This is the vaguely economic argument that people make when they talk about e-book pricing: “The price of all books will go to zero. Everyone knows that in a perfectly competitive marketplace, the price will tend towards the marginal cost of distribution, which for digital goods is zero. Authors must band together and make sure that books are priced at something high, or we will all surely perish.”
I bristle at the indiscriminate application of economics, where nobody checks that the assumptions underlying the economic theory holds true first. Here’s the challenge: if someone wanted to read for free for the rest of their life, they could do it, easily, today. They’d start with Project Gutenberg. There is a ton of Pride and Prejudice fanfiction–more than any one person could read in her lifetime. People have been posting stories–entire novels worth–on livejournals for lo these many years. There is more free reading material available than any reasonable person could tackle. And yet–shockingly–people pay for electronic books.
How can you explain this? Is it a breakdown in the market? Is it that the market has not yet reached equilibrium? Is it that ereaders haven’t yet become commonplace? None of that. It’s because a book is not a perfectly competitive marketplace.
It would be if there were no intellectual property laws–anyone could compete perfectly with books by Courtney Milan simply by making a copy of my book, which would cost them basically nothing to do. Nobody could charge anything for books by Courtney, because somebody would always undercut them. I would make no money. You can see this principle at work on Amazon if you search for public domain works.
Luckily for me I have an exclusive right to distribute my books and to license others to do so, and so there is not a perfectly competitive marketplace for books by Courtney Milan. In fact, the market is quite the opposite of competitive: I have been granted a legal monopoly over books by Courtney Milan, and that means I can charge whatever I want, and nobody else can sell my books for less, unless I give them the right to do so. Therefore, we don’t have perfect competition.
“But Courtney,” you say, “books are economic substitutes for each other. If you charged $5,000 for a book, people would just go and read Sherry Thomas and Tessa Dare and Julie Anne Long and Meredith Duran instead.”
Too true. I may have a legal monopoly over books by Courtney, but there are decent economic substitutes for books by Courtney. The problem is that (a) there are a small number of really good economic substitutes and (b) all substitutes are imperfect, with some substitutes being more imperfect than others.
For instance, I have a vast amount of empirical data demonstrating that at least some people would rather pay $7.99 to read my book than spend $0.00 to read Moby Dick for free. This is because Moby Dick is a really, really bad economic substitute for a historical romance. I like to think that even in historical romance, there is no perfect substitute for a book by Courtney. Heck, my books aren’t perfect substitutes for each other. Most people don’t read Unveiled a second time and say, “Well, now I feel just as good as if I’d read Unclaimed, so why bother?”
We all know that books are imperfect substitutes for each other because if there were, by golly, I still wouldn’t be waiting (semi-patiently) for George R.R. Martin’s Dance with Dragons. I’d have read Coraline by Neil Gaiman and I wouldn’t bother. If books were interchangeable, I wouldn’t have stood in line to get Patrick Rothfuss’s signature. Scheherazade would never have lasted a thousand Arabian nights, because the King wouldn’t have cared how the story ended.
Now, I don’t deny that books are imperfect substitutes for each other. And I don’t deny that this results in price competition. But as a general rule, the better the author, the harder it is to find a good old-fashioned economic substitute for her Conversely, the worse the author, the easier it is to substitute. It’s really easy to bore people. It’s hard to entertain them. And the authors who can make you laugh consistently–or keep you on the edge of your seat–or have you reaching for your hankie–you know they are not interchangeable.
So, when someone says that price must tend towards the marginal cost of distribution, you are implicitly saying that authors write indistinguishable crap. And frankly, if I believed I wrote indistinguishable crap, I wouldn’t bother writing.
One of the reasons that competition is so imperfect in the book world is that this is a field that is very hard to enter. Oh, you might think it’s easy–all you have to do is slap words down and put a book up on a Kindle. But it is hard to write a book, and it is a thousand times harder to write a good book. It takes a lot of skill and a lot of talent. Self-publishing doesn’t make it any easier to write a good book–it just makes it easier to take a bad book to market.
Writing a book is so hard that there are not enough truly awesome authors in this world to keep the voracious readers in excellent books for all their reading hours. Voracious readers have to settle for “really good” authors and “enjoyable” books. If they read fast and often enough, they’ll delve into the “okay” territory just so they have something to read.
So yeah, I’m not worried about author compensation. It is already the case that authors like Stephen King can charge $34.99 for a book, while authors like Courtney Milan charge $7.99. There’s a reason for that, folks, and it’s because Courtney Milan is a really, really poor economic substitute for Stephen King.
I do think there are some ramifications to the e-revolution. I do think that there’s unmet demand for more reasonably-priced works. And I do think that price-competition will force the price of many books down. But I don’t think that having 500,000 books on Amazon priced at $0.99 will so transform the book industry that everyone will have to drop their prices to $0.99 and will still only sell 100 copies. The book industry has managed to survive against a backdrop where every single excellent book from a century ago is available for free.