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July 28, 2005
Behavior is Always More Complex
...than simple cause-and-effect would lead you to think. Yesterday I noted that there seems to be evidence that music-sharers are also heavy music buyers, contrary to what the RIAA/BPI would have us believe. Today, the NYTimes carries a piece by UC Berkeley's Hal Varian discussing a study of used-book sales' effects on new book sales.
The study, by Anindya Ghose of NYU and Michael D. Smith & Rahul Telang of CMU, looks at the impact of the used-book market on the new-book market, particularly online. This subject has been of concern to organizations such as the Authors Guild and the Association of American Publishers, which sent a letter to Amazon a couple years back bemoaning its promotion of used options along with new sales.
In their study (online text available from ssrn.com), Ghose et al conclude that the secondary market actually drives new sales, in part because it helps buyers be more confident they can dispose of unwanted books they bought new. This supports a study by Judith Chevalier of Yale School of Management and Austan Goolsbee of the Chicago Business School. These two looked at college textbooks (which are quite expensive to purchase new, compared to mass-market hardcovers) and found that students were, in effect, paying a price to "rent" a textbook for a semester. Paying full cover price for new was deemed more acceptable on the understanding that a percentage of that price could be gotten back by selling the book back at reduced price to the bookstore or to another person.
The bottom line is that consumers and their behaviors are complex and need to be studied wholistically. Just as a used-book sale doesn't one-for-one take away a new-book sale, we should understand that the availability of free downloadable digital media doesn't take away one-for-one from new purchases (whether it's CD sales, movie ticket, DVD sales, whatever). By coming to a better understanding of consumers' motivations and assumptions we can design business models that are more likely to succeed.
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