but really it is the strategy to maximize the margin.