Used book stores and market cannibalization

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The Times has yet another article about the Authors' Guild complaining about user book sales:
The study's findings are similar if different in scale to other recent studies. Ipsos BookTrends, a commercial research company, has reported that used books account for about 8 percent of overall sales of general-interest books to consumers.

Publishing companies and authors have long expressed concern over used-book sales, saying they cannibalize potential sales of new books and, because they generate no royalties for authors or revenue for publishers, they harm the ability of authors and publishers to make a living.

"It certainly is a threat," Paul Aiken, the executive director of the Authors Guild, said in an interview. The guild has complained in particular about, whose Internet site offers consumers the ability to buy used copies of a book on the same screen where it offers new copies. In many instances, used copies are made available for sale by outside parties almost as soon as a new book goes on sale.

Let's be realistic here. Most authors don't make much money from their books, and an 8% decrease in their royalties probably isn't that substantial. On the other hand, having more people read your books is extremely valuable, and since the people who buy your book used are probably less likely to have bought them new, the cost to you is probably fairly low.

What I find interesting here is the claim that the used copies are available almost as soon as the books go on sale. It seems to me that there are three likely possibilities:

  1. The people selling these books didn't like them and don't want them.
  2. The people selling these books have finished them.
  3. The people selling these books got them for free, e.g., as advanced copies from the publisher.
It's not clear what the overall effect of (1) and (2) are. After all, the seller did buy a new copy. Moreover, to some extent used sales drive up the initial price of the book because people who would otherwise have been hesitant to buy are now willing to do so, secure in the knowledge that they can resell. Moreover, if the books are on resale almost immediately after release, then I would imagine that category (2) is initially pretty small, since it takes a while for most people to get through books.

From the author's perspective, it's the third category of used book sales that is a real problem. Publishers give out "review copies" of free books in an effort to generate buzz. The authors don't get paid royalties for these books and if they're being resold, that's money directly out of the author's pocket. I don't know how many of these books end up on the resale market, but that's a question that should be pretty easy to answer by marking the review copies and then randomly sampling the used market.

Note that it's also not clear how much substitution there really is. Ghose et al. have studied the issue and claim that the level is pretty small, but I'm still working through their paper and don't yet have a firm opinion on the quality of their results.

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I think you're missing this one. The complaint is simply greed. As you mention, the availability of fluid liquid market drives UP the price of new books. So AG members are making more money today, via the creation of this market, then they were yesterday. But that's not enough. They want a EULA for thier product so they can tax the secondary market.

As for 3, these are an advertizing expense. And this expense gives them the added benefit of seeding the secondary market, thus further propping up the primary market.

Cry me a river.

Oh, it's definitely greed. My question is whether it's rational greed.

I'll bet one of the biggest effects of this is to make hardcover books more like paperbacks. Instead of waiting for the paperback so I can only pay $8 for a book instead of $30, I can buy the hardback at $30, read it, and if I don't think it's something I want to keep forever, I can resell it for $22 or so and come out okay. Another interesting effect is that you could imagine a hardback book going through five or ten readers without ever showing much wear; the guy who resells it the second time ought to do quite well for himself, reading the book almost for free.

Now, if only the publishing industry could buy congressmen like the recording and movie industries can, this would be a major political issue, and we'd soon see legislation addressing it. Peer to peer bookselling networks must be shut down!

I suspect that (2) may be a larger component in the online market because the seller has a couple of days to read after the posting goes online (even if the book sells the same day as the posting, it's fair to mail the book one-two days later.) Plus, someone who buys a book as soon as it is released might be in a rush to read it anyway :-)

I have two separate comments.

First, the complaint is an attack on the "first sale rule" of Copyright. This very old idea in the jurisprudence of Copyright says that if you as a copyright owner decide to sell a copy of whatever it is you own, the person who buys it gets to do what s/he wants to do with it. Except of course, violate your copyright by making copies - with some limited exceptions. This is why you can sell, burn, or give away a book you legally obtained and not violate federal copyright law.

The whole argument is probably unnecessary for two reasons. Reason one. The simple way around this issue is to not sell a "copy" of the thing you have copyrighted. Instead sell a license to use the thing you have copyrighted with whatever terms you desire. This very theory is the foundation of the commercialization of software. The End User *License* Agreement you click through on just about every piece of software you install. Its a *license* with all sorts of limitations that can't be imposed on a sale.

This effectively turns the transaction between you and the next guy into a contract, and you as the copyright owner, can put almost anything you want as terms in the contract. True, you lose some of the utility of the copyright law in pursuing people who breach your contract, but for all intents and purposes it doesn't really matter. There are reasonable ways around those problems.

Reason two. If the copyright owner can to a reasonable degree predict the amount of loss due to resale, then the copyright owner can consider that loss in its initial pricing of the good, thus compensating for the loss in the price of new books. The guild is asserting a specific value - 8% - of loss. So clearly they can predict it. The reasoning goes, since the only used copies come from the sale of new copies, and the new copies only come from the copyright owner, the copyright owner does, in fact, control the used book market to a significant extent. This argument is harder to visualize and gets into "modern" versions of economics involving game theory and dynamic iterations reaching equilibria but it is known, and has been around a long time. One of the seminal cases in American Antitrust law often referred to as Alcoa relied on precisely this rationale - in the mid 1940's.

Second, this may not be part of an agenda to deal with used books, but to modify the copyright law to deal with the computer age. You "fix" the "used book problem" in a way similar to "fixing" the problems with the computer age. By "clarifying" what people can and can't do with used books, you also end up "clarifying" to a significant extent what people can and can't do with media in digital form, such as CDs, ebooks, and DVDs. Publishing is a highly concentrated industry with book publishers often being economic components of larger media companies that deal in digital. They have been pushing for years in various ways to further protect their intellectual property. Using the approach found in the Times article, it isn't the rich media firms asking for change, its the poor Guild members. They all have similar interests.

On that point, I should make it clear that I think they do have a legitimate interest in protecting their IP. If a company can't derive a benefit, then it won't invest, and you won't be able to buy the book, CD, or DVD because it won't exist. The question is always how and to what extent should it be protected. Intellectual property concerns are a balancing act of considerable difficulty.

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