France outlaws discount pricing for eBooks

A mobilization by French publishers at last month’s Frankfurt Book Fair has proven successful: Last Tuesday the French Senate voted for a law imposing a fixed price on eBooks for sale within French territory – that is, just as with print books in France, everyone has to sell a given ebook for the same price. No discounting.

Here is more; solve for the equilibrium!  Oddly, in the United States, the market has been moving toward an approximation of this outcome, at least for new books, though not for classics.  Probably both prices need to fall, though perhaps they will in rough tandem.  I believe the equilibrium value of a hardcover or e-version of a bestseller is below $10, given the recent shift out of the supply curve for the written word.

Comments

Why is the equilibrium price for a digital copy of anything greater than zero (rounding to the penny)?

In response to Todd: "Why is the equilibrium price for a digital copy of anything greater than zero (rounding to the penny)?"

For most books a large chunk of the cost is in the early stages of production: commissioning, copy editing, etc.; now-a-days printing and paper are relatively cheap. These production costs are no less for eBooks, it is just the additional actual printing costs that are different.

Obviously if a book sells many thousands of copies this changes, although publishers will aim to make more on some books as others will effectively make a loss.

Well, Dave, you are pretty dumb.

This policy is supposed to protect small neighborhood bookshops. There is a minimum price on books in France so that bigger retailers such as FNAC (equivalent to Borders here) cannot push them out of the market.

So... if you don't publish a physical book you can charge whatever you like for your eBook? Or you must make a physical book available or you go to F(French)PMITA prison?

I'm interested in how this was intended to influence French culture. Seems like there will be a lot fewer French people reading new books.

Jason, there's nothing that says that that the unfettered market produces the most books or readers. It may be that the natural state of the book market in the electronic era is that there are very few books published and thus very few readers. (Or more likely, there are millions of books self-published, which almost no-one bothers to read.)

So, it's possible that France may be the country that reduces consumer surplus by having its citizens still buying books and reading when while we are better off watching our YouTube videos for free...

In response to Todd: "Why is the equilibrium price for a digital copy of anything greater than zero (rounding to the penny)?"

For most books a large chunk of the cost is in the early stages of production: commissioning, copy editing, etc.; now-a-days printing and paper are relatively cheap. These production costs are no less for eBooks, it is just the additional actual printing costs that are different.

Obviously if a book sells many thousands of copies this changes, although publishers will aim to make more on some books as others will effectively make a loss.

The "loi Lang" for physical books stipulates the maximum discount allowed is 5%. This is supposed to protect small independent bookstores from chains and big-box supermarkets selling books as loss leaders.

My reading of the news brief is that all e-book sellers will have to sell the same given e-book for the same price, but that price need not be the same as that of the hardcover.

If they are serious about protecting independent bookstores and preventing oligopsony (a weakening of publisher's market power through concentration of distribution), they will also need to introduce compulsory licensing. Independent bookstores can't compete if publishers can withold ebooks from them as they do today from all but a handful of outlets like Amazon, Apple, B&N or Borders.

if publishers can withold ebooks from them as they do today from all but a handful of outlets like Amazon, Apple, B&N or Borders.

I'm not certain that's the case. My wife's an author and has found her books in all sorts of odd internet shops. She had first thought they were pirated, but it turned out that the publisher was licensing sale of the e-books quite widely.

However, one downside is that as an author, it's very difficult to determine if a given vendor is selling pirated copies or not. I'm also quite curious how publishers ensure that a store is actually paying for each copy sold.

"Why is the equilibrium price for a digital copy of anything greater than zero (rounding to the penny)?" - I assume this is a comment about how the marginal cost of production is essentially zero for any Q>1. To answer that, I ask another question: If economic theory and reality don't match, which is wrong?

And to the person that attempted to answer this, your answer has way too much to do with the costs of the factors of production. Supply only answers half the question of what the equilibrium price should be.

And finally, to "Like new cars, new books are way overpriced." That is an entirely subjective valuation. Your personal valuation is just but one teeny part of the market demand curve. Are you arguing that book sellers could make higher profits by selling them at a lower price? If so, why don't they? Wouldn't some astute businessman have figured this out and put it into action by now?

@Nylund:

You write "Wouldn't some astute businessman have figured this out and put it into action by now?"

But one could make that argument about almost any good or commodity. Does that mean nothing on the market is ever under-priced or overpriced. Because if it were some businessman would have corrected it? How can one falsify that conjecture?

Another point is, the strategy that is optimal for a individual businessman may not be optimal for the market as a whole.

As much as I want to sympathize with book publishers as their sales are dwindling down really fast, but this current ruling in France is a little bit absurd. There is no printing cost for ebooks thus it must be priced lower than its hardcover counterpart.

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