Writer John Green makes a compelling case for reforming the way that publishers calculate advances and royalties, lowering the former and raising the latter. Doing this would -- he argues -- create a less blockbuster-focused, less risky venture that would be good for authors and publishers.
The agent is really high on The Unicornians. She thinks it's the next Twilight. So she submits it to several editors at once. Editor 1 comes back offering $300,000 for three books. Editor 2 offers $30,000 for three books but with a significantly better hardcover royalty. (Say, 20% instead of 10%.)
Putting aside the (very important) questions of which editor would be a better fit and which publisher is doing a better job with Unicornian-esque books, I would argue that the author of The Unicornians is always better off signing with Editor 2.
Let's say that The Unicornians is not a tremendous success. The first book in the trilogy sells 8,000 copies in hardcover; the second two sell 6,000*. With Editor 1, the author gets her $300,000^^, but The Unicornians comes up $240,000 short^^^ of earning out. With Editor 2, the author only makes $80,000 on the series, but $50,000 of that is royalty, and the publisher has also made a (modest) profit. The publisher will likely ask the author for another series, perhaps something focused in on the werewolf dude...
Okay, so now let's say The Unicornians IS successful. Let's say the first book sells 250,000 copies in hardcover**, because they make a movie, and teens squeal about how hot the unicornian boy's horn looks. The second and third books also sell 250,000.*** With Editor 1's deal, the author earns back her advance and makes $1.2 million, for a total of 1.5 million dollars. With Editor 2's deal, the author earns out and makes $2.7 million in royalties, for a total of $3 million.****