imgres-1There is renewed interest in the idea of being able to re-sell eBooks and other digital content. First, Amazon and Apple have both entered the patent fray with exchange ideas that allow electronic content to be traded in much the same way that they can be traded as physical content. Second, the US Supreme Court has reaffirmed the “first sale” doctrine in copyright law. For copyrighted material with a physical form — such as a paper book — the first sale doctrine limits that ability of a copyright holder to prevent or extract money on future sales of that book. So when you buy a book, anywhere in the world, you can sell it again without the publisher or author’s permission. Could the same apply to eBooks?

The idea is that if you have an eBook, then you should be able to re-sell it to another person. Given that this is permitted for physical books, why not have the option to discard a book and earn a few bucks when you are done? This sounds reasonable but smells funny.

When you have a physical book, there is a sense in which it is good if the “paper” were not simply gathering dust but can be used by others. That inefficiency is, of course, not there for electronic content. There is no waste going on if it is left unread.

The issue with eBooks is precisely because there is no waste, there is no rivalry. So that means that the book is boiled down to its essence which is, I buy it to read it, I read it, and then if I sell it to you and you read it, we have both consumed the book for a ‘single price.’ For a physical book, the ability to sell and read is limited. For an electronic book, take this to the limit and I can buy a book, sell it to millions and they can all read it for a ‘single price.’ This is something I have researched on. So it is not surprising that publishers and booksellers are looking for another way. And that way is to come up with a technology that puts the rivalry back for electronic books.

Now I don’t doubt that they can find a way to do this. And moreover, if they do find a way to do it, it is possibly better than limiting eBooks to a single owner forever. At the same time, the whole notion of trying to replicate the inefficiency of physical books just so you can have enough frictions to uphold a physical private property rights environment seems crazy. By thinking this way you limit the ability to innovate in how we consume and share information goods.

To see this, consider the case for wanting to resell an eBook. It starts with the fact that you have read it. Now you may want to read it again or, in the case of a textbook, perhaps dive into a part in the future. But you also know there are those who haven’t read the book out there. They can buy the eBook themselves or you could sell it to them. If the physical-replication eBook reselling options were available, you could offer to deny yourself the future ability to read a book, to give another person the ability to read the book. The loss in efficiency comes from the fact that value would be higher if the other person could read the book while giving you the same option you to read the book.

Any reselling option, where ownership and reading rights are transferred, is, therefore, inefficient. So how can these efficiencies be tapped?

First of all, you could do what publishers may want and prevent a lateral exchange between readers. In doing this, readers are forced to go to them and pay to read but, so long as prices can be determined properly, both parties end up reading.

But there is another issue here: a reader can be a better seller than a publisher. One of the reasons why you might sell an eBook (or lend it to others) is that you are recommending it to them or would like to jointly consume the product. This cuts out the middleman of having your friend have to take your recommendation and then go to the store and buy a book. To be sure, for electronic books, that is a just saving a few clicks but this appears to be what people are worried about.

So there two ways to overcome this. One would be to allow consortium purchases: let people buy books as a group. In effect, you build in exchange into the business model. This will work if you want people to form clubs and if people forming clubs hope for reciprocity in funding book purchases. We already have a limited form of this in the guise of shared Kindle accounts. But why limit it there? Why not allow book clubs?

Another way to overcome this would be to offer readers a commission for sales to a friend. That is, you sell a book to a friend, and you can receive a payment for it. This might be in the form of a credit for your original payment. To be sure, there is an incentive to find friends and share costs but, at the same time, that process of enlisting your customers as your sales agents can expand your market.

Notice that this last option is not that dissimilar from the resale exchanges proposed by Amazon and Apple. It is just that they do not require rivalry. Instead, they require a payment mechanism associated with the expansion of readership rights and access associated with referrals.

Of course, this is all just my musing. But the point remains that really innovating on electronic content involves embracing and accepting all of the efficiencies that come with that content. As soon as you crimp those efficiencies in order to shove that content back into physical realm limitations you also limit the scope for innovation that can potentially expand markets.

8 Responses to Reselling eBooks doesn’t pass the sniff test

  1. Really says:

    Exploit all the efficiencies you mention and there is no economic incentive for anyone to produce books in the first place. As you perfectly well know. The point of this post escapes me.

  2. RepubAnon says:

    The problem with the “First Sale” doctrine for eBooks is the ease with which copies can be made. Solve that problem, and we’re back in the familiar world of the used book store. The existence of used book stores for physical copies of books has not discouraged authors from producing new works – neither would a properly-designed system for selling used eBooks.

    Currently, the copying issue is addressed by giving buyers a non-transferable license to read the eBook. One could think of other models, such as some kind of an electronic used book store in which selling one’s right to access the book disabled your ability to read the original file. (Barnes and Noble allows one to “lend” eBooks to others for a short time – during which time the original purchaser cannot read the book.)

    I’ll note that at present, there are a number of books that I read once. It’s cheaper for me to buy those books in hard copy, as I can defray the original purchase price by selling the book when I’m done with it (or giving it to a friend in exchange for another used book). The purchase price of an eBook (which I cannot resell) is more than the net outlay for a hard copy book (Original price minus resell price), so I don’t purchase these as eBooks. If I could resell eBooks, i’d buy moe of them.

  3. Min says:

    You speak of an e-book buyer reselling it a million times. How is that possible without violating copyright?

    I have been online since 1983. The online landscape has changed quite a bit in that time. One development that concerns me is the conspiracy — not a legal conspiracy, but a unity of interest and actions — to eviscerate the rights of consumers. Limits on reselling e-books is one example. The lynchpin of the conspiracy is the purposefully incomprehensible EULA and other coercive contracts. You end up with a small group who own or claim to own almost everything and everyone else, who are reduced to the status of renters or tenants who own nothing. E-books do not pass the smell test.

  4. Frank says:

    I agree that the digital nature of the product should be key to how it is designed, and think lateral transfers are a backwards idea. What do you think about the ebook “lending” that libraries are doing?

    Regarding referrals, don’t bloggers get those already? Also, do you know how those top reviewers on Amazon make their money…?

    @Really: I think you have a point; once a digital product is created, efficiency entails selling it freely for zero revenue. Gans is talking about exploiting efficiencies in the way you design the market so there’s no money left on the table, not attaining the efficient outcome.

  5. Justin Cidertrades says:

    As the processes of packaging become ever more efficient, the price of content is thus bid down to an asymptote of zilch. For example the content of Wikipedia! OSC, Open Source Content now looms on the brink of overshadowing copyright forever. Enjoy OSC!

    Enjoy
    !

  6. Hal Varian says:

    Take a look at http://people.ischool.berkeley.edu/~hal/Papers/sharing.pdf (written in 1994!) where I go over the economics of sharing and renting information goods. It’s not so different now…

  7. […] Well, there is a down side. “Reselling e-books doesn’t pass the sniff test.” http://www.digitopoly.org/2013/03/22/reselling-ebooks-doesnt-pass-the-sniff-test/ […]

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