By: Dan Bowen (2nd attempt)
This post will be a short economics lesson about books and "snob" effects. So, economic theory says that as price increases, quantity demanded ought to decrease. The world renown demand curve. The one that slopes downward from left to right - with a D at the end.
So what are "snob effects"? Well, what if price increases lead to increased (rather than decreased) demand? ... and upward sloping demand curve. This is contrary to the theory of demand. Economics has named this phenomenon a "snob" effect. It might be apparent why, but if it's not that clear, consider the market for fine art. Art "quality" is difficult to understand, thus consumers might consider a higher price as an indication of increased quality.
My results show that "Classics" (genre) seem to have the expected economic response to price - price increases, quantity demanded decreases. Snob effects are probably not expected from these books anyway... customers probably have a better idea regarding the quality of "Classic" books. If that's the case, then snob effects might be less apparent (disregarding binding and such), and the slope of the demand curve might be expected to be less upward-sloping, or less "snobby," if you will.
I also considered books in 4 other genres: Science Fiction/Fantasy, Mystery/Thrillers, Biography/Memoirs, and Romance. Mystery/Thrillers shows an effect similar to Classics, but it is not statistically significant. However, books in the genres Science Fiction/Fantasy and Romance show evidence of these "snob effects". Technicalities aside, this may be an indication that the quality uncertainty of books in these two genres is greater than Classics, for example. Publishers have
reported "snob effects" in the industry. Previous research has not presented any estimates that follow publisher's reports and genre specific research is practically absent. It's possible that Publishers are considering markets to be segmented by genre in their calculations - small publishers are generally "niched" - I've assumed that larger publishers are departmentalized by genre according to the most successful niches (Romance, YA fiction, etc.). If so, then my findings may be similar to the snob effects that publishers are reporting.
So what does this mean for us? Fair enough... Could it be that consumers' lack of quality certainty results in this "snob" effect behavior. Not because we're snobs, per se, we're just ill-informed.
Note: this post is a correction of a previous one. If you read the first version about elasticity, I provide a table the elasticities here (pic).
An interesting economic side note: Generally, Qsupplied = Qdemanded, so price elasticity of demand should be proportional to price elasticity of supply. But because return rates are quite high (~30%), Qs is an order of magnitude greater than Qd - namely, Qs = Qd + E[Returns]. The price elasticity of supply for books is not necessarily proportional to the price elasticity of demand, but rather, depends on expected return rates.
On a personal note, the next month will be a bit of an experience for me. I'm moving my life to BookLamp HQ in Boise, ID, and if all goes as planned, I expect be set up in the office by the end of August - God willing. It will be a very stressful month, but I trust it will be quite rewarding as well. Wish me luck - I will need it.
PS My regression output is given here. If this is interesting like that, feel free to lend your comments. Alternative perspectives and suggestions are appreciatively considered. My DP has an inverse relationship with sales, so estimated effects are opposite in their orientation.
regression results and price elasticities, here: http://www.cangooglehearme.com/permalink.php?id=294