The collective insanity of the publishing industry
I have a small pile of friends in publishing, so I'll take this from the other side.  The reasons for the publishers' apparent insanity are:* Contrary to popular belief, physical production is NOT the single largest part of a book's cost.  In fact, even before ebooks, the cost of paper and ink and shipping was actually a pretty negligible part of the final cost.Most of the cost of a book is the highly-skilled labor involved (writing, editing, copyediting, proofreading, designing, typesetting, marketing, selling) and these critically don't go away or even get much cheaper in an electronic world.  Even ebooks need specialized design and typesetting, and I have some examples which did not get that love which will make your eyes bleed if you don't believe me.Salaries in publishing have for decades been nosing around the minimum the market will bear---as just one example, freelance proofreaders get paid a penny per word; the good ones get two.  Many freelance proofreaders are also editors, copyeditors, and authors in their own right, and hustle their asses off to make incomes that, coming from tech, we wouldn't consider starvation wages.* Price is an important signalling mechanism, and so---given the costs of book production---it's important to the publishers not to drive the perceived fair cost of books down below, no matter whether Amazon is currently subsidizing that or not.