Law in the Internet Society

Legitimate Price and Coercive Inflation:

The Factors that Will Determine the Market Price of Books

by Stephen Clarke

There is a difference between a monopoly price that results from strong copyright protection and a legitimate price that consumers consider fair. As recently as 2004, record executives resisted lowering wholesale prices to permit Wal Mart to draw customers into its stores by selling CDs for $9.72. Warren Cohen, Wal-Mart Wants $10 CDs,, Oct. 12, 2004. When digital piracy and MP3 players made compliance with copyright law essentially voluntary, consumers gained the ability to punish record labels for setting unfair prices. See Mark F. Schulz, Fear and Norms and Rock & Roll : What Jambands Can Teach Us About Persuading People to Obey Copyright Law, 21 BERKLEY TECH. L.J. 651, 653, 713 (2006). As a result, the price of an album from the nation’s largest music retailer is now rarely more than $10. See Ethan Smith & Nick Wingfield, More Artists Steer Clear of iTunes,, Aug. 28, 2008. Once e-readers enter the mainstream, digital piracy will cause book prices to drop to a similar point of near legitimacy. See Randall Stross, Will Books Be Napsterized?, N.Y. Times, Oct. 4, 2009 (reporting on the “threat” posed by e-readers and piracy); Sean Gregory, Walmart, Target, Amazon: Book Price War Heats Up, TIME, Oct. 27, 2009 (reporting that retailers are discounting books below wholesale price to attract customers). As has been the case with music, the legitimate market price of books will be determined by their intrinsic value, their format, and their mode of distribution. Prices will not, however, reach a legitimate point if content providers are permitted to use coercive tactics to artificially inflate prices.

  • The correlation of "legitimate" and "rent-free" pricing is, I presume, ironic: capitalism would never accept that rent-seeking, which is its middle name, is illegitimate.

The intrinsic value of an artistic work is the price that a consumer will willingly pay to support its production.

  • You could also refer to this as the sustainable price.

Recording artists both large and small have demonstrated that their works have intrinsic value in two ways: (1) by simultaneously distributing legal digital copies for free and at a set price, and (2) by distributing legal digital copies on a “pay what you can” basis. See, e.g., Clive Thompson, Sex, Drugs and Updating Your Blog, N.Y. TIMES, May 13, 2007 (detailing how small artists had employed both models); PEW INTERNET & AMERICAN LIFE PROJECT, THE STATE OF MUSIC ONLINE: TEN YEARS AFTER NAPSTER 13 (2009) (detailing Nine Inch Nails’ simultaneous distribution of “Ghosts I-IV” and Radiohead’s “pay what you can” release of “In Rainbows”). These novel pricing policies have proven profitable because consumers will willingly pay to support the artists who produce the works they enjoy. See Radiohead Reveal How Successful “In Rainbows” Download Really Was,, Oct. 15, 2008 (reporting that Radiohead made more money from the three-month-long “pay what you can” digital release of “In Rainbows” than from the CD release of their last studio album); see also,, Sponsor Jill Sobule’s Album, Get a Spot on It, Mar. 24, 2009 (reporting how a one-hit wonder from the 1990s raised $75,000 by asking fans to donate money to buy studio time).

The legitimate market price of a work can be greater than its intrinsic value if the work is distributed in a format that adds value and offered through a user-friendly mode of distribution that reduces search costs. Like vinyl records, physical books will endure and command a premium price despite widespread digital content delivery because they represent collectable objects and provide a pleasurable way to interact with content. See generally,, In Rainbows (last accessed Nov. 8, 2009) (noting that Radiohead sold approximately 100,000 discbox versions of “In Rainbows” for $80, which contained a vinyl pressing of the album and bonus content). Retailers can legitimately profit from the sale of both physical and digital copies by recommending appealing works, which might otherwise go undiscovered, and providing authentic content in a sales environment free from misleading information and offensive messages. See Motoko Rich, Target Can Make Sleepy Titles Into Best Sellers, N.Y. TIMES, July 22, 2009 (reporting how Target’s book club “has highlighted largely unknown writers”); Mary Pilon, Tracking Down Fake Amazon Reviews,, July 9, 2009 (noting that Amazon filters customer reviews for “nasty things” and bars companies from posting fake positive reviews).

Copyright holders can, however, inflate market prices beyond legitimate levels by increasing the search cost of obtaining illicit copies and by using enforcement to generate a risk premium. By flooding the internet with fake illicit copies and litigating to suppress popular file-sharing mechanisms, content providers make it harder to obtain authentic illicit copies without encountering viruses and malware in a marketplace already cluttered with poor quality or unfinished copies. See Matthew Sag, Piracy: Twelve Year-Olds, Grandmothers, And Other Good Targets For the Recording Industry’s File Sharing Litigation, 4 NW. J. TECH. & INTELL. PROP. 133, 142, 145 (2006). Such activity insulates inefficient modes of commercial distribution from competition without actually benefiting artists or consumers. Enforcement targeted at relatively innocent end users, who are guilty of minor amounts of infringement, can reinforce propertarian social norms and cause risk averse consumers to pay a premium for commercial copies to avoid the threat of sanctions. Sag, supra, at 147, 154-55; see also, Eliot Van Buskirk, RIAA to Stop Suing Music Fans, Cut Them Off Instead,, Dec. 19, 2008 (reporting that the RIAA planned to stop suing end users and start working with ISPs to cut off the internet access of those who share files).

Nevertheless, efforts to inflate prices will probably prove counterproductive. Pernicious prices increase the willingness of consumers to incur search costs to obtain free copies. They also reduce social welfare by causing apathetic consumers who would otherwise purchase works to simply refrain from buying. See Yehning Chen & Ivan Png, Software Pricing and Copyright: Enforcement Against End-Users 1-2 (1999). As a result, book authors will be well served if they take a page from recording artists and start trusting their fans enough to distribute works in ways that enable fans to pay a legitimate price.

  • "Book authors" may be too inclusive a category for effective analysis. It includes people like Steven King who write for money and have an expectation of large earnings even when the rent-seekers take their immense cut off the top, literary artists who don't expect large sales but who hope to be able to live from their art, the dead, and young people who need encouragement to quit the day job.

  • I think this is an excellent piece, regardless of my agreement with its conclusions. It's clearly argued and well-documented, written forcefully but with restraint and wit, as usual. Thanks.


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r5 - 07 Sep 2011 - 00:44:13 - IanSullivan
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