Used books are every frugal gal and gent’s dream. Especially considering things that we need – like textbooks – are crazy expensive and it makes no sense, considering we only use that book once during a whole entire semester. But could it be bad for the economy?

I guess the book industry is doing pretty well! (photo by Ecotrust)

I guess the book industry is doing pretty well! (photo by Ecotrust)

There is a paper out entitled Internet Exchanges for Used Books: An Empirical Analysis of Product Cannibalization and Welfare Impact by Anindya Ghose, Michael D. Smith, Rahul Telang – via SSRN that you can view here. It describes exactly as we were just talking about.

The NY Times suggests that:

“The starting point for their analysis is the double-edged impact of a used book market on the market for new books. When used books are substituted for new ones, the seller faces competition from the secondhand market, reducing the price it can set for new books. But there’s another effect: the presence of a market for used books makes consumers more willing to buy new books, because they can easily dispose of them later.

A car salesman will often highlight the resale value of a new car, yet booksellers rarely mention the resale value of a new book. Nevertheless, the value can be quite significant.

This is particularly true in textbook markets, where many books cost well over $100. Judith Chevalier of the Yale School of Management and Austan Goolsbee at the Chicago Business School recently examined this market and found that college bookstores typically buy used books at 50 percent of cover price and resell them at 75 percent of cover price. Hence the price to “rent” a book for a semester is about $50 for a $100 book.”

But their findings were that there was not that much impact:

“Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small.

One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books. As a result, the used market does not have a big impact in terms of lost sales in the new market.”

Personally, I am one of those people who would always be more than happy to receive an old copy of a book. I understand that some people would not feel the same way.

I suppose used book sales don’t exactly hurt new ones.

The article ends on this note:

“Applying the authors’ estimate of the displaced sales effect to Amazon’s sales, it appears that only about 16 percent of the used book sales directly cannibalized new book sales, suggesting that Amazon’s used-book market added $63.2 million to its profits.

Furthermore, consumers greatly benefit from this market: the study’s authors estimate that consumers gain about $67.6 million. Adding in Amazon’s profits and subtracting out the $45.3 million of losses to authors and publishers leaves a net gain of $85.5 million.

All in all, it looks like the used book market creates a lot more value than it destroys.”