From time to time, I try to think like an economist. (Now that I’ve given up trying to walk like an Egyptian.) Yesterday, in a used book store I asked myself this question: why is the same book more expensive when new, and less expensive when used?
If a used book is in good shape, it’s utility is indistinquishable from that of the new version. Furthermore, it is now much harder to get. In fact, there may be just a handful copies of the title still extant. Furtherfurthermore, the world has had a chance to vote on the book and declare it, in some cases, a “classic.” The used book can be, in this way, more, or more obviously valuable, than the unknown commodity it was on first publication.
In short, supply has gone down. Demand has gone up. But used books are less expensive. Plainly, I am not thinking like an economist because an economist would know how to think about this…and I clearly don’t.
I am guessing that this must have something to do with inefficiences of the marketplace. The people who own and run used book stores are generally more interested in reading books than selling them. No, they don’t have a cash register, just a book of blank receipts from Woolworth’s. This is always hard to find in the chaos of litter on the front desk and more often than not, it is never found because it happens to be sitting under the bookstore cat.
So, ok, book stores are not technologically or commercially sophisticated. Plus, they have the problem of having to assess the value of products that exist in great, unmanagable profusion. Some day every book will have a RDIF tag that will allow the book to “phone home” to a market place that exists on line. The local merchant will know how many copies are extant (supply), what the state of demand is, and his/her price will reflect a true marketplace.
Right? But I think used books will still be cheaper than new ones…despite the fact that they are “just as good,” more scarce, and their value to the reader is more clear. I am guessing that this is because there is something like a newness premium. This is the one that can be calculated very precisely by what happens to the value of a car the moment its first owner “puts his foot on the acceleration.”
How do economists explain the newness premium? (If that’s what’s going on here.)
The first point is that for almost any book, the residual demand for it is likely to be much lower once its initial print run is over simply because most of the people who were interested already own a copy. There are very good reasons for publishers to print (and stores to stock) more copies of a book than the expected (mean) number of buyers–the incremental profit loss from a stockout is greater than the incremental cost of an extra copy. So after the primary demand of people who are willing to pay fairly high prices for it is saturated, the residual demand consists of people with lower willingness to pay (we’ve moved down the demand curve).
Newness is also likely to be an issue for certain books, especially topical books, technical books in dynamic fields, or faddish books that people read so that they can speak about them with others. But I believe the move down the demand curve is more likely to be the reason for lower used prices in general.
Steve, thanks, this is interesting. There should be a small gap here between the time that the first generation of buyers die (releasing their copies back into the marketplace) and the time that a second generation comes to the bookstore (to buy used what they can’t buy new) and in this moment, you’d think that prices might go up. (Though not in a marketplace like a bookstore.)
But otherwise, I see what you’re saying. Demand saturates. Hmmm. Consumers consume and leave the marketplace. And books are not like cars or homes, where demand never really goes away. Which is to say, people are prepared to “trade up” (or down) in both these categories, so they are, depending on their ability to pay and the state of the marketplace, always “in the market.” Which is to say, they are prepared to forsake their state of saturation.
Once you own a book, you are out of the market.
And this is where improvement comes in, isn’t it. We may own a PDA but we don’t own the latest PDA and this is sometimes enough to bring us back into the market. The authors of book, to flourish in their own academic economies, have to write new books, so they are never renewing demand, undoing saturation, by renewing old ones.
On the trade off (incremental profit loss from a stockout is greater than the incremental cost of an extra copy) performed by publishers, I wonder when the print on demand world will get so efficient that the publishing world will be able to “pull a Dell” and not print a book until it has a customer for it. I suppose an electronic option will catch up to us before this happens and the “printing” process will disappear.
Thanks and forgive these reflections as the anthropologist “writes out loud.”
Another way to answer the question (economically) is to take a page from Appadurai (anthropology) and look at the life history of the book. At the beginning of a books release, the only option for a buyer is to purchase the book new. The publisher via the book stores have a form of monopoly and can set the price how ever they choose. Buyers who must have the work are forced to pay the new book price.
After awhile, some of those buyers may decide to turn around and sell their copies. If you watch the prices of books on sites like half.com you will see that the first few copies offered for sale tend to be close to the original price (60-90% of the price). Of course these sellers are practically constrained by the price of buying a new copy and they will have a very hard time selling a used book for more than this price. Buyers looking for a little savings during this period may opt to buy a used copy, but since there tend to be few used copies available there may be some work involved in finding a copy and the savings will be marginal. Many may decide to take the easy route and pay the premium for the new copy.
After the book has been in print for a significant amount of time, there may be a lot of used copies available for sale and the used price will reflect this. Typically, a mass market used book that has been out for a year or more will cost about 25-50% of the new price (in my completely unscientific estimation). Buyers may be very tempted to get a used copy in this situation, but there are still some circumstances in which a new copy is preferable (professional use, a gift, etc). Also it may take more effort (used book store) or risk (online purchase of a used book) to purchase used and so some buyers may still opt to buy new.
Finally, after a book has been out of print for awhile the price of the used copies are no longer constrained by the price of a new copy. For books in demand, the price may now exceed the original price.
Just my take. And great job on the blog! Keep up the good work!
the world’s biggest bookstore (allegedly) is powell’s in portland, OR…and i believe they were the first major bookseller to do the unthinkable…sell new and used books side by side. they do a brisk business in both. i know that when i walk into the store everything has a kind of pre-ordained value, as the used books have to keep up w/ the competition of the new ones…whereas in the used book only stores there are piles of junk, musty smells, unfiled tomes, and yes, that damn cat.
following up on the newness premium perhaps new books should follow the lease-to-own model of new cars…a monthly payments for X number of months after which the owner can make a lump sum payment and keep the vehicle or walk away from it and it returns to the used car pool.