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Workshop Report

High-profile international workshop on the economics of book price fixing systems a complete success

On 14 and 15 November 2019 participants from academia and practitioners from the book industry met for a workshop at Justus Liebig University organized by Prof. Dr. Georg Götz and his team from the Chair for Industrial Organization, Regulation and Antitrust. The Börsenverein des Deutschen Buchhandels (German Publishers & Booksellers Association) provided financial support. The goal of the workshop was to discuss the special characteristics of book markets and the economic assessment of fixed book price systems. Speakers from all over the world (including the USA, Australia, the United Kingdom and Norway) accepted the invitation and reported on the particularities of the book markets in their home countries. Another hallmark of the workshop was its interdisciplinarity. In addition to experts from economics and antitrust law, researchers from media and book sciences also participated. Representatives of publishing houses and booksellers from countries such as Norway, Russia, the Czech Republic and Romania completed the field of participants.

The workshop was opened by Professor Götz who greeted all participants in a short speech and briefly discussed the content of the following two days. Afterwards, Prof. Verena Dolle, Vice President for Learning and Teaching at Justus-Liebig-University, welcomed the guests, emphasizing the book as a special cultural asset. Dr. Christian Sprang, legal counsel of the German Publishers and Booksellers Association (Börsenverein des Deutschen Buchhandels), addressed the characteristics of the German book market, one of the largest in the world, and the effects of digitization on the German book industry. Dr. Sprang also mentioned the research project on German fixed book prices commissioned by the Börsenverein which started in 2017. The economic part was carried out by a research team from the VWL I chair. Following the lecture by Dr. Sprang, the VWL I chair staff members, Dr. Daniel Herold and Jan Schäfer, presented the extensive database used to empirically investigate the economic effects of the German fixed book price system. These include sales data, bestseller lists, establishment data for bookstores and consumer surveys. 

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                        Prof. Dr. Georg Götz and Dr. Christian Sprang open the Workshop.

The first highlight of the workshop was the keynote speech by Joel Waldfogel (University of Minnesota). Joel Waldfogel is one of the leading scientists in the field of media markets and digital products. He has published numerous relevant articles in scientific journals (including American Economic Review and RAND Journal of Economics) and several books on the subject. In his presentation, he addressed the question of what impact digitization will have on the cultural industry on the one hand and consumers on the other, and in particular whether digitization will increase the quality of cultural goods. He did not focus exclusively on the book market, but also presented examples from the music and film industries. For the culture industry, digitization would entail significant cost reductions, bringing many new products to the market. One example of this is the increasing importance of self-publishing, which enables an increasing number of authors to publish their works. In pre-digitization times, many of these works may have been rejected by publishers and never published. At the same time, Waldfogel provides evidence that the quality of today's cultural assets has increased compared to the past. However, the book industry does not yet use the advantages of digitization as efficiently as, for example, the music or the film industry.

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            Joel Waldfogel during his Keynote Speech and the auditorium in the Margarete-Bieber-Hall.

The focus of the first session of the day was on the consequences of digitization for the book industry. Paul Crosby of Macquarie University Sydney first presented his empirical study on the Australian book market, in which he explores the preferences of Australian readers through an experimental design. The results of his work show, among other things, that the participants in the experiment have a greater benefit from reading print media than from e-books. At the same time, however, there is also a growing group of technological adopters who confirm the great future market potential for e-books. Imke Reimers from Northeastern University followed with a presentation on the impact of increasing self-publishing on readers, publishers and retailers in the US. It shows, on the one hand, that self-publishing contributes to greater diversity (at a lower price level) in the book market and the authors get paid higher royalties at the same time. On the other hand, their research indicates that digitization can also contribute to a higher demand for physical books, on condition that a book is not otherwise known, and consumers prefer print media.

The second session dealt with the economic effects of fixed book price systems. Christos Genakos (University of Cambridge) opened it and presented his research on the impact of regulatory measures on the prices and diversity of the Italian and Greek book markets. In Italy the Levi Law was introduced in 2011 and provides for a maximum discount of 15%-25% on the recommended retail price of books. In Greece, on the other hand, a fixed-price book regime has been in place since 1997, prohibiting discounts of more than 10% but since 2014 this has only applied to certain books and only for two years after the publication date. The results of his econometric analysis show no significant effect on book diversity for either country. However, the results for Italy imply a significantly positive, but heterogeneous price effect due to the introduction of the Levi Law.

A very interesting empirical study was also presented by Matt Olczak of Aston University in Birmingham who used the abolition of fixed book prices in the UK (the so-called net book agreement) in 1996 as a case study to investigate the effects of competition policy measures on the book market. His results show that the abolition of resale price maintenance in the UK has led to the entry of new players, such as supermarket chains, into the book retail market. The price development is ambiguous, however. On the one hand, bestsellers are partly sold with high discounts on the publishers' recommended retail prices (RRPs) but on the other hand, rising RRPs lead to a price increase for hardly discounted non-bestsellers.

The final presentation of the session was held by Dr. Daniel HeroldJan Schäfer and Phil Klotz (all Justus Liebig University) who introduced their research on substitutability between the distribution channels of brick and mortar bookstores and e-commerce referring to the example of the German book market. By using an instrumental variable approach, they measure the effect of the closure of a bookstore in Germany on the demand for books. Their results imply that the declining trend in book sales in brick and mortar retail is only partly offset by increases in online sales of physical books and e-book sales, respectively, and that the closure of an average bookstore means that an average of 6,116 fewer books are sold each year.

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                                       Paul Crosby, Christos Genakos and Matt Olczak.

The conclusion of the scientific program was a poster session in which Svenja Hagenhoff from University Erlangen-Nürnberg gave a brief insight into her research on the exchange of data between e-book readers such as Kindle or Tolino and the corresponding companies such as Amazon or the Tolino Alliance. The amount of user information flowing to the company, particularly in the case of Kindle, led to a lively discussion about whether media communications should be more regulated and which would be the right regulatory tools. The first day of the workshop ended with a conference dinner at the Restaurant Heyligenstaedt where Francis Fishwick of Cranfield University held a dinner speech. Professor Fishwick was one of the first to publish on the economic impact of fixed book pricing systems, addressing both the history of the net book agreement in the UK and current developments within the UK book industry.

The second day focused on interdisciplinary discourse. The first session dealt, however, once more with the economic effects of fixed book prices or retail price maintenance more generally. Henrik Vetter (Royal Danish Library) presented a theoretical model in which he shows that fixed book prices lead to a greater variety of titles due to the higher price margins for booksellers. However, this increased title diversity is very costly for consumers and ultimately leads to a decline in consumer surplus.

Mats Köster (DICE Düsseldorf) also presented a theoretical model. His research was not focused on the book market, but more generally, he wondered why concerns about brand image could make it rational for manufacturers to ban online sales of their goods by retailers. In 2012, for example, Adidas briefly banned the sale of its products via certain internet platforms. The results of Mats Köster's study confirm that online sales can damage a brand's image if low online prices direct consumers' attention exclusively towards prices. In this case, the appreciation of high-quality products can decline if they are sold both offline and online. Under such circumstances, a vertical restriction (for example, a platform ban or resale price maintenance) could make sense, and European antitrust law should take this into account.

Fabian Herweg from the University of Bayreuth dealt with a very similar question and concluded the first session of the second day. With a somewhat different model, he also asked himself why bans by manufacturers on internet sales of their products can be rational and why the European courts nevertheless consider such bans as antitrust violations. His analysis implies that a sales ban on online platforms can lead to "deception" of consumers about the relationship between product price and quality and to higher end customer prices for a branded product . The resulting loss of consumer welfare justifies the official prohibition of such distribution practices. However, these results are not easily transferable to the book market since books are a special product whose "consumption" could have positive long-term effects. In this case, fixed book prices can help book customers to concentrate on the quality of a book instead of its price, thereby increasing overall welfare in this market.

The second session of the day dealt with various political approaches to protecting books as cultural goods. Øystein Foros (Norwegian School of Economics) gave an insight into the Norwegian system of fixed book prices which is based on a voluntary agreement between publishers and booksellers. He particularly addressed the issue of this voluntary basis, as many publishers and booksellers have an interest to leave this association in order to be able to offer lower prices. Following on from this, the two media scientists Helge Rønning and Tore Slaatta from the University of Oslo further discussed the Norwegian book price system from a cultural policy point of view. Accordingly, they not only addressed the economic effects of fixed book prices, but also discussed the importance of price maintenance because of the resulting greater solidarity between authors or the strengthening of national publishers, which is important for the plurality of European languages. In their opinion, the legal regulations of the book market should also be viewed from a cultural policy perspective rather than from a corporate policy perspective (antitrust law).

The last speaker of this session was Christoph Bläsi, book scientist at the Johannes Gutenberg University in Mainz. In his lecture, he addressed the question of which protective goals a fixed book price system actually has or should have and dealt with the consumer-side differences between e-books and print media. According to his results, not all books would fall within the scope of fixed book prices in the same way. In addition, there are robust reasons why consumers still prefer the printed book to the electronic version.

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                                                     Morten Hviid and Joost Poort.

The last session of the workshop dealt with the legal approach to fixed book price systems. Andreas Fuchs (University of Osnabrück) presented the results of an expert report, he provided on the German law of fixed book prices commissioned by the German Publishers & Booksellers Association. His conclusion was that this regulatory measure did not violate EU law, since the market entry of foreign online booksellers was not prevented. In the specific case of books, this would mean that resale price maintenance would not violate Article 101 TFEU, since the many positive economic effects of German book price maintenance overcompensated the negative ones (e.g. elimination of price competition at the retail level) and thus the exception under Article 101 (3) TFEU would apply. Morten Hviid (University of East Anglia) had a somewhat different view, pointing to the restrictions on competition at the retailer level and noting that this would result in too little market exit or too many market entries from brick and mortar bookstores relative to a free market benchmark. More research and better data should be used to check whether the benefits of having a larger number of brick and mortar bookstores overcompensate for the costs of having too many bookstores. Joost Poort (University of Amsterdam), the final speaker at the workshop, presented his study on the impact of online piracy on the consumption of media goods (books, films, music) via legal sources in the Netherlands. The results of this study show that more and more consumers are downloading books online from illegal sources and that the average "pirate" is becoming more and more similar to the average reader. At the same time, illegal video and music downloads continue to decline in most EU countries. Poort refers to this in his talk as the Spotify and Netflix effect and argues that the book industry should also promote greater innovation, especially with regard to flat rate offerings for e-books.

The workshop concluded with a panel discussion moderated by Prof. Götz on "The advantages and disadvantages of fixed book prices: a world with and without fixed book price systems". The panelists were Achim Wambach (ZEW Mannheim and Monopolies Commission), Daniel Raff (University of Pennsylvania), David Preston (former CEO Student's Bookshops Limited), Christian Sprang (Börsenverein) and Enrico Turrin (Federation of European Publishers). A very lively discussion developed on the current challenges for the book industry and the economic impact of fixed book price systems, in which the auditorium also participated with numerous contributions. Among other things, it discussed what fixed book price systems should actually protect, it highlighted the economic peculiarities of books as a cultural good, touched on the substitutability between e-books and physical books, argued over the challenges the book market faces in the age of digitization. Ultimately it was agreed, particularly from an economic point of view, that more empirical research on the exact effects of fixed book price systems was necessary in order to be able to conclusively assess this regulatory instrument.

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                                      The participants of the concluding panel discussion.

The large number of participants from different countries around the world and the positive feedback from the participants reveal how topical the subject of fixed book price systems and the economic analysis of media markets more generally are in times of digitization. As in many areas of life, the digital age also has a major impact on the book industry, which requires scientists from a variety of disciplines to investigate the effects of regulatory intervention on the market under the new circumstances. The workshop in Gießen was a successful platform to ensure the exchange of international scientists and practitioners on these topics.

The organizers’ thanks go to all participants and the helpers who ensured that the event ran smoothly. Special mention should be made of the helpers’ team around Annette Toalster and all student assistants of the VWL I chair. Special thanks go to the Börsenverein des Deutschen Buchhandels (German Publishers and Booksellers Association), whose financial support enabled the workshop and the free exchange in the first place.