Fixed Book Price Agreement
Encyclopedia
The 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 book
s were to be sold to the public. An example of FBPA was the former Net Book Agreement
in the United Kingdom
.
The key idea of the 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, the 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 Fixed Book Price Laws (FBPL), where the book prices are kept fixed by law. An example of 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.
The FBP allows the publisher to mitigate this competition and thereby guarantees a sufficient margin for high-quality bookshops to operate.
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 ).
of meaningful cultural works. As put it,
frameworks can be applied to assess the consequences of the FBP.
The most commonly cited result is . 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 , the main idea of the FBP (keeping best seller prices high in order to subsidize the sale of less popular books) is unconvincing for several reasons:
s by larger chain outlets and a decrease in the price of bestsellers, compensated by an increase of the price of all other books.
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 , is that the effects of the 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 , the repeal of the FBP in the UK (1995) did not lead to a sharp decrease of the number of bookshops, rather to a displacement of small, independent bookshop by big-chain outlets. He notices however that the former stayed in place where a quality-sensitive demand existed, and that competition between bookshop spurred a reduction of operational costs thanks to better logistics and collection management (an argument also found in ). In a counterfactual manner, shows that in France, the FBP helped to maintain a dense network of independent bookshops, reigned 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 the FBP a subsidy of wealthier people by poorer people).
Resale price maintenance
Resale price maintenance is the practice whereby a manufacturer and its distributors agree that the latter will sell the former's product at certain prices , at or above a price floor or at or below a price ceiling...
applied to books. It commonly takes the form of an agreement between publishers and booksellers which set the prices at which book
Book
A book is a set or collection of written, printed, illustrated, or blank sheets, made of hot lava, paper, parchment, or other materials, usually fastened together to hinge at one side. A single sheet within a book is called a leaf or leaflet, and each side of a leaf is called a page...
s were to be sold to the public. An example of FBPA was the former Net Book Agreement
Net Book Agreement
The Net Book Agreement was a British fixed Book Price Agreement between publishers and booksellers which set the prices at which books were to be sold to the public....
in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
.
The key idea of the FBPA is to promote non-price competition
Non-price competition
Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship"...
between booksellers in order to promote the sale of little-known, difficult or otherwise culturally interesting books rather than catering only to blockbuster
Blockbuster (entertainment)
Blockbuster, as applied to film or theatre, denotes a very popular or successful production. The entertainment industry use was originally theatrical slang referring to a particularly successful play but is now used primarily by the film industry...
readers. To do so, the 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 Fixed Book Price Laws (FBPL), where the book prices are kept fixed by law. An example of FBPL is the current Lang Law
Lang Law
Lang Law is the informal name given to French law number 81-766, from August 10, 1981, relating to book prices. The law establishes a fixed price for books sold in France, limiting price discounts on them...
in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan 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
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
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 . 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 maintenanceResale price maintenance
Resale price maintenance is the practice whereby a manufacturer and its distributors agree that the latter will sell the former's product at certain prices , at or above a price floor or at or below a price ceiling...
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 ).
| Country | FBP | | Comment |
|---|---|---|
| Germany | yes | Since 1888, mutual agreement replaced by law in 2002 |
| Argentina | yes | Law since 2001 |
| Austria | yes | Law since 2000 |
| South Korea | yes | |
| Denmark | yes | Business agreement since 1837, amended in 2001 |
| Spain | yes | 2007 Law substituting a 1975 Law |
| France | yes | Business agreement repealed in 1979, law since 1981 |
| Greece | yes | Law since 1997 |
| Hungary | yes | Business agreement |
| Italy | yes | Law since 2005 |
| Japan | yes | |
| Luxembourg | yes | Domestic books only |
| Mexico | yes | Law since 2008 (applies only to the first 18 months after the book publication) |
| Norway | yes | Business agreement |
| Netherlands | yes | Business agreement since 1923 |
| Portugal | yes | Law since 1996 |
| Slovenia | yes | Business agreement |
| Australia | no | Repealed in 1972 |
| Belgium | yes | Limited to six month |
| Brasil | no | On study |
| Canada | no | |
| Estonia | no | |
| United States of America | no | |
| Finland | no | Repealed in 1971 |
| Ireland | no | Repealed in 1995, debated since |
| Poland | no | |
| Czech Republic | no | |
| United Kingdom | no | Repealed in 1995 |
| Sweden | no | Repealed in 1974 |
| Switzerland | yes | Repealed in 1999, re-enacted in 2009 |
| Venezuela | no |
Assessment
The assessment of the FPB is a controversial one. One the one hand, most economists ( for an overview, for a specific discussion) are skeptical on the cultural merits of the FBP or and underline its distorting effect. One the other hand, other economists ( on the French case, on the German case) and the book industry argue that the FPB 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 externalitiesExternality
In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
of meaningful cultural works. As 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 organizationIndustrial organization
Industrial organization is the field of economics that builds on the theory of the firm in examining the structure of, and boundaries between, firms and markets....
frameworks can be applied to assess the consequences of the FBP.
The most commonly cited result is . 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
Free rider problem
In economics, collective bargaining, psychology, and political science, a free rider is someone who consumes a resource without paying for it, or pays less than the full cost. The free rider problem is the question of how to limit free riding...
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 , the main idea of the FBP (keeping best seller prices high in order to subsidize the sale of less popular books) is unconvincing for several reasons:
- the market subsidizes new books per se, in order to get a best seller
- there is no guarantee that the subsidy will occur anyway. In fact, the authors suggest that both publishers and booksellers have an incentive not to carry it out
- if less popular books are less price elastic than popular books, monopoly profits in them are higher
- even if the subsidy works, there is no accounting for what or how it's done
- even if the subsidy works, it's not clear that it's worth the price distortion
Empirical assessment
and provide empirical assessments of the 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 the FBP is a displacement of small independent bookstoreIndependent bookstore
An independent bookstore is a retail bookstore which is independently owned.-Literary and countercultural history:Author events at independent bookstores sometimes take the role of literary salons. The bookstores themselves, "have historically supported and cultivated the work of independent...
s by larger chain outlets and a decrease in the price of bestsellers, compensated by an increase of the price of all other books.
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 , is that the effects of the 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 , the repeal of the FBP in the UK (1995) did not lead to a sharp decrease of the number of bookshops, rather to a displacement of small, independent bookshop by big-chain outlets. He notices however that the former stayed in place where a quality-sensitive demand existed, and that competition between bookshop spurred a reduction of operational costs thanks to better logistics and collection management (an argument also found in ). In a counterfactual manner, shows that in France, the FBP helped to maintain a dense network of independent bookshops, reigned 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 the FBP a subsidy of wealthier people by poorer people).