Misrepresenting the Economics of Books

The NYT had a piece on a deal that Amazon.com made with book publishers which could raise the price of some e-books by as much as 50 percent. At one point the article asserts that readers who might resist this increase don't understand the economics of publishing: "To consumers who do not pay much attention to the economics of publishing, though, such arguments are trumped by the fact that e-books have been available for $9.99 for more than a year." Actually, the consumers who object to the higher price of e-books likely understand the economics of publishing very well. The marginal cost of an e-book is essentially zero. Economic theory holds that efficiency is maximized when goods sell at their marginal cost. That is why they get so upset over government policies like 20 percent tariffs on Chinese tires. In this case, the government granted copyright monopoly is allowing the publisher to charge a substantial price for an item that would be free in the absence of government intervention. It is necessary to support the writers, editors, and other workers involved in producing the book, however there are much more efficient alternatives to copyrights. It is not surprising that the public would resent this government intervention that leads to so much inefficiency, just as people living in the Soviet Union resented its prohibition of free market transactions.

--Dean Baker