Ghose, Smith and Telang (2006)
Contents
Source Details
Ghose, Smith and Telang (2006) | |
Title: | Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact |
Author(s): | Ghose, A., Smith, M. D., Telang, R. |
Year: | 2006 |
Citation: | Ghose, A., Smith, M.D. and Telang, R., 2006. Internet exchanges for used books: An empirical analysis of product cannibalization and welfare impact. Information Systems Research, 17(1), pp.3-19. |
Link(s): | Definitive , Open Access |
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About the Data | |
Data Description: | The study uses a unique dataset collected from Amazon.com’s new and used marketplaces to estimate the impact of online used book markets on new book sales. The data includes over 9.8 million new and used price observations for 393 individual book titles. |
Data Type: | Primary data |
Secondary Data Sources: | |
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Data Analysis Methods: | |
Industry(ies): | |
Country(ies): | |
Cross Country Study?: | No |
Comparative Study?: | No |
Literature review?: | No |
Government or policy study?: | No |
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Abstract
"Information technology-enabled exchanges have enhanced the viability of a variety of secondary markets, notably markets for used books. Electronic used book exchanges, in particular, offer a wider selection, lower search costs, and significantly lower prices than physical used bookstores do. The increased viability of these used book markets has caused concern among groups such as the Book Publishers Association and Author’s Guild who believe that used book markets will significantly cannibalize new book sales. This proposition, while theoretically possible, is based on speculation as opposed to empirical evidence. In this research, we use a unique dataset collected from Amazon.com’s new and used marketplaces to estimate the impact of IT-enabled used book markets on new book sales. We use these data to calculate the impact of these secondary market exchanges on consumer and publisher welfare by calculating the cross-price elasticity of new books sales with respect to used book prices. Our analysis suggests that IT-enabled secondary market exchanges increase consumer surplus by approximately $70 million annually. Further, we find that only 15% of used book sales at Amazon cannibalize new book purchases. The remaining 85% of used book sales apparently would not have occurred at Amazon’s new book prices. This low cannibalization means that book publishers lose only $32 million in gross profit annually (about 0.2% of total gross profit) due to the presence of Amazon’s used book markets. Further, the additional used book readership gain from these electronic markets may mitigate author losses through increased revenue from secondary sources such as speaking and licensing fees. These surplus changes, combined with the estimated $64 million the used book market added to Amazon’s gross profits, show that IT-enabled used markets for books have a strong positive first-order impact on total welfare."
Main Results of the Study
In this research, the authors analyze the impact of used book markets on new book sales at Amazon.com. They find that the while 29.9 million used book sales took place in 2002 on Amazon.com’s site, only 4.5 million of these sales cannibalized new book sales. The remaining sales apparently would not have occurred at Amazon’s new book price. While these cannibalized sales result in an estimated $31.9 million loss to publishers annually, the total welfare gain to society from this IT-enabled market is $102.4 million annually after considering the $64.1 million gain in Amazon.com’s gross profits and the $70.2 million gain in consumer surplus.
Policy Implications as Stated By Author
The implication of this finding for publishers is that, at least at the present, used book markets do not significantly cannibalize new book sales — even in a market that lists used copies side by side with new. Additionally, the authors' estimates by individual book type suggest that customers are less sensitive to low used book prices for hardcover and fiction titles and current bestsellers, some of the categories that publishers may be most interested in protecting from cannibalization.
Coverage of Study
Datasets
Sample size: | 393 |
Level of aggregation: | Books |
Period of material under study: | 2002 to 2004 |
Sample size: | 9,800,000 |
Level of aggregation: | Price observations |
Period of material under study: | 2002 to 2004 |