Oct 24

Peter Brantley

Peter Brantley

Books on the Border

The New York Times today had a story on the pressures on the German book market created by the ... wait for it ... Swiss. In "German Border Threat: Cheap Books," Michael Kimmelman discusses the challenge to an old German law forcing uniform pricing on books. Contrary to default American economic assumptions, this price-fixing has resulted in a more diverse bookstore market, with downward pressure on book pricing.

The German Book Association counts 4,208 bookstores among its members. It estimates that there are 14,000 German publishers. Last year 94,716 new titles were published in German. In the United States, with a population nearly four times bigger, there were 172,000 titles published in 2005.

Germany's book culture is sustained by an age-old practice requiring all bookstores, including German online booksellers, to sell books at fixed prices. Save for old, used or damaged books, discounting in Germany is illegal. All books must cost the same whether they're sold over the Internet or at Steinmetz, a shop in Offenbach that opened its doors in Goethe's day, or at a Hugendubel or a Thalia, the two big chains.

What results has helped small, quality publishers like Berenberg. But it has also -- American consumers should take note -- caused book prices to drop. Last year, on average, book prices fell 0.5 percent.

Switzerland decided that within its borders, fixed-prices on books would no longer be permitted.

The fixed-price system is not unique to Germany. France had it, gave it up and reinstituted it after finding that discounting hurt small booksellers. But in the German-speaking book world, the system has long been a source of special pride until Switzerland jumped ship this spring.

Despite vigorous lobbying from German and Swiss publishers and independent booksellers, the Swiss government sustained a ruling by the Swiss Competition Commission to overturn the fixed-price law and allow discounting there.

It's still early, but some Swiss prices have since gone up. Discounts for best sellers are forcing Swiss booksellers to raise the prices for other books.

Michael Kimmelman, the NY Times reporter, tried to understand the motivations of the Swiss government by inquiring of the agency that ruled against the traditional practice. What I find interesting about the response is that it claims that theoretical economic doctrines ("cartels are wrong") should trump cultural prerogatives, even while admitting that current real-world economic outcomes might actually be better aligned with the same doctrinal body of economic theory that pre-disposes against the price-fixing in the first place. In other words, a precis of rational economics valuing means over ends.

I called Rafael Corazza, director of the Competition Commission, to ask what he was thinking. “It's not normal for one market to have special regulations,” he explained. “It was a cartel. The German and Swiss booksellers said it was for a good purpose -- they made a cultural argument, but we are an economic commission. They said the system fosters a broader, deeper market for books, that discounting will hurt the small booksellers who support the small publishers, and then you will have fewer books and more focus on best sellers.”

Are they right? I asked.

“I'm not quite sure they're completely wrong,” he said. “Nobody knows for sure yet. But nobody can read one million titles, so the question is, is it better that more people read fewer books or that fewer people read a lot of different books?”

Here then is a meaty nugget, because it discloses that economic policy impacts not just the range of commerce in books that prevails within an economic zone (such as a country); economic and social policy also impact what gets read, and by whom. If one can take the question crassly, then it devolves to the consideration of whether should our economic and social policies encourage a diversity of reading, or encourage the greatest magnitude of reading.

It is easy to oversimplify this argument: a nation that through its economic doctrines encourages the development of an oligopoly of bookstores begets a readership of mass-market book consumers, vs. a nation in which multitudes of small bookshops thrive encourages the development of a richer cross-section of arts and science. Historically this has been tied up in questions of selection and curation: indies stock a smaller range of titles, but with either 1) greater in-store variation across the types of authors and publishers represented, or alternatively 2) deeper exposure of a specific type of literature (e.g. show me a B&N that can match the collection of City Lights in San Francisco, or St. Mark's in New York).

This bricks and mortar consideration must be posed in our digital realm. The tremendous, almost overwhelming, aggregation of books and journals presented by Amazon and Google could present any possible mirror to this chamber of reading's future. Our expectations across a range of issues that remain poorly examined will determine society's reflection in these tools:

  • How does discovery shape selection?;
  • How does the control of privacy affect reading selection?;
  • Does our in/ability to interact with media direct our interests?;
  • ... and many others of greater profundity than these.

We must own - shape - the future of reading. It has very little to do with technology; it has everything to do with whether we attempt to influence how reading is socially constructed in a digital age.

tags: publishing  | comments: 20   | Sphere It

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Comments: 20

  Wai Yip Tung [10.24.07 05:47 PM]

Interesting that all books are sold at the same price and that independent sellers are flourishing. But tell me what the price is really? How does it get set and changed?

  zeta [10.24.07 11:24 PM]

@ Wai Yip Tung: You got it wrong. It's not like all books have to be sold to the same - uniform - price. Rather EACH book has a price, and they have to be sold to that price, regardless where and by whom.

  Ingmar Greil [10.25.07 12:13 AM]

That's exactly how it works. I am from Austria, where we have a smiliar scheme. The price of each book is determined by the publisher, and no bookseller may sell under that price, with a few exceptions (damaged books, true going-out-of-business sales and such). This is only true for new and unused books in the German language, however, neither used books nor books in a foreign language, such as English.

As a result, I buy German books wherever I happen to be, they cost the same everywhere, but I tend to shop around and compare prices for English books. This creates an interesting problem for online merchants, too: They must not undersell brick and mortar bookstores, so what have they got to offer, that sets them apart? Apart from a larger selection: mainly conveniece. They generally throw in free delivery, too, which is about the only price-related offer they can make.

I am generally a believer in the free market, but this is a special situation, and it seems to work. Let's see how the Swiss experiment turns out.

  Joachim Graf [10.25.07 03:57 AM]

Here in Germany its a little bit more complicated. As a publisher you can choose, if you like to set your book under the 'buchpreisbindung' named law. but if you choose "yes", than its not allowed to give any rabate for end users.

  Ingmar Greil [10.25.07 04:22 AM]

Really? I did not know that it was possible to opt out of the Buchpreisbindung. At a quick glance, the Buchpreisbindungsgesetz (Controlled Book Price Act of 2002) seems to state in § 5 that all publishers and importers MUST set a price for the final sale to consumers, and make these prices public in a suitable manner.

  Ralph Pighin [10.25.07 05:02 AM]

For a bargain hunters mind, such as mine. The fixed pricing system has the effect that I tend to buy more books than other products.

It works like this: Whenever I see a book I like, I buy it. However for Games, Music, Movies, Tickets, Gadgets - when I see something I would like to have I very rarely buy immediately, but check a lot of sources to get the best deal. A long that way, I forget about a lot of the products.

In this regard it helps the book industry to get a higher share of my entertainment dollar.

What I really like about it is that I can visit the shop with the best shopping experience, i.e. small book shops with an appealing product presentation, trained stuff, etc. whereas for games and gadgets as an example I would rather buy at the same type of specialist stores with fellow geeky personell, but tend to shop online, because of the better pricing.

And my final observation (thank you for listening), I buy a lot of books in the UK as I only buy hardcover, I can say that those are by far more expensiv than in Germany. So, at least it feels like that the Buchpreisbindung leads to better quality (technical) books for a smaller price.

  J [10.25.07 06:56 AM]

1. Was their rationale that cartels are wrong or that cartels drive up prices? I'd argue the latter is pretty well established.

2. Reduction in average prices proves nothing - what does the policy do to the price of books on the German equvalent of the NYT Best Seller list? Publishing thousands of cheap books nobody wants to buy or read may well put downward pressure on prices; that doesn't make it a good deal for consumers.

"All books must cost the same whether they’re sold over the Internet or at Steinmetz"

WYT, Zeta is correct - apologies for the Time's poor use of language. The article clearly says exactly what you thought it was saying, but that's not what they meant.

  Geof [10.25.07 10:01 AM]

Reduction in average prices proves nothing - what does the policy do to the price of books on the German equvalent of the NYT Best Seller list?

Be careful with this argument. It assumes that the selection of available books is constant, and that consumer desires are unaffected by selection or price. Neither of these assumptions is likely to be true: consumers are influenced by price, by the choices available, and by what other people are reading.

If best sellers are cheap, more people may read them. This increase in popularity can compound, influencing the desires of other readers. As the article says, it can also result in less selection, similarly influencing reader desires. Consumers are not selecting between the same range of choices in the two scenarios.

It may be that under the German system people spend more on books, or that they buy fewer of them. Yet it may also be that they are more pleased with their reading and the money they do spend. Or not - it would be interesting to know the outcome of this change.

  bk1 [10.25.07 10:09 AM]

Some observations might be interesting in this context:

- The prices of the same book in Switzerland tended to be 10-20% higher than in Germany. But buying books in Germany and importing them into Switzerland, it is possible to get a refund for the German sales tax in exchange for paying the Swiss sales tax, which adds about another 10% price difference.

- Ordering books from (from Germany) and getting them delivered to a Swiss address is possible. In this case prices are slightly lower than when ordering to a German address, possibly due to this sales tax issue.

- Compared to the situation in other countries the German book shops have an excelent service for ordering books. Books which are "in the system", which are German-language books and some English-language books, can be ordered for example Friday evening around 17:00 (5 pm) pm or so in the local book shop and can be picked up on the next day (Saturday) in the morning around 9:00 am or so. It might happen that they will tell on Friday evening that it won't work this time, but this seems to happen hardly ever. In the experience of the person who writes this, ordering books overnight has always worked.

I would say that this kind of service is worth something, compared to other countries where ordering a book in a book store is a matter of several weeks.

  gps [10.25.07 11:59 AM]

“It's not normal for one market to have special regulations,” he explained. “It was a cartel."

I think this is misleading, although I'm not an economist. It's not a cartel in the traditional sense of OPEC, or Archer Daniels Midland in the 1990's. If it were, then we would see things like several publishers (or retailers) colluding to set high prices on everything on the best seller list. The current system is designed rather to forbid the very behavior that would seem to define a cartel. It enforces fair behavior, and prevents a cartel from developing.

If I'm right, I'd expect to see a de facto cartel of retailers develop in Switzerland as the larger retailers begin discounting and driving the smaller bookstores out of business. I watched it happen in the U.S. with Borders and Barnes and Noble.

Aside: Just think what this would for the auto industry. No more haggling with salesmen. The price is the price, und basta.

  carnun [10.25.07 12:56 PM]

As I was reading all the comments I started wondering about the implications of the size of the market on this scenario, then gps mentioned the car industry... In South Africa there has been a lot of noise about price fixing in the car industry, there have even been a few fines meted out to some big motor companies. In our case it seems that price fixing (forced on the dealers by the producers) have led to higher prices. Hence there must be some difference with the German book example.
I can think of two options:
1. The base cost of a book is about a 1000th of a car. Which influences stock quantities and producer costs so the book market is likely to be more diverse even if there are few producers.
2. The South African car market is a special case because of the distance products need to travel to get to dealers as well as the fact that the South African consumer market is smaller.
As an aside nearly the only way to get fringe/specialist books in South Africa as via local and international online book stores.

  Carsten [10.25.07 03:07 PM]

Inspired by J's question I compared the average price for the top ten bestsellers on and (I would directly have compared the NYT list to the Der Spiegel list, as the would be even more relevant, but the Spiegel list is available only for 50ct). The result was: 12.87USD 23.68USD

Well, this is'nt exactly proving anything, but it gives an idea.

  Michael R. Bernstein [10.25.07 07:01 PM]

gps: Saturn initiated a 'the price is the price' policy, but that just moved the haggling to what they would pay for your trade-in.

  Ken McNamara [10.26.07 01:41 AM]

I'm sure I'm missing something - but here's link to Bowker's book industry statistics:

2006 new titles and editions projected is 291,000

Aside from that - what Germany is doing is taxing the books that everyone wants to read so that they can publish books that only a few people want to read. Sounds like another form of income redistribution.

  Cazalla [10.26.07 04:27 AM]

In Spain prices are fixed too. Books here are expensive compared to other countries; and it's difficult to find paperbook editions less they are several years old. Amazon didn't start a site in Spain because the law that allow publishers to fix prices.
When I travel to other countries I find that 6 months after publishing a book in hardcover edition, paperbook edition is published. That doesn't happen here, and of course best sellers are as expensive as all books.

  Josh [10.29.07 06:02 PM]

It would be remarkable if a restraint on pricing led to a higher value market. Restraints on trade decrease the value of a market and almost always decrease the value for the least powerful participants - in this case probably consumers and employees of publishers and bookstores. The value here is only partly about price, it is also about how much benefit over and above the price the participants are getting.

Here are some guesses about the untold part of the German book story. Germans buy less books per capita than Americans. Poorer citizens buy less books in Germany than America. High value cultural center bookstores like city lights don't exist to the same extent in Germany because book prices are too low. Low margin retailers (grocery stores, walmart type super stores) don't sell any books because prices are too high. There is less selection in time sensitive books (like Oreilly computer books) which have a high initial price but are then discounted when a little older. Germany has more new title diversity because it can't import books from many places (America has 172,000 new titles but gets another 200,000 from England, Canada, and New Zealand). Germany has more small bookstores and more small stores period because they have more population density and it would be so with or without the price restraint. For some other reason Germany has small bookstores and this leads to diversity (but not price restraint leads to small bookstore). Germany is not at all diverse while the United States is multicultural; they seek out cultural experiences though books that we get at work and play.

It is true that market restraints can lead to more value for a narrow segment (you) at a much greater loss for many (ignorant book consumers), but that's immoral. However great your desire for diversity and small bookstores I don't believe that you'd harm others to get them.

I'm not sure Mr. Kimmelman hasn't found the one exception to economics theory and studies of hundreds of markets but I almost am. An extraordinary claim like this requires the same kind of extraordinary evidence as global warming debunking, proof that P = NP or P != NP, refutation of evolution, or proof of the existence of the paranormal.

The right place to look is changing the culture so that those consumers visiting big boxes do value small bookstores and diversity in books.

Where I grew up in America there was no good bookstore or even bad local ones - the library was the only good option. Walmart and Amazon weren't around yet so it wasn't their fault, geography probably was. B&N is a vast improvement over the top of the line store that was still miles away from where I grew up. America is a underpopulated country compared to Europe. In much of the country I think something similar is happening, Amazon and B&N are serving the under-served rather then undercutting independent specialists.

America style retail isn't an unstoppable juggernaut it's a unique response to a unique situation - rich people, sparsely populated. In retail it's density that matters and Germany has 209/km². The Unites States has 31/km², California has 84/km², and San Francisco's has 6,111/km². Only the very low cost that big box brings seems to serve this kind of market at all. It's more likely that German retail is our future rather than that US retail is Germany's future.

  Ed. Green [11.08.07 08:49 AM]

In the U.K. the "Net Book Agreement" was abolished several years ago.The result here has been that small independent bookshops are going out of business at a rate of two or three a week. Within a few years the market will be entirely in the hands of Wottakars Barnes and Ignoble etc.If a small bookshop buys a £16.00 book from a wholesaler at a discount of 35% it costs roughly £12.00, the supermarket down the road can sell the same book for £8.00. Good for the consumer you may think, but supermarkets do not hold any stock,do not order for customers and have little knowledge of what they are selling.The result in the U.K. has been that although sales volumes are up publishers profits have remained static and the number of new titles published is falling.All in all abolition of price maitenance will, in the longer term, be a disaster for the book trade and the publishing industry. There are examples of other products receiving special treatment, i.e. childrens clothes and food carry a lower level of V.A.T and in fact books are zero rated. This is an admission that in some ways books ARE a special case.

  anne jolly [11.18.07 06:39 PM]

I note the comment that Austria fixed price rules apply to German language books only. Is this the same in Germany. How does the fix price rules affect the second hand and used market? Is there a large se3cond hand market in countries with fixed pricing on books

  anne jolly [11.18.07 06:40 PM]

I note the comment that Austria fixed price rules apply to German language books only. Is this the same in Germany. How does the fix price rules affect the second hand and used market? Is there a large se3cond hand market in countries with fixed pricing on books

  anne jolly [11.18.07 06:41 PM]

I note the comment that Austria fixed price rules apply to German language books only. Is this the same in Germany. How does the fix price rules affect the second hand and used market? Is there a large second hand market in countries with fixed pricing on books

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