Comments on: Ignorance and Competition in the Book Market

By: Tim Lee

Tim Lee — Thu, 04 Feb 2010 16:33:15 +0000

mealworm: I agree with your macro-vs-micro distinction, but I think it’s clear that micro-elasticity is what matters for the behavior of any given player in the e-book market. That is, if other publishers are selling their books for $10, and I offer my book for $9, I’m going to get a lot more sales. It might be true that if everyone else cuts their price to $9 our combined sales won’t have changed very much. But price-fixing agreements tend to be fragile–not to mention illegal–so I don’t think publishers will manage to hold prices above the equilibrium level, even though it might be in their collective interest to do so.

By: mealworm

mealworm — Thu, 04 Feb 2010 16:26:14 +0000

I meant “competition assumption” rather than “competition analysis” in the previous comment.

By: mealworm

mealworm — Thu, 04 Feb 2010 16:25:50 +0000

I think your competition analysis is just wrong, for two reasons. One, it ignores the extent to which publishers themselves improve the quality of books their authors write, through editing, typesetting, art etc. (even marketing if we’re being market purists). Second, on the macro side the demand for books is a lot more inelastic than you think, a situation far different from movies or music. That is, while any given book which costs more than the average book will not be bought (micro price elasticity), reducing the average price of books will not much increase the total number of books sold (macro price elasticity). So although there are plenty of books out there that, if published, would sell as well as or better than those that are published, it doesn’t follow that more books could be sold than are, in fact, sold. The massive numbers of unbought, extremely low-priced books at any used bookstore should convince one of that. The vast majority of books can’t even be given away at zero cost.

By: Akusu

Akusu — Tue, 02 Feb 2010 00:59:11 +0000

Personally I find one of the problems with books right now is that I feel like I’m late to the game.

Stephen King was started being published at the very least when I was a young child. One of the authors I want to read all of, Micheal Slade, is the same.

I can’t go out and acquire all of those books now, without a considerable amount of effort. And a large amount of fail.

I’ve found that in the age where things are so easy to rip off, if I’m actually loyal to something, I’m willing to buy the entire set(let alone the one that hooked me) so I have a physical copy. If not… well, I don’t really care.

Point being that sales of current books also sell past books…. but only if they’re still available. That’s just not always possible with physical books, but relatively easy to accomplish in electronic formats.

So personally I’m looking forward to books in electronic, universal formats, and I currently already enjoy my PDF archived textbooks.

By: Timothy B Lee

Timothy B Lee — Mon, 01 Feb 2010 17:03:16 +0000

Aaron: right, that was an overstatement. I guess think there’s a certain amount of raw talent you develop when you’re young, that you either have or don’t have, and that primarily determines whether you’re able to produce best-selling books over time. But you’re obviously right that authors also mature over the course of their career. Regardless, I think it’s the case that an author’s past book sales are the best predictor of future book sales, even if the correlation is rather weak.

Sean: I’m familiar with Varian. Not sure I want to spend a ton of time on this since I’ve got CS research to be doing, but I’ll add that to my reading list. Thanks!

By: Sean Gerrish

Sean Gerrish — Mon, 01 Feb 2010 16:59:59 +0000

And here’s a paper maybe worth perusing:

http://www.google.com/url?sa=t&source=web&ct=res&cd=1&ved=0CAkQFjAA&url=http%3A%2F%2Fpeople.ischool.berkeley.edu%2F~hal%2FPapers%2Fprice-info-goods.pdf&ei=LghnS-LsEcjdlAf-vuWUCg&usg=AFQjCNGAA7y_En-SRhkCZEZMf6MRiwZi9g&sig2=2NEEMbTeMZBHeuSfXYl-eg

By: Sean Gerrish

Sean Gerrish — Mon, 01 Feb 2010 16:56:28 +0000

You familiar with Hal Varian? He’s Google’s chief economist (on sabbatical from Berkeley) who’s somewhat familiar with the economics of the book market (along with just about every other market) and co-wrote the book Information Rules, about information goods. I seem to remember him talking about Amazon’s book market at some point in the past, and he’s very friendly. He might be worth contacting for another data point on information monopolies in the book market for the next stages of the analysis..

By: Aaron Massey

Aaron Massey — Mon, 01 Feb 2010 16:40:09 +0000

Great post. I agree with most of what you’ve written here, but one thing stuck out to me as inaccurate:

“…an author was probably just as talented before he was discovered as after…”

Writing talent isn’t an innate thing determined when you’re born; it’s a skill that people develop over time. This leads to two cases, which I suspect will be important parts of your analysis in your second post. Some authors have horrible first books and end up producing something much better later in their career. There are also numerous authors who have a great first book and then never live up to the standard they’ve set for themselves.

In the omniscient world you describe, talent variability is irrelevant since publishers simply know which books will be hits and which ones won’t. In the real world, this becomes rather important to publishers because both situations are effectively a loss. In the first, the publishers are missing out on hits because they “know” the author’s not that talented based on their previous book. In the second case, the publishers are signing up for a non-hit based on the author’s previous hit. As the cost of publishing goes to zero, I suspect that these situations would move from losses to gains.

By: Rhayader

Rhayader — Mon, 01 Feb 2010 16:24:55 +0000

This is an entertaining analysis, I’m looking forward to the next post. And also hoping Wilkinson joins the discussion in a non-Twitter form.