 | ||
A fixed book price agreement (FBPA) is a form of resale price maintenance applied to books. It commonly takes the form of an agreement between publishers and booksellers which set the prices at which books were to be sold to the public. An example of an FBPA was the former Net Book Agreement in the United Kingdom.
Contents
The key idea of an FBPA is to promote non-price competition between booksellers in order to promote the sale of little-known, difficult or otherwise culturally interesting books rather than catering only to blockbuster readers. To do so, an FBPA is deemed to ensure that the booksellers that provide the corresponding presale services are able to recoup their higher costs with a guaranteed margin on blockbusters.
A related case is the existence of a fixed book price law (FBPL), where the book prices are kept fixed by law. An example of an FBPL is the current Lang Law in France.
An FBPA/FBPL, with various provisos, has existed in some developed countries since the beginning of the twentieth century. It remains in force in roughly half the countries of the European Union as well as in some other countries.
Principle
The core idea of the FBP (either by agreement or law) is that a dense network of well-stocked, high quality bookshops is a necessary condition for the publication of a large variety of books, large variety itself deemed desirable for the cultural life of a country (Canoy, van Ours & van der Ploeg 2006, p. 742). Such bookshops have additional costs that are not borne by discounters, who just stock their shelves with the current blockbusters. Since the latter represent a large proportion of book sales, price competition between high-quality bookshops and discounters reduces bookshops' profitability.
The FBP allows the publisher to mitigate this competition and thereby guarantees a sufficient margin for high-quality bookshops to operate.
Scope
Historically, most countries with a significant book industry have known an FBPA since the 19th century. The development of competition policy in the 1970s led to a wave of repeals of those agreements (Australia 1972, Sweden 1974, UK 1995) at a time when any form of resale price maintenance was seen with much suspicion. Conversely, other countries (Spain 1975, Greece 1997, Italy 2005) enacted laws making the FBP mandatory.
The following table gives an overview of the prevalence of FBP in rich countries (sources: European Booksellers Federation and (Canoy, van Ours & van der Ploeg 2006, p. 749)).
Assessment
The assessment of the FBP is a controversial one. On the one hand, most economists ((Canoy, van Ours & van der Ploeg 2006) for an overview, (Ringstad 2004) for a specific discussion) are skeptical of the cultural merits of the FBP and underline its distorting effect. On the other hand, other economists ((Rouet 2007) on the French case, (Backhaus & Hansen 2003) on the German case) and the book industry argue that the FBP is the only tool that allows difficult, high-brow, and culturally significant books to be published. Therefore, they say, the distortion should account for the much larger cultural externalities of meaningful cultural works. As (Canoy, van Ours & van der Ploeg 2006, p. 743) put it,
The cultural merits ascribed to such agreements have almost reached mythical proportions. No public debate in Europe on the cultural value of books is complete without a discussion of the FBP.
Theoretical framework
Several industrial organization frameworks can be applied to assess the consequences of the FBP.
The most commonly cited result is (Telser 1960). This paper states that when two retailer can engage on tangible presale services, that is can undertake an unobservable costly effort that increases the demand for both of them (advertisement, sessions with authors, thematic weeks), each one has an incentive to free-ride on the other retailer's effort by setting its price slightly below his competitor (which cannot correspondingly cut his price, since he supports the cost of a higher level of effort). This leads to a suboptimal (too low, from the publisher's point of view) level of aggregate effort. By cancelling the possibility of price competition, a FBP makes impossible this kind of opportunistic behaviour and induces both retailers to compete in services.
According to (Canoy, van Ours & van der Ploeg 2006), the main idea of FBP (keeping best seller prices high in order to subsidize the sale of less popular books) is unconvincing for several reasons:
Empirical assessment
(Ringstad 2004) and (Fishwick 2005) provide empirical assessments of FBP comparing countries with and without a FBP (Nordic countries for the former, France and the UK for the latter). According to these authors, the two main effects of a repeal of a FBP is a displacement of small independent bookstores by larger chain outlets and a decrease in the price of bestsellers, compensated by an increase of the price of all other books.
(Ringstad 2004) notices that the level of book prices and the number of published titles evolves in a similar manner in all Nordic countries (Norway, Sweden, Finland) although only Norway has a FBP and Finland belongs to a different linguistic group. In Denmark (FBP since 2000), however, book prices have increased one-third quicker than general inflation since 1985 and the number of books sold has fallen by two-thirds, a sharp contrast with Sweden and Norway, which belong to the same linguistic group. His conclusion, supported by elements from (Fjeldstad 2001), is that the effects of a FBP are less than both proponents and critics make them, and that other institutional agreements (e.g. only pure bookshops can carry textbooks in Norway) better explain the evolution of the book markets in those countries.
According to (Fishwick 2005), the ending of the FBPA in the UK (1995) did not lead to a sharp decrease of the number of bookshops, rather to a displacement of small, independent bookshops by big-chain outlets. He notices however that the former stayed in place where a quality-sensitive demand existed, and that competition between bookshops spurred a reduction of operational costs thanks to better logistics and collection management (an argument also found in (Ringstad 2004)). In a counterfactual manner, (Rouet 2007) shows that in France, the FBP helped to maintain a dense network of independent bookshops, reined in the deployment of chain bookstores and spurred supermarkets to boost their offer of books. Fishwick also shows that while the number of published titles increases as fast as in France, there is no sign of an overall increase of book prices. He shows however that this stability hides a strong distributive effect. Comparison with France show that the FBP leads to an increase of the price of bestsellers relative to non-FBP markets and a decrease of low-selling or long-selling books. He argues that the assessment of this effect is difficult, since the relation between the (un)popularity of a book and its cultural value is unclear, whereas consumers of low-selling books are, on average, wealthier than consumers of bestsellers (making a FBP a subsidy of wealthier people by poorer people).