Economics of used books

Here's a fantastic NYT article on the economics of the used book market. Many writers' orgs are freaked out because Amazon features used and new books alongside of one another, worried that used books will displace new book sales (there's also a lot of hoo-ha about review copies, publishers' rejects, and copies stolen from the printers, but even added up these account for an insignificant proportion of all but the smallest, most specialized book-runs). But economists understand that a market for used goods fuels a market for new goods — would you pay nearly so much for your next car if you knew you couldn't sell it as used when you wanted to buy your next one? (this is one of the hidden, but gigantic downsides of DRM — by prohibiting the market for used iTunes and other virtual goods, the sellers devalue their own products).

According to the researchers' calculations, Amazon earns, on average, $5.29 for a new book and about $2.94 on a used book. If each used sale displaced one new sale, this would be a less profitable proposition for Amazon.

But Mr. Bezos is not foolish. Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small.

One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books. As a result, the used market does not have a big impact in terms of lost sales in the new market.

Moreover, the presence of lower-priced books on the Amazon Web site, Mr. Bezos has noted, may lead customers to "visit our site more frequently, which in turn leads to higher sales of new books." The data appear to support Mr. Bezos on this point.


(via O'Reilly Radar)