Internet Exchanges for Used Books: Welfare Implications and Policy Issues

Abstract

The emergence of simultaneous online markets for used and new books has caused concern among industry groups such as the Author’s Guild and the Book Publishers Association. These groups note that authors do not earn royalty payments from used book sales and as a result Internet markets for new and used goods may undermine the creative incentives for authors. This proposition, while theoretically possible, remains untested and many potentially countervailing effects remain unexplored. For example, the availability of a resale market may or may not cannibalize the new good market. In other words, the elasticity of demand between new and used goods may be such that it may or may not adversely affect the new book prices and sale. In such scenario, the total book market may expand, leading to higher customer surplus without hurting the authors’ royalties. Ultimately, the actual impact of Internet used book sales on author and publisher welfare is an empirical question. In this research, we use economic theory and structural estimation to model the welfare implications of Internet used book exchanges for consumers, retailers, publishers, and authors. We calibrate our models using a unique dataset collected from Amazon.com’s new and used marketplaces. Our data collection and analysis are ongoing. We will be able to present full results at the conference