Saturday, July 30, 2005
Used and (Not) Abused
Thursday's New York Times reported on a study of Amazon used book sales. The study's finding? That some people should stop whining:
When used books are substituted for new ones, the seller faces competition from the secondhand market, reducing the price it can set for new books. But there's another effect: the presence of a market for used books makes consumers more willing to buy new books, because they can easily dispose of them later. A car salesman will often highlight the resale value of a new car, yet booksellers rarely mention the resale value of a new book. Nevertheless, the value can be quite significant.....According to the researchers' calculations, Amazon earns, on average, $5.29 for a new book and about $2.94 on a used book. If each used sale displaced one new sale, this would be a less profitable proposition for Amazon. But Mr. Bezos is not foolish. Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small. One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books.
I think anyone who spends much time buying or selling books knows the truth of this: there are simply some books you won't spend $24.95 on, but that you might spend $5.95 on. Used bookbuyers are not so much lost new-book sales as never-would-have-happened-anyway sales.
When used books are substituted for new ones, the seller faces competition from the secondhand market, reducing the price it can set for new books. But there's another effect: the presence of a market for used books makes consumers more willing to buy new books, because they can easily dispose of them later. A car salesman will often highlight the resale value of a new car, yet booksellers rarely mention the resale value of a new book. Nevertheless, the value can be quite significant.....According to the researchers' calculations, Amazon earns, on average, $5.29 for a new book and about $2.94 on a used book. If each used sale displaced one new sale, this would be a less profitable proposition for Amazon. But Mr. Bezos is not foolish. Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small. One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books.
I think anyone who spends much time buying or selling books knows the truth of this: there are simply some books you won't spend $24.95 on, but that you might spend $5.95 on. Used bookbuyers are not so much lost new-book sales as never-would-have-happened-anyway sales.
