The Elasticity of Demand for Books, Resale Price Maintenance and the Lerner Index

Author(s): George Bittlingmayer

Source: Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte
Staatswissenschaft, Vol. 148, No. 4 (December 1992), pp. 588-606
Published by: Mohr Siebeck GmbH & Co. KG
Stable URL: http://www.jstor.org/stable/40751553
Accessed: 13-12-2015 04:03 UTC

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/
info/about/policies/terms.jsp

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content
in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship.
For more information about JSTOR, please contact support@jstor.org.

Mohr Siebeck GmbH & Co. KG is collaborating with JSTOR to digitize, preserve and extend access to Journal of Institutional
and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft.

http://www.jstor.org

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
 JournalofInstitutional
and Theoretical
Economics(JITE) 148(1992),588-606
Zeitschrift
fürdie gesamteStaatswissenschaft

The Elasticity
ofDemandforBooks,
ResalePriceMaintenance
and theLernerIndex
by

George Bittlingmayer*

Abstract

The costconditionsofpublishing correspondto thoseofnaturalmonopoly-

pricesmust be above marginalcost to cover substantialfixedcosts. This
markupwillbe inversely relatedto theobservedelasticityofdemandand to the
effectivenessof increasedretailermarkupsin stimulating quantitydemanded.
The relevant parametersareestimated fora sampleofover1000titlesoverthree
years,and reliableestimatesforpriceelasticity
fallin therangeof1.5to 3.0.The
titlesin thesampleweresold underresalepricemaintenance, and thetheory
and empiricalresultsthrownewlighton how protecteddealermarginsinflu-
encesales.(JEL: L0)

Authorsandjournaleditorsarekeenstudents ofthesubjectfromitspractical
side.Whatis thepriceelasticity
ofa book orjournal?Whatdifference does it
makeifa book is pricedat $ 38 insteadof $ 34?
Assumethatthepublisherfacesa knowndemandcurvefora giventitleand
choosespriceto maximizeprofits.
successfully The appropriate
firstordercon-
ditionimpliesthat
(P - c) = 1
ρ η9
whereρ is the price,c marginalcost, and η the elasticityof demand.The
left-hand side is thefamiliarindexofmonopolypowerdue to Lerner [1934],
and it providesone estimateofthepriceelasticity ofdemand.
Priceis directly but
observable, marginal cost is harderto pin down.I will
argue that a large fraction
of thecostsassociated with publishinga particular
titleare in factfixed,typically even the cost of printing.
The marginalcosts
* Mythanks gototheScience CenterBerlinforfunding themajorpartofthisresearch
and to thepublisher whoprovided thedata.Rüdiger Grüne-Henzeprovided expert
researchassistance,andColinDay'sextensive
comments onanearlierdraftprovedtobe
quitehelpful.Thecomments ofthereferees
arealsoappreciated.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity
ofDemand
forBooks 589

associatedwiththesale ofan extracopyofa book - taxes,royalties, and the

margin- amountto only40 to 60 percentoftheretailprice,whichin
retailer's
turnimpliesa priceelasticity in therange1.7 to 2.5.
The remainder ofthispaperlooksat theseissuesinmoredetail.The empirical
workis basedon a data setsuppliedbya Germanpublisher thatincludesprice,
quantity,retailmargins, royaltiesand inventories
foreach ofover1,000books
fortheperiodof 1979through1986.Thesedata providea rareopportunity to
testa basic and commonlystatedtheoreticalpropositionabout monopoly
behavior,namelythat(p - c)/p= l/η,whichI call the"Lernercondition."In
addition,sincethebooksweresoldunderresalepricemaintenance, thedata and
relevanttheoryalso illuminatehow the publisher'scontrolof retailmargins
influences sales.
As it turnsout,thereare two Lernerconditionsbecausethepublishercon-
trolstwo prices:the fixedretailprice underthe institution of resale price
maintenance and thediscountgoingto bookstores.The secondLernercondi-
tion requiresthat the ratio of the bookseller'sto the publisher'smarginis
directlyrelatedto theelasticity of thedealermarkup,that,is, thepercentage
in
change quantity dividedby the percentagechangein dealermarkup.
The econometric estimatesyieldpriceelasticities
formysampleofbooks of
about 1.5 to 3.0 and dealer markupelasticitiesof about 0.7 to 1.5. These
estimatesalso takeintoaccountan important sourceofbias,namelythepossi-
bilitythat pricechanges are made in responseto shiftsin demand.
Some of theinsightsthatemergealong thewaycan be appliedbeyondthe
book trade.For example,the elasticityof demandfora productis not an
immutablenaturalconstantlikethespeed oflight.It is notjust "given."The
magnitudeof fixedcosts thathave to be covered,the ex ante variabilityof
demand,and theeffectiveness ofpromotional effortseach havean influence on
theobservedelasticities ofdemandat theequilibrium price.
More fundamentally, contemplation ofpublishingshouldbreaktheconnec-
tionthatexistsin manymindsbetweentheextentofcompetition and elasticity
ofdemand.The publishing industry is competitive,
butitsindividualproducts
have thehallmarksofclassicmonopoly.

1. EconomicAspectsof Book Production

and Retailing

Production Costs.Book publicationis characterized bysubstantialfixedcosts.

Submitted manuscriptshave to be reviewed,acceptedmanuscripts have to be
editedand proofread,typesetting may involve not just simpletext but also
formulae, chartsand tables,and artworkand coverdesignhaveto be paid for.
Although wemightviewall or mostoftheseexpensesas marginalor discretion-
aryexpensesat thelevelofthefirm, theyare largelyfixedcostswithrespectto
anytitle.Theyareall costsincurred beforea singlecopyis printed.
To illustrate,
industrysourcesputtypesetting costsforsimpletextat $ 10 perpage,or $ 3000

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
590 GeorgeBittlingmayer JJIME

fora 300 page book. Ratesformathematical textwillbe higher.An otherwise

respectable academicbookmaysellonly1,000copies,whichwouldputtypeset-
tingcostsalone at $ 3.00 percopy.
The averagecostofa largeprinting is also lowerthanfora smallone because
offixedexpensessuchas makingthepressesready.Thisinturnmeansthatmost
booksthatdo notcaterto a massaudience,suchas academicbooks,haveonly
one printing. Printing coststherefore areoftenalso a varietyoffixedcosts;they
are also incurredbeforea singlecopyis sold. Dependingon thebook,it may
be appropriate to regardvirtually all expensesincurred bythepublisher, except
forstorage,transportation and handling,as fixed,sunkcosts.1
Royalties.Authors'royaltiescan be eitherfixedor marginalcosts. Some
authorsreceiveno royaltiesor onlysmallroyalties, particularly thoseat an
earlystage of theircareeror those writingfora small academicaudience.
Copyrights on manytitleshave also expired.Authorsof pulp novelsreceive
only a fixed feeper book written. Otherwritersreceivea guaranteedroyalty
plus additional amounts ifsales exceed a statedamount.Advancesto authors
imply the same payoff. Typically, royaltiesare expressedin termsofpercentage
ofretailprice,and fallin therangeof 5 to 10 percent.
A naïveeconomicargument wouldlook at royalties as a tax.A publisherwho
has to pay a certainfraction ofhis grosssales to theauthorwillnot pushthe
book as strongly as one who paid his authora fixedroyalty. This analysisis
reminiscent ofcondemnations ofsharecropping by economists. The fifty
percent
or two-thirds shareoftotaloutputgoingto thelandlordwas viewedas a tax
on thesharecropper's effort.2
Alternatively, thedurability of percentageroy-
altiesas a wayofpayingauthorsmightbe ascribedto risk-sharing, but thisis
a puzzlingargument sincethepublisherseemsto be in a betterpositionto take
on riskthantheauthor.3
A morepersuasiveexplanationemphasizesthata royalty conditioned on the
numberofbooks sold providesan incentiveto theauthorto helpmarkethis
book. These marketingefforts can take variousforms : TV and bookstore
appearances,publicreadings,appeals to colleaguesto ordercopies fortheir
university library, or thewriting ofarticlesor subsequentbooks thatbuildon
theearlierwork.An academicauthor,forexample,willfrequently knowwho

1 In the in WestGermanywerefirstprintings,
early1980s,79 percentofall printings
whileonly21 percentweresecondor subsequentprintings or printings of neweditions
(Börsenverein[1986,13]).Thecostofbindingbooksis typically also a fixedcostfortitles
withoneprinting, butinsomecasesbooksareboundonlywhenitbecomesclearthatthey
willsell.This convertsa fixedcostintoa marginalcost.
2 Cheung to sharecropping and pro-
[1968]reviewstheearlierliterature
unfavorable
videsa moderndefense.As Cheungpointsout,thisdefensewas anticipatedby Alfred
Marshall.
3 sourcescreditthediffering of authorand publisherforthe
Industry expectations
systemofpercentage Authorswillmorereadilyaccepta shareof therevenues
royalties.
becausetheybelieveitwillbe higherthanthelumpsumthepublisher is preparedto offer.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity forBooks
ofDemand 591

ofthepotentialpurchasers are betterthanthepublisher. The authoris in effect

a salesmanon commission.4
Retailing.The bookselleralso playsan important role in thepromotionof
books, and typicallyreceives20 to 50 percentof the retailpriceunderthe
Germansystemofretailpricemaintenance. The marginvariesbytypeofbook.
For example,the marginon academicbooks is typically25-30 percent,on
literature 40 percent.School books,whichare also sold throughbookstores,
have marginsof 20 percent.Marginsalso varyby the typeof bookstore.A
publisherwill oftengrantbookstoresthat specializein a particulartopic a
deeperdiscounton thecorresponding titles.5
In returnforthismargin,the book retailerprovidespromotionalservices,
including windowdisplays,adviceto customers and a locationat whichbooks
can be examined.These promotionalservicesare susceptibleto free-riding,
whichprobablyexplainsthefactthatbooks werethefirstproductsto be sold
underresalepricemaintenanceand whythisrestriction on retailingis still
widelyemployed where legal.6In other of the
cases, course, booksellermerely
provides a convenient location at which thepurchasercan orderand pickup
a book. This is typicallynot a free-rideableservice.Fromthepointofviewof
thepublisher, thebookseller'smargincan be looked at as a marginalcost in
eithercase. He purchasespromotionaland distributional servicesat a certain
per unitprice.

2. Institutional
Featuresof theGermanBook Trade

Almostall books in WestGermanyare sold underresalepricemaintenance.

The onlyexceptionsare theroughly5 percentof all new titlesproducedby
publisherswhomarketall theirbooksdirectlyto endcustomers, and oldertitles
thatare removedfromresalepricemaintenance and sold to specialdiscounter
wholesalers- "remaindered"- usuallyat about one-tenth theirpreviousretail
price.These are oftencoffeetable volumes,books addressingtopicsof only
temporary interestand cookbooks.7

4
Percentage mayalso maketheauthormoreconscientious
royalties inaddingfeatures
thatarenotapparentto thepublisher,butthatwillbe recognized
bypotential
purchasers.
5 and conversations withpublishers.
Correspondence
6 See Bittlingmayer
[1988]fora discussionof RPM forbooks,and an analysisof
Germanexperience, as well as a comparisonwithBritishand U.S. practices.RPM is
employedin Norway,Denmark,Holland,France,Austria,Switzerland, theU.K., and
WestGermany.
7 The
highfixedset-upcostsforfour-color printing shiftsthebalancein
apparently
favorof largerprintingsfora givendistribution of expecteddemandsincea second
printingwouldincurthosecostsa secondtime.This mayexplainwhycookbooksand
otherpublications
withcolorphotographs so oftenshowup on theremainder tables.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
592 GeorgeBittlingmayer ϋΠΤΓΕ

Elaborateregulationsadministered by the GermanCartel Officeand the

courtsgoverntheresalepricemaintenance system. The publishersetstheprice
and can changeitafterrunning theappropriate noticetwicein thebooksellers'
trademagazine.Pricesaretypically increased, rarelydecreased.8 Thefixedretail
pricefora giventitleis liftedwhen the stock is sold in bulk to discount
wholesalers.If thisoccurswithintwo yearsof the book's publication,book-
storeshave the rightto returnunsoldcopies and receivetheirmoneyback.
Publishersmayalso simplydestroywhatturnsout to be an excessively large
printinginsteadofremaindering it.
Despitethestringent thefixedretailpriceis notperfectly
regulations, adhered
to in practice.Booksellersoftenoverlookthenoticeof a changein thefixed
price,and theyprovidecredit, whichamountsto a reduction in price.Damaged
booksmaybe discounted, butthedetermination ofwhatconstitutes damageis
up to thebookseller. Certainpurchasers, such as or
employees publiclibraries,
receivediscounts.
Book retailers almostalwaysbuybooks withouta formalrightofreturn. In
contrast,books were almost always sold in commission or with a rightofreturn
beforethesystemoffixedretailpriceswas establishedin 1888.In theUnited
States,whereresalepricemaintenance forbooks is illegaland discounting of
books widespread, returnprivileges are customary.9
Althougha formalrightof returnis rare,a publisherwill oftentake back
unsoldcopies in orderto maintaina bookstore'sgoodwillor as part of the
give-and-take betweenbookstoreand publisher.Sometimesbook returnsare
accepted at a discount fromtheoriginalprice,withthebooksellertakinga small
out-of-pocket loss on an unsuccessful gamble.
The systemof book wholesalingis also of special interest.Some books
go directlyfrompublisherto thebook retailer, but a largefraction also reach
the retailtradeby means of wholesalerswho keep stocksof titlesthatsell
particularly well.As one would predict,thewholesalersreceivea betterdis-
countthantheretailtrade,in therangeof2 to 4 percentage points.The whole-
salers providegeographically dispersedstocks of books, fast deliveryand
economiesofscopein ordering sincetheycarrya broadselectionofbetter-sell-
ingtitles.

Issues in Book Pricing

3. Theoretical

ofDemandandPromotional
PriceElasticity Services.Whatdetermines theprice
of
elasticity demandfora book? The untutored
responseis thattheelasticity

8 Thiscontrasts
withtheAmericanpractice, at listprice
wherebooksare soldinitially
and thenoftendiscounted10 or 20 percent.
9 See Bittlingmayer
[1988].

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity forBooks
ofDemand 593

dependson thenatureofbook.A novelforvacationreadingsimplyhas a more

elasticdemandcurvethana researchmonographin entomology.
Butthetheoryofmonopolypricingpredictsthatthemonopolistwillequate
marginalcostand marginalrevenue.Andthemarginalcostofbook retailing is
itselfa decisionvariable.Otherthingsequal,a highermarginalcostwillresult
inthemonopolistoperatingon a moreelasticportionofthedemandcurve.The
joint decisionof publisherand booksellerconcerningthe resourcesused in
distribution theobservedpriceand elasticity.
and retailingwillaffect
Supposewe writethefollowing demandfunction fora particulartitle:

(1) q = q{p,z),

wherethequantitydemanded,q, dependson price,p, and sellingeffort, z. This

sellingeffort
can be thoughtofas locationin thestore.The closerthebook is
to thefrontofthestore,themorelikelya potentialbuyerwillbe to pickit up
and browsethroughit. In a moredetailedmodel,thiscould be viewedas a
free-rideable
service.Mailorderhouses,forexample,mightunderprice retailers
who go to theexpenseofprovidingbrowsingservices.
Sellingeffortcan in turnbe viewedas dependingon the retailmargin,v,
grantedby thepublisher,so thatζ = ζ(ν). It seemsreasonableto assumethat
<
dq/dp 0, dq/dz > 0 and d2q/dz2< 0, thatis,thedemandcurveslopesdown
andextrasellingeffortresultsineverlowerincremental sales.Finally,dz/dv> 0
and d2z/dv2^ 0. Also assumean exogenously givenmarginalcost,c, to repre-
sentthevalue-addedtax,transportation cost and otherunalterablemarginal
charges.The assumptionfornowis thatthestockofbooksis given,and is not
a bindingconstraint.
The manufacturer picksa retailpriceρ and a retailmarginν to maximize

(2) n = (p-v-c)q(p,z(v))

whichyieldsthefirst-order
conditions

θπ da
(3) _.(P_V_C)_Î + ,

and

<λ' δπ / .dqdz
OV QZ dv

The first
ofthesecan be rearranged
to providethefamiliar
Lernerrelationship:

(p-v-c) = 1
(5)
ρ ηΡ

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
594 GeorgeBittlingmayer <BW'E

whereηρis definedas theabsolutevalueoftheelasticity

ofdemand.Note that
a lowermargincost ofretailingwillimplya lowerelasticity
ofdemand.
The secondfirst-order
conditionyieldsan analogueto theLernerrelation-
ship:

(P-V-C) = 1,
(6)

where
=ô^v
11p~dzdvq'

ofdemandwithrespectto theretailmargin.Also notethe

thatis,theelasticity
followingimplication of(5) and (6):

(7) _„,+ „,__!__£_.

Condition(7) statesthatthepriceelasticity andtheretailmarginelasticity are

directlyrelated. The largerηρ, the larger willbe ηγ,holding constantthe ratio
of unalterablemarginalcharges,c, to publisherreceiptsper book,ρ - ν - c.
For a crosssectionof books thatare beingoptimallymarketedand priced,
thoseforwhichsalesare mostresponsive to extrapromotional willalso
efforts
be thoseforwhichsales are mostresponsiveto pricechanges.Novels have a
comparatively largeelasticityofdemandbecausethequantity purchasedcan be
influenced relatively easilywithhigherpromotionaleffort. The demandfor
researchmonographs in entomology is priceinelasticbecausethequantitysold
is not sensitiveto promotionalefforts.
Interestingly,somecasual analysisofadvertising has assertedthatthepur-
pose ofadvertising is to "makethedemandcurvelesselastic."Conversely, less
advertising is supposedto make demand more elastic.Nothing stands in the
of
way interpreting ν as a of
type advertising expenditure.But a limiton such
expenditure to,say,5 or 10 percentoftotalrevenueswhenthepublisherwould
otherwise spendmore,wouldinfactcausethebook to be pricedon a lesselastic
portion thedemandcurve.
of
MonopolisticCompetition. It is a commonplacethatthereare no testable
implications of the of
theory monopolisticcompetition. As it turnsout, this
theoryappliedto books predictsthattitleswithhigherfixedcostsand titles
facinga narrower marketwillhavelesselasticdemand.Andtheseareeminently
testablepropositions.
On the assumptionthatpricejust coversthe averagefixedcost plus the
marginalcosts,we can derivetheelasticity of thecost envelopeto whichthe
family ofdemandcurvesis tangent inmonopolistically competitiveequilibrium.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) forBooks
ofDemand
TheElasticity 595

Let Κ be thefixedcost of producinga book, and m the marginalcost of

producingand bringingit to thebuyer.Zero economicprofitsimplyρ = Κ/
q + m.Take thederivativewithrespectto q,

dp _-K

bothsidesbyq/p,and substitute
multiply forρ above.Note that
theexpression
mq/K= m/(p- m). As a resultwe have

da ρ mq ρ
p
dp q Κ ρ- m

Clearly,ηρ*-+1fromabove as m-»0, g->0 and Κ->οο. This is both the

ofthecostcurveat anygivenpoint,and theelasticity
elasticity ofthezero-profit
demandcurvethatis tangent to the cost curve at thatpoint.Books forwhich
cost-coveringpricesallow large sales will have demand curvesthatare more
elasticthanbookswithmorelimitedaudiences.Figure1 showstherelationship
betweenthezero-profit locusofpriceand outputcombinations fora givenfixed
cost Κ and thedemandcurvesthatare tangentialto it.
An expressionanalogousto (8) can be derivedfortheelasticity withrespect
to themarginalcostsofproductionand retailing:

{) Άιη*~
dmq Κ ρ -m'
Books thatinvolvelargemarginalproductionor marketing expensesmust
resultsforbooks in
havelargesales.Note that(8) and (9) providecross-section
monopoliticallycompetitiveequilibriumthatrunparallelto theresultsfora
givenbook in short-run equilibrium, namelythat - ηρ*+ ηΜ* = - 1. These
resultswerenotderivedwiththeassumptionofprofitmaximization, but only
withtheassumptionthatentryin a worldofmonopoliesdrivesprofits to zero.
MarginalCostsand DemandUncertainty. Whetherprinting costsshouldbe
viewedas a fixedor marginalcosts dependon the variability of demand.If
futuredemandis knownprecisely, themarginalprinting costswouldbe a type
of marginalcost,along withthecost of retailing.But ifexpecteddemandis
uncertain,themarginalprinting costsare irrelevantonce demandis realizedif
demandis too low to justifya secondprinting.
Theseremarksapplyto anygood producedwitha batchprocess.Ifdemand
is verystrong,incrementalproductioncosts are partof the marginalcost of
meetingthatdemand.But ifdemandturnsout to be weak relativeto thesize
ofthebatch,productioncostsare fixedcosts.
The upshotofthisdiscussionis thattheobservedcostsofprinting provide
no guideto theeffective
marginalcostofa sale. Marginalcostin anymanufac-

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
596 GeorgeBittlingmayer JJfflJTE

Pt

Demand ^^^
Curves__^-^ ^^^^^^

-►
q
Figureî

turingprocessthatproducesforinventory is a rentarisingfromsufficient
demand.And whenit comesto calculatingthe LernerIndex,care has to be
takento use thedefinition ofmarginalcost thatapplies.10
DiscountingandtheDestruction ofBooks.The publisherhas twoalternatives
forthebook thatturnsout to be a flop.He can cutpriceor he can destroyall
or partofhisstock.Whichhe choosesprovidessomecluesabout theelasticity
ofdemandat thatpoint.11
A book willbe discountedwhenthenet discountedrevenuesat thelower
priceare expectedto be at leastas greatas thenetdiscountedrevenuesat the
higherprice.Sincealmostall costsexcepttransportation, and
storage,royalties
value-addedor sales taxesand thecostsofretailing are sunk,thisimpliesthat
thenetdemandcurveto thepublisher - netofhismarginalcosts- can be close
to unityovertherangebetweenthenormaland discountprice.Of coursethe
observedelasticitymaybe largerifthediscounting is a typeofintertemporal
price discrimination.
If the publisherchooses to destroycopies of an unsuccessful book, two
conclusionsarepossible.First,thenetdemandcurveis lessthanunitelastic,or
second,reputationaleffects make it imprudentto have a publisher'swares
appear on the discount tables.The lateris not unreasonable.Brand-name
apparel manufacturers snip theirlabels out beforeputtingunpopularlinesin
discountchannels.But thisis not feasibleforpublishers.

10 See Pindyck
[1985]foran analysisof thebias in theLernerIndexin someother
dynamic contexts, suchas extraction of exhaustible
resources,and learning-by-doing.
11 See Lazear behavior
[1986]fora richvarietyof resultsconcerning discounting
based on somesimpleassumptions. Harris and Raviv's [1981]finding thatfixed,an-
nouncedpriceswillbe used forgoods whoseproductiontakesplace beforedemandis
revealedis also pertinentto thediscussionhere.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4 (1992) TheElasticityofDemandforBooks 597

of thePublisher
4. TheData Set and Characteristics

The data comefroma largeWestGermanpublishing houseproducinga variety

of titlesforreaderswithwhatmightbe describedas academicor intellectual
tastes.Onlya fraction ofthepublisher'stitlesare included.Unfortunately, the
termsunderwhichI acceptedthedata stipulatethatI notrevealthepublisher's
identity norinformation about individualtitles.12
The data setprovidestitle-by-title informationforeach ofthreeyears1984-
1986,and cumulatedinformation forthe period 1979 through1983. A key
variablein theworkto followis price.This is thefixedretailpriceset by the
publisher and includesthe7 percentvalue-addedtaxon booksand newspapers.
(The VATis 14 percentformostotheritems.)The publisher'spracticewas to
raiseroughly halfofthepriceson January1,on averageabout 10 percent. This
is whatallowsestimationofpriceelasticities.
Advertising expenseis not separatelyreportedby title.It accountsfor3.8
percent ofthe retailvalueacrossall thepublisher's titles.Clearly,itwillbe more
important for some titles.
The discountgrantedto retailers dependson thetypeofbook,beinghigher
forartand literature and less foracademicworks.Purchasesmade whenthe
publisher'srepresentative visitsa bookstoreare givena largerdiscount.Quan-
titydiscounts are also awarded in theformof freecopies forordersabove a
certainamount- "orderten,getone free."This is likelyto be mostimportant
fornewreleasesand fortitleswithbetter-than-average sales.
The internalcostaccountingforindividualtitlesis also ofinterest. A variety
ofcostsare not explicitly allocatedto individualtitles.These includeediting,
proofreading, graphicsand theconstruction ofan index.Rather,thesecostsare
allocatedon thebasis ofa formula.Otherpublishersadoptdifferent practices.
Less than1 percentofthispublisher'ssales go directly to theend user,but
oftheremaining books,a sizeablefractiongo throughwholesalers, whilethe
restgo directly to theretailerfromthepublisher.
Thereare no reliabledata on thedivisionofbook sales betweenpurchases
made fromretailstockand purchasesmade by means of special order.The
publisher'sownguessis that70 percentofacademicand professional butonly
10 percentofartand literature books are purchasedthroughspecialorders.

5. Econometric
Estimates

In theeconometric estimatesto follow,theaim willbe to getestimatesofthe

ofdemand,ηρ,and theelasticity
priceelasticity withrespectto theretailmargin,
ην. One approachwouldbe to estimatetheseparametersbook-by-book. The

12 I will
gladlymakethedata availableto othersin formatsthatdo not violatemy
agreement withthepublisher.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
598 GeorgeBittlingmayer JJDTTE

data sethererulesthisoutsincethereareonlythreeyears,1984,1985and 1986.

Instead,I willestimatechangesin demandacrossgroupsof similarbooks in
responseto changesin theirprices.The corresponding experiment can be
thoughtofas follows:take1000titlescurrentlyat or closeto theirequilibrium
retailpriceand increasethatprice.Whatwillhappento thequantitydemand-
ed?
The approachherestartswithyear-to-year percentage changesin pricesand
of books and run the following
quantities.Suppose we take a cross-section
regression:

(10) A'nqt = a + bx· Δ In pt+ b2-A'nvt + ε,

whereA'nqt = 'nqt - 'nqt_1,similarlyforA'npt and Δ1ηι?ί5 and ε is the
stochasticerrorterm.On a naïveview,theestimatedvalue ofb± shouldequal
thesamplevalueofp/(p- ν - c), theinverseoftheLernerIndex,and b2should
equal thesamplevalueofv/(p- ν - c). Thisis thestraightforward implication
ofsection3 above.
But thisbegsthequestion,whywas thepriceor theretailmarginofa book
changed?It cannotbe simplyto satisfy thewishesoftheeconomistwho will
use thedata.
Supposethatthedemandfora titleshifts to theright,say,becausethisyear
is thecentenary oftheauthor'sbirth or the book has been made intoa film.
Withunchanged margincosts c and v, optimalpricewouldincrease.13
the Ifthis
anticipationof changed demand conditions is common, the bx in
coefficient
regression equation(10) above would be biased In
upward. fact, theestimated
value ofbxcould verywellbe positive.
It is possibleto adjustforchangesin demandthatlead to changesin price.
Take the constantelasticitydemandfunctionas a local approximation for
demandfora particulartitlein yeart:

(11) qt= prPt^h(t).

and thetermh(t) represents
have timesubscripts
The elasticities factorsthat
shiftdemandwithoutchanging the Convert
elasticities. to naturallogarithms
and takethetotalderivativesofbothsides:
·
(12) ά'η^ = -ηρί-ά In pt- dr'pt In pt+ nyt'dInv,
-lnvf+ d'nh(t).
+ drçvf

13 The increaseif theincreasein de-

pricewouldnot necessarily
profit-maximizing
mandweresimplyan increaseinthenumberofpeoplewillingtopayanygivenprice.For
example,imaginea rotationof a lineardemandcurveabouta fixedpointon theprice-
axis.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity
ofDemand
forBooks 599

Table 1
of Variables*
Definitions
YEAR Year in whichthebook appeared
PR 84 Pricein 1984in DM
LNPR 84 Naturallogarithm of thepricein 1984
PR 8584 LNPR 85-LNPR 84
V 84 Retailer'smarginin DM
LNV 84 Naturallogarithm of retailer'smargin
V8584 LNV 85-LNV 84
Q 84 Quantitysold in 1984
LNQ 84 Naturallogarithm of quantitysold in 1984
Q8584 LNQ 85-LNQ 84
STK 84 Stockon hand,December31, 1984
RYL 84 Royaltyexpressedas a percentof finalretailpriceincludingtax
PC 84 (PR 84-V 84)/PR84-RYL 84-0.07, i.e., LernerIndex
DNPV 8485 (I/PC 85- I/PC 84) (LNPR 84-LNV 84)
PCHZERO Dummyvariableequal to 1 ifPR 8584 = 0 for1985-1984 subsample
(or ifPR 8685= 0 for1985-1986 subsample)
D 85 TWO Dummyvariableifthetitlewas betweenone and twoyearsold at the
endof 1985,and similarlyforD 85 THREE, etc.,and D 86 TWO, etc.
* Variableabbreviations
endingin yearsnotexplicitly
listedare definedanalogously.

Thisillustrates whathappensifpricechangesareendogenous.'ϊάηρί
explicitly
and άηνίdo not equal zero,thatis, if the priceelasticityof demandor the
elasticitywithrespectto theretailmarginchange,observedchangesin qtwill
reflectmorethansimplepriceeffects.
Fortunately, theLernerIndexprovidessomehelp.Assumeperiod-by-period
profitmaximization. Then forany periodt, we have (pt- vf- c)/pt= 1/ηρί,
whichimpliesthattheinverseoftheLernerIndexcan be used as an estimate
of the elasticityof demand,and changesin thismeasurecan be used as an
estimateofchangesin elasticity.
Definetheestimatedchangein elasticityas

(13) = * ^ .
Αη*ρί
pt-vt-c pf_i-vf_1-c
Ifpricehas increased,
demandhas becomelesselastic.In otherwords,changes
in theinverseoftheLernerIndexare a naturalway ofcorrecting forchanges
in elasticity
ofdemandthatbringon pricechanges.From(7) above we know
that-ηρ + ηνequals a constant,so thatdr'pt= άηνί.Substitute thisinto(12),
convertto discretechanges,substitute(13) forΑηρίand collapseΔ 'nh(t) into
dummiesDi9i = 1,..., X reflecting
a title'svintage.This yields

(14) Δ ]nqt = a + bx · A In pt + b2 · Δ In vt+ b3 · Αηρί · (In pt - 'nvt)

+ Σ «>,/>,+ 6
i=l

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
600 GeorgeBittlingmayer «DUTTE

Table2
SummaryStatistics
of SelectedVariables
Variable Data for1984-1985 Data for1985-1986
Q84 Mean S.D. Q 85 Mean S.D.
Year ^38 79.3 6.17 ^28 79.0 6.14
<38 75.4 6.61 < 28 75.5 6.45
PR 84, PR 85 ^ 38 49.24 43.96 ^ 28 56.40 50.80
<38 71.36 115.41 < 28 67.97 73.17
V84, V85 ^38 21.13 20.87 ^28 21.79 19.96
<38 25.48 64.88 < 28 25.83 39.70
Q84, Q85 ^38 715 2662 ^28 376 1619
<38 14 10 <28 11 7
STK 84, STK 85 ^ 38 2098 3353 ^ 28 1732 2235
<38 903 1192 < 28 834 1057
RYL 84, RYL 85 ^ 38 0.056 0.039 ^ 28 0.057 0.039
<38 0.040 0.058 < 28 0.033 0.043
PR 8584,PR 8685 ^ 38 0.052 0.085 ^ 28 0.047 0.061
<38 0.091 0.129 < 28 0.056 0.068
Q 8584,Q 8685 ^38 - 0.429 0.841 ^28 - 0.368 0.632
<38 -0.014 0.759 < 28 -0.028 0.782
PC 84, PC 85 ^38 0.455 0.069 ^28 0.469 0.071
<38 0.546 0.120 < 28 0.529 0.101
DNPV8584, ^38 -0.013 0.373 ^28 0.033 0.351
DNPV8685 < 38 0.177 0.720 < 28 0.186 0.682
PCHZERO ^38 0.630 0.483 ^28 0.498 0.500
<38 0.488 0.500 < 28 0.487 0.500

SampleSize SampleSize
^38 624 ^28 612
<38 627 <28 599

as theeconometric specification.The coefficients

b1 and b2willbe estimatesof
thepriceandretailmarginelasticities, and thecoefficient b3willbe equal to - 1.
Table1 providesthedefinitions, and table2 presentsselectedstatistics
fortwo
partitionsof the data set, of which one measures year-to-year changesfor
1984-1985 and the otherfor1985-1986. Both sampleshave also been split
roughlyin halfaccordingto thequantityofbooks sold in thefirstofthetwo
pairedyears.About85percentofthesetitlesareintheirfirst 10percent
printing,
in theirsecondor thirdprinting, and only5 percentor morein a fourthor
subsequentprinting.
Note firstofall,thatforhalfofall titleslessthan38 copiesweresold in 1984
and for49 percentofall titleslessthan28 copiesweresoldin 1985.Sincea large
numberoftitlesthathad zerosalesin one or moreoftheyears1984-1986were
eliminatedfromthedata set,thesenumbersoverestimate themediannumber
ofbookssold pertitle.Onlyaboutone-fifth ofall titlesin thesampleheresold
morethan200 copiesperyear.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) forBooks
ofDemand
TheElasticity 601

The secondnoteworthy difference betweenthe two groups(low and high

quantitysold) is thatslowlysellingtitleshave higherpricesand higherretail
margins.Their stocksare also disproportionately high.Considerthe mean
valuesofQ 84 and STK 84. If only14 copies ofa titleare sold each year,but
903 are in stock,supplieswilllast 64 years.On theotherhand,thestocksof
bettersellingtitlesare onlythreetimesas greatas currentyearlysales. Note,
however, thattheirsalesare decreasingat therateofabout40 percentperyear
comparedto only1 to 3 percenton averageforpoorlysellingtitles.
The twogroupsalso showedmarkedly differentchangesin pricesand quan-
tities,althoughthe percentageof books whose priceswerechanged(almost
alwaysraised)was about 50 percentin bothcases. Slow sellingtitlestendto
have largerpercentagepriceincreases,and the drop in sales is substantially
less.This pointsin thedirectionoflowerpriceelasticities fortitleswithrela-
tivelypoor sales. The higheraveragevalue of theirprice-costmarginssup-
portsthis.Paradoxically, thelesssuccessful a book,thegreaterits"monopoly
markup."
The econometric resultsin tables3 and 4 based on equation(14) confirm
thisresult.Estimatedelasticities ofdemandare higherforbetter-than-average
selling titles.
Of equal interest, use of Atfpt(lnpt
the - 'nvt) - abbreviatedas
DNPV 8584 and DNPV 8685 - to correctforshiftsin demandsubstantially
increasestheabsolutevalueoftheelasticity ofdemand,movingitcloserto what
theLernerrelationship predicts from thevalue ofPC 84,PC 85 in table2. This
providessupport forthe notion that priceand retail
marginchangesare made
in responseto changesin marketdemand.For 1984-1985,theinverseof the
averageLernerIndex is 2.20 forthe bettersellingtitles,and the regression
estimatesincludingthecorrection forshiftsin demandfallin therange1.9 to
2.5.For thebetter-selling titlesin 1985-1986,theLernerIndeximplieselastic-
itiesof2.13,and theestimatesfromtheregressions thatincludethecorrection
are 2.79 and 2.84. In contrast,the LernerIndex forthe poorlysellingtitles
implieselasticitiesof 1.83for1984-1985 and 1.89 for1985-1986. Regression
estimatesforpoorlysellingtitlesin the1984-1985 subsampleare statistically
significantandfallintherange1.3- 1.7,whilethestatistically weakresultsinthe
1985-1986 subsamplehave valuesroughlyequal to - 1. Exceptforthislast
result,theseestimates are consistent withthesimplearguments sketchedout in
theintroduction.14
The estimatedelasticities withrespectto theretailmargin- thecoefficients
on V 8584and V 8685- also showtheirmostplausiblevalueswhenthecorrec-
tion forshiftsin demandis included.For titlesthat sell well,the effectof
increasing retailmarginsby 1 percentis to increasesales by 1.5 to 1.7 percent.

14 It is also instructive
to comparetheelasticities
herewiththoseestimated
byTelser
[1988],who foundshort-term priceelasticities
forseveralbrandsof orangejuice and
instantand regularcoffeein therangeof 1.72 to 4.97.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
602 GeorgeBittlingmayer JJUTTE

Table3
Regressionsof PercentageChangein Quantityon PercentageChangein RetailPrice,
Percentage Changein Dealer Marginand OtherVariables,1984-1985
Variable DependentVariable:Q 8584
Q 84 ^ 38 Q 84 < 38
All Cases PR 8584 Φ 0 All Cases PR 8584 Φ 0
PR 8584 -0.355 -1.93 -1.174-2.49 -1.49 -1.66 -1.38 -1.43
(0.53) (2.78)* (2.14)t (3.42) (4.41)* (4.74)* (3.81)* (3.43)*
V8485 -0.0271 1.66 0.106 1.50 0.240 0.467 0.122 0.075
(0.15) (5.30)* (0.44) (2.64)t (3.30)* (3.18)* (1.15) (0.32)
PCHZERO - 0.350 - 0.334
0.154 0.144
(3.09)* (3.04)* (1.83) (1.71)
DNPV8584 - -1.01 - -0.777 - -0.149 - 0.033
(6.48)* (2.71)* (1.78) (0.22)
D 85 TWO 0.098 0.145 - 0.500 - 0.491 - 0.232 - 0.243 - 0.731 - 0.727
(1.00) (1.52) (3.22)* (3.22)* (1.21) (1.27) (1.36) (1.35)
D 85 THREE 0.423 0.432 - 0.060 - 0.027 - 0.218 - 0.219 - 0.164
- 0 .175
(4.30)* (4.53)* (0.59) (0.23) (1.93) (1.94) (0.64) (0.67)
D 85 FOUR 0.266 0.270 - 0.296 - 0.279 0.127 0.128 0.168 0.170
(2.46)t (2.58)* (2.48)t (2.38)f (1.29) (1.22) (1.00) (1.01)
D 85 FIVE 0.355 0.381 -0.071 -0.011 -0.082 -0.078 -0.145 -0.146
(2.77)t (3.06)* (0.53) (0.58) (0.84) (0.80) (1.06) (1.06)
D 85 SIX 0.441 0.437-0.011 0.002 0.091 0.100 0.063 0.059
(3.37)* (3.44)* (0.01) (0.02) (0.90) (0.98) (0.44) (0.41)
CONSTANT -0.361 -0.340 0.011 0.024 0.167 0.163 0.184 0.185
(3.09)* (3.01)* (0.11) (0.24) (2.15)t (2.10)t (2.14)t (2.15)t
η 624 624 231 231 627 627 321 321
R2 0.08 0.14 0.08 0.11 0.05 0.06 0.06 0.06
( ) = t-statistics
* = Significantly fromzero at the1 percentlevel
different
t = Significantly fromzero at the5 percentlevel
different

titles,or titleswitha narrowaudience,increasesin the

For theless successful
retailmarginof 1 percentresultin onlyabout a one-halfpercentgainin sales.
The chiefdrawbackto theseresultsis theweak explanatorypowerof the
regressionsforpoorlysellingtitles,especiallyforthe1985-1986changes.Nine-
ty-fivepercentof the variationin sales is due to randomfluctuations not
accountedforby themodel.In addition,theelasticity estimatesseemlow for
thatsubsample.
on pricechangesforbooks withpoor sales and thelow
The low coefficients
significance thosecoefficients
statistical of to twocauses.First,
is attributable

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity forBooks
ofDemand 603

Table4
Regressionsof PercentageChangein Quantityon PercentageChangein RetailPrice,
Percentage Changein Dealer Marginand OtherVariables,1985-1986
Variable DependentVariable:Q 8685
Q 84 Ζ 28 Q 84 < 28
All Cases PR 8685 Φ 0 All Cases PR 8685 Φ 0
PR 8584 -0.177-2.79 -2.14 -2.84 -0.870-0.970-0.955-1.26
(2.84)f (4.46)* (3.80)* (4.85)* (1.13) (1.24) (1.28) (1.62)
V8485 0.626 1.60 1.016 1.68 0.301 0.401 0.030 0.329
(5.33)* (8.36)* (7.26)* (7.24)* (3.37)* (2.50)f (0.23) (1.295)
PCHZERO -0.136 0.140 - - -0.026 0.022
(1.82) (1.93) (0.24) (0.20)
DNPV8685 - -0.690 - -0.612 - -0.064 - -0.196
(6.33)* (3.57)* (0.75) (1.37)
D 86 TWO -0.586 -0.544 -0.245 -0.256 -0.083 -0.093
(7.68)* (7.33)* (1.92) (2.05)t (0.21) (0.24)
D 86 THREE 0.048 0.051 0.115 0.116 -0.016 -0.005 -0.113 -0.115
(0.63) (0.70) (1.20) (1.23) (0.08) (0.02) (0.33) (0.33)
D 86 FOUR 0.066 0.069 0.177 0.185 0.032 0.035-0.035-0.045
(0.91) (0.98) (1.87) (2.00)t (0.28) (0.30) (0.21) (0.27)
D 86 FIVE 0.198 0.175 0.169 0.154 0.022 0.027 -0.060 -0.052
(2.48)* (2.26)* (1.73) (1.61) (0.19) (0.23) (0.43) (0.37)
D 86 SIX 0.018 0.061 0.013 0.061 0.173 0.176 0.292 0.285
(0.21) (0.72) (0.13) (0.61) (1.72) (1.74) (2.27)t (2.21)f
CONSTANT 0.197 0.168 -0.234 -0.210 -0.024 -0.020 0.030 0.046
(2.74)* (2.41)* (3.46)* (3.15)* (0.24) (0.21) (0.30) (0.46)
η 612 612 307 307 599 599 307 307
R2 0.18 0.23 0.19 0.22 0.03 0.03 0.03 0.03
( ) = t-statistics
* = different
fromzero at the 1 percentlevel
Significantly
t = Significantly different
fromzero at the5 percentlevel
a = No cases withPR 8685 Φ 0 and D 86 TWO = 1

thepricedata mightbe plaguedbyerrorsin variablesthatare moreseverefor

poorlysellingtitles.For example,thefixedretailpricemaynot reflect actual
transactions pricesbecause of under-the-tablediscounts.
This would make it
difficult
to get statistically
reliableresults,but moreimportantly,
would bias
theresultstowardzero.Althoughsuchdiscountsmighttendto averagethem-
selvesout in year-to-yearpricecomparisonsforbooks withlargeyearlysales,
it seemsplausiblethatthe divergenceof actual averagesales pricefromthe

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
604 GeorgeBittlingmayer ΛΠΊΠΕ

nominal price will be more variable when only fiveor ten books are sold per
year.15
The other potential source of bias is the failureto fullyadjust for shiftsin
demand. Despite the success of the variables DNPV 8584 and DNPV 8685 in
generatingelasticitiesclose to what the relevanttheorypredicts,theyare in all
likelihood plagued by measurementproblems that are also greater for titles
with relativelyslow sales. Indeed, the measurementproblems inherentin this
variable are related to those that may crop up forprice and the retail margin.
Since the theorypredictsa coefficient of - 1 forDNPV 8584 and DNPV 8685,
it is of some comfortthat the elasticityestimatesare at least satisfactorywhere
the coefficienton these variables deviates most from - 1.

6. Conclusions

The goal has beento studythepriceelasticity ofdemandforproductscharac-

terizedby the cost conditionsof classical naturalmonopoly.The concrete
applicationwas thedemandforbooks.This requireda discussionoftheinsti-
tutionalaspectsofpublishing, includingthesystemofretailpricemaintenance
underwhichmysampleof books werebroughtto market.The institutional
framework in turnprovidedkeyassumptionsforthetheory, namelythatthe
publisher can be viewed as two
controlling prices, the retailprice and the
discountto theretailer.The discussionofpublishing technology also allowed
us to viewprinting costsas fixedcostsforthebulkofmysample.This setsthe
basisfora keytheoretical namelythattheelasticity
result, ofdemandis notonly
equal to theinverseoftheLernerIndexat theprofit-maximizing equilibrium,
butalsojointlydetermined withtheretailmargin.Thisresult,as wellas related
implications derivedfroma modelofmonopolistic competition, supportsthe
viewthatthecostconditionsofproductionand marketing determine observed
ofdemand.The relevanttheoryprovidesa verysimplerationalefor
elasticities
manufacturer concernwiththejoint determination ofretailpriceand promo-
tionalservice.It also showshow the extent of "monopoly"- definedas devia-
tionfrommarginal cost - on
pricing depends underlying fixedcostsand the
effectivenessofpromotionalexpensesin increasingsales.
The empiricalresultscan be summarized as follows:
1. Most oftheyear-to-year variationin sales ofbooks is attributableto influ-
encesnotcapturedbyprice,marginor vintage.The influence offactorsthat
lie outsidethemodelis especiallystrongforpoorlysellingbooks. But the

15 To illustrate,
supposeρ is a particulartitle'snominalfixedpriceand d{ is the
withmean d and
discounton the i-thsale for/= 1, ...,«. Let dthave a distribution
varianceσ2.The transactionspriceon anysale Us ρ - dt,and theexpectedsamplemean
forη salesisρ - dana thesamplevarianceσ2In.For smallη theactualaveragepricemay
fromthenominalfixedpriceunderRPM lesstheexpecteddiscount.
deviatesubstantially

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
148/4(1992) TheElasticity
ofDemand
forBooks 605

typicallysmallincreasesin price,on averageabout 10 percentforthe 50

percentofbookswhosepricesare changedin a givenyear,does lowersales,
mostreliableresultssuggestan elasticity
otherthingsequal. The statistically
ofabout - 2 to - 3 forthissampleof academicor "egghead"titles.This
estimateis on averageslightly largerthanthecorresponding LernerIndex
basedonlyon immediate marginalcosts,thatis,excludingmarginalprinting
costs.The failureto allocateadvertising
or othertitle-specificpromotional
expensesof thepublishermay be responsibleforthisdeviation,but there
seemsto be no easyway to correctforthisbias.
2. A one percentincreasein retailmarginsincreasessalesbyabout 1.5percent,
is also roughlyconsistent withthetheory.This is new and important evi-
dencefortheviewthatmanufacturer controloverretailmarginsinfluences
sales.
3. Pricechangesareendogenous.Theclassicproblemofdistinguishing between
shiftsofa demandcurveand movements along a demandcurvehad to be
addressedin the econometric work.Changesin the inverseof the Lerner
Index wereused to correctfortheselargelyunobservableinfluences. The
evidencefromthisvariableis consistent withtheviewthatpriceincreases
tendto takeplace whendemandbecomesless elastic.

Zusammenfassung

Die Kostenbedingungen desVerlagswesens

entsprechendeneneinesnatürlichen
Monopols - die Preise müssendie Grenzkostenübersteigen, um die nicht
unerheblichen Fixkostenzu decken. Diese Spanne stehtim umgekehrten
Verhältniszur beobachtetenNachfrageelastizitätund zur Wirksamkeit der
als
Einzelhandelspanne nachfrageförderndes Mittel.Die relevantenParame-
tersind füreine Stichprobevon über 1000 Titelnüber dreiJahregeschätzt.
Dabei liegendie verläßlichen
SchätzungenderElastizitätbei Wertenzwischen
1.5 und 3.0. Die Buchtitelwurdenunterden Bedingungen der Preisbindung
der zweitenHand verkauft. Die Theoriesowie die empirischen Ergebnisse
werfenein neues Licht darauf,wie geschützteHandelsspannenden Absatz
beeinflußen.

References

Bittlingmayer, G. [1988],''Resale PriceMaintenance

intheBook TradeWithan Appli-
cation to Germany,"Journalof Institutional and Theoretical
Economics,144(5),
789-812.
Börsenvereindes Deutschen Buchhandels [1986],BuchundBuchhandel in Zahlen,
Börsenverein des deutschenBuchhandels:Frankfurt am Main.
Cheung,S. N. S. [1968],"PrivateProperty Rightsand Sharecropping,"
Journal
ofPolit-
ical Economy,76(6), 1107-1122.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions
606 GeorgeBittlingmayer cflUTTIE

Harris, M. and Raviv,Α. [1986],"A Theoryof MonopolyPricingSchemeswithDe-

mandUncertainty," American EconomicReview,71(3), 347-365.
Lazear, E. P. [1986],"RetailPricingand ClearanceSales,"American
EconomicReview,
76(1), 14-32.
Lerner,A. [1934],"The Conceptof Monopolyand the Measurement of Monopoly
Power."ReviewofEconomicStudies.1(3), 157-175.
Pindyck,R. S. [1985],"The Measurement of MonopolyPowerin DynamicMarkets,"
JournalofLaw & Economics28(1), 193-222.
Telser, L. G. [1988],Theories
ofCompetition,North-Holland:New York-Amsterdam -
London.

ProfessorDr. GeorgeBittlingmayer and GraduateSchoolofBusiness

GraduateSchoolofManagement of Chicago
University
University Davis
of California, Chicago,IL 60637
Davis, CA 956Î6 U.S.A.
U.S.A.

This content downloaded from 136.186.1.81 on Sun, 13 Dec 2015 04:03:20 UTC
All use subject to JSTOR Terms and Conditions