How to Price a Best Selling Novel
Publishing both hardbound and paperback editions of a book allows publishers to price discriminate. As they do with most goods, consumers differ considerably in their willingness to pay for books. For example, some consumers want to buy a new bestseller as soon as it is released, even if the price is $25. Other consumers, however, will wait a year until the book is available in paperback for $10. But how does a publisher decide that $25 is the right price for the new hardbound edition and $10 is the right price for the paperback edition? And how long should it wait before bringing out the paperback edition?
The key is to divide consumers into two groups, so that those who are willing to pay a high price do so and only those unwilling to pay a high price wait and buy the paperback. This means that significant time must be allowed to pass before the paperback is released. If consumers know that the paperback will be available within a few months, they will have little incentive to buy the hardbound edition.? On the other hand, if the publisher waits too long to bring out the paperback edition, interest will wane and the market will dry up. As a result, publishers typically wait 12 to 18 months before releasing paperback editions.
What about price? Setting the price of the hardbound edition is difficult: Except for a few authors whose books always seem to sell, publishers have little data with which to estimate demand for a book that is about to be published. Often, they can judge only from the past sales of similar books. But usually only aggregate data are available for each category of book. Most new novels, therefore, are released at similar prices. It is clear, however, that those consumers willing to wait for the paperback edition have demands that are far more elastic than those of bibliophiles. It is not surprising, then, that paperback editions sell for so much less than hardbacks.”!