In economics and philosophy, there’s a term called the “tragedy of the commons” that I have long maintained applies to the new world of cheap e-books.
Layman’s version of the idea of tragedy of the commons: When there is a shared resource that everyone has access to, it’s in everyone’s rational self-interest to deplete that resource even when no one will benefit when it’s gone.
Layman’s layman’s version. A group of monkeys live near a banana tree. If they just let some of the bananas survive there would be more bananas for everyone. But to an individual hungry monkey, he just wants to eat a banana while he can. By the time everyone has finished acting in their individual interest all the bananas are gone.
You may know this more colloquially as “gettin’ while the gettin’s good.”
I think a case could be made that this is happening in the world of cheap e-books. Only it’s not physical or virtual copies that are being depleted.
The Early Mover Advantage
The prominent (mainly self-published) authors who have moved aggressively to discount their e-books have derived a significant benefit from getting there first.
In effect, what they’re partly benefiting from is contrast — e-books by traditional publishers cost anywhere from $9.99 and up. Self-published authors like J.A. Konrath, John Locke, and Amanda Hocking have experimented with $2.99 all the way down to $0.99 and even free.
Buy a book by a traditionally published known author for $10+ or take a chance on an unknown for $1? A lot of people are choosing the latter, better yet still when the author isn’t even an unknown.
As documented previously, these authors are able to undercut on pricing in part because they’re more efficient than publishers. Konrath, Locke, Hocking and others don’t have armies of employees they’re paying and a publishing ecosystem to support. They write their books, do a lot of the legwork themselves, and contract out what they can’t handle on their own. They can afford to undercut the competition.
Here’s where I think the tragedy of the commons kicks in.
Tragedy of the $0.99s
Thought experiment. Let’s say that everyone sold their books at $0.99. Stephenie Meyer, J.K. Rowling, James Patterson, J.A. Konrath, Amanda Hocking… everyone.
What would that publishing world look like?
Well, for one, more books would probably be sold overall. But not an exponentially greater number. There’s an important constraint that limits the number of books that can be sold: readers’ attention.
At the end of the day, there are only so many people in the world who read books and only so much time in the day they spend reading them and so much money they’re willing to spend for them. People do buy a few more books than they end up reading, but not that many more.
So basically in this hypothetical you end up with a situation where no one makes much money per copy sold and a good bulk of the readership that would probably have paid more if they had been required to. Unknown authors would no longer derive a benefit from the discounting.
If you think of discounts as resources, those discounts could end up depleted when the early movers drive down prices, and no one is able to derive benefit from them anymore.
And when book prices are $0.99, there would be still more pressure to give books away for free to try and build an audience. It’s not that hard to envision a price race all the way down to free for debut authors.
The bananas, in effect, would be gone.
Still, despite the “tragedy” in the title of this post, I didn’t make up that term and I’m not so certain this is truly a tragedy.
As I have written in a previous post, human progress is a steady march toward greater efficiency. Economics is all about finding ways to improve productivity and find efficiencies in order to undercut the competition. When resources are freed up and we’re no longer fetching our own water and growing our own food and killing our own animals and sewing our own clothing, it frees us up to do things like invent spaceships and post updates on Facebook.
It used to take a monk years to transcribe a single copy of a book. Years! One single copy! Think about what that person’s time would cost today in America. We’re talking several hundred thousand dollars of labor for one copy of one book.
Now someone can create a copy of a book with a couple of clicks, and that book can be downloaded by millions of people for $0.99 or less. Efficiency allows us all to do more. It’s the foundation of the modern life.
Lower prices allow people to spend more money on other things and that’s what makes the economic world go ’round.
And the last concept I’d leave you with is price discovery. As a recent episode of the podcast Planet Money illustrated, one of the new innovations of the recession is the Groupon, which is really a new version of the coupon, which itself was created for purposes of price discovery.
Price discovery works like this: everyone has a price they would pay for something they want. It benefits the seller to charge as much as the buyer is willing to pay, and it benefits the buyer to pay as little as the seller is willing to charge. In the old days, or in other cultures, people used to haggle and negotiate over everything in order to find that optimal price. That’s price discovery.
In the modern American world we replaced haggling with retail prices in the name of efficiency, but what is lost there is the ability to try to charge someone what they’d actually be willing to pay.
For instance, I would probably be willing to pay $100 for J.K. Rowling’s next book sight unseen, but the publisher probably won’t find a way to charge me that. Instead I’ll pay the retail price, something between $20-30, and all that money that I was willing to pay will stay with me. That’s potential lost profit for the publisher.
But as the Planet Money episode discussed, Groupon is the harbinger of a new interest in price discovery. Very smart people are hard at work at this very moment trying to figure out how to get you to pay what you’re actually willing to pay.
Where the Money Will Be Made
And this is where I think the tragedy of the commons will be circumvented. Yes, I do think that for new authors there will be tremendous pressure to give their work away or charge very little for it, just as there is pressure on journalists to work for very little or for free until they’ve built their career.
But I also think new technology is going to step up to the plate of profit maximization. Once an author has a commodity in high demand, there will be people willing to pay for it and new methods of price discovery to charge accordingly.
Who knows, by the time J.K. Rowling finishes her next book they may well have figured out how to get me to pay $100.
Um. And hopefully not because I told the Internet.
What do you think? Are we headed to free for e-book prices or will we find a way to charge as much as people are willing to pay?