Comments on: Postrel on E-Book Prices and Demand Elasticity

By: Timothy B Lee

Timothy B Lee — Thu, 04 Feb 2010 19:41:40 +0000

Joseph: you’re absolutely right that this is the right way to think about it. The question is: for any given author, what fraction of the readers are hard-core fans who are price-inelastic, and what fraction are casual readers with elastic demand. Both my intuition and Postrel’s data suggest that the bulk of the market is in the latter category. That is, there might be 100,000 hard-core Stephen King fans who will read every book King writes. But there are probably also millions of people who will walk into a book store and be on the fence between a Stephen King book or somebody else. If most people are in this latter category–and I suspect they are–then the market will behave more like a perfectly competitive market.

By: Joseph

Joseph — Thu, 04 Feb 2010 18:49:28 +0000

Any single book, authored as it is by a unique entity called the ‘author’, and shaped by the sinews of prose that are unique to it, is sui generis, even if it fits into a recognizable generic ‘category’ within which a book-buyer may find close approximations to it in terms of style and content. There is a demand curve for Stephen King’s (or Don DeLillo’s) latest novel that is unique to it–the novel is the only product in its market. In fact, its 500 (or however many) pages contain words arranged in a certain order that literally *define* the parameters of that market. Whoever holds the copyright to that work holds a temporary monopoly on that market. This monopoly model applies to authors who have already differentiated themselves from competitors.

Books authored by people who are not yet brand-names are more likely to swim in a less-differentiated pool of close-equivalents. A book-buyer who goes to a bookstore (brick-and-mortar or virtual) thinking they would like a ‘good horror novel’ is, essentially, transforming the market from a monopoly (because she isn’t going shopping on a hunt for “Stephen King’s latest”) to one governed by *monopolistic competition*. Any econ textbook can explain how this type of market functions differently from a pure monopoly or a perfectly competitive market, so I won’t get into it here, but the main point is that there *is* a difference between perfect competition and monopolistic competition, and most creative work (books, songs, movies, etc.) is bought and sold in a monopolistically competitive environment.

So, basically, any discussion about music, books, films, and other creative content that revolves around the premise that books are sold in an environment of perfect competition is already starting off on the wrong foot.

By: Brian Moore

Brian Moore — Thu, 04 Feb 2010 14:51:03 +0000

It’s getting to be almost a predictably boring trend now — an industry goes from highly centralized, high margin, to highly decentralized and low margin, and more net customers and producers, as it adopts new technology. The price drops to some intermediate stage where it’s expensive enough to cover costs, but cheap enough that you get some benefit from not pirating it, usually with complementary/convenience/specialty items thrown in. And then some people sell for free, for the popularity or as a loss leader.

So far this has happened/is happening to news, music, DVDs, computer games, and now it’s happening to books. At some point I assume the producers will just make a deal with ISPs, and you’ll be able to pay a flat fee for a few terabytes, and then receive it in whatever book/movie/music format you want. It’s just data.