Essays on market effects in the publishing industry

Abstract

This thesis is composed of two separate essays about the market effects of different events in the book publishing industry. In the first essay, I study the effects of a copyright extension on the book publishing industry. The 1998 Sonny Bono Act extended copyright by 20 years so that works created in 1922 and before are in the public domain while works created later remain on copyright. Taking works off copyright tends to promote their availability which benefits consumers. But it also allows entry to dissipate producer surplus, particularly for high-value works. Many copyright-protected books, especially those of low value, have gone out of print, and are effectively unavailable to consumers. Putting these works in the public domain can raise the welfare of both producers and consumers. Evaluating the welfare impact of the copyright extension requires estimation of the differences in consumer and producer surplus across a wide range of books between actual and counterfactual copyright regimes. I assess these differences using a structural model of demand for books, along with an entry model, to simulate the elimination of copyright for books published after 1923. I find that a copyright extension decreases welfare by decreasing variety, causing a decrease in consumer surplus that outweighs an increase in producer surplus. Holding fixed the costs of entry, a move into the public domain increases total surplus from most titles, indicating insufficient entry under copyright protection. In the second chapter, I present joint work with Joel Waldfogel wherein we analyse the market effects of new technology - namely e-books - on the book publishing industry. Digitization is transforming the market for books. Lower marginal costs have reduced prices by 10-15 percent in the past four years, and digitization has given creators the ability to circumvent traditional gatekeepers and publish their work directly. The number of self-published works has grown by almost 300 percent since 2006 and now exceeds the number of traditionally published works. Given the inherent difficulty in predicting the ex post appeal of creative products at the time of investment, a growth in available new products can substantially expand the appeal of available products. While e-book data are not systematically available, we are able to document that falling prices have increased consumer surplus by \$2-3 billion per year. Using bestseller lists in conjunction with title-level data on physical sales and our best estimates of e-book sales, we document that many self-published books have substantial ex post appeal to consumers. Works that began their commercial lives through self-publishing began to appear on bestseller lists in 2011 and by late 2012 such works accounted for a tenth of both bestseller listings and estimated unit sales. In romantic fiction, self-published works account for almost a third. These changes challenge the role of gatekeepers while benefiting consumers.