From Dear Author:
In 1970 George Akerlof (Nobel Prize winner in Economics 2001) wrote a scholarly article called “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” In true academic fashion, the article was deemed trivial by the top journals and he finally landed it in a highly-ranked but not flagship publication. It has since gone on to become one of the most cited economics articles and his insights about the used-car market in the US have been shown to have a much wider application.
Briefly put, a market for lemons can be created when buyers and sellers have asymmetric information. In the olden days, sellers of used cars would withhold information about the cars’ past performance and repair history in order to fetch the highest prices. Sometimes this was borderline or outright unethical behavior, and sometimes they just didn’t know. As a result, people approached buying a used car with the enthusiasm they generally reserved for root canal surgery.
“Wow, I got a great deal on this used car! It is better than I thought it would be!” said almost no one, anywhere, ever, in those days. If you did get a good deal and a good car, it was basically a miracle.
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What does this have to do with books, you might ask? Well, thanks to the brouhaha over the Author Earnings report and the influx of new commenters to my DA post, I wound up reading a number of threads at the Kindleboards. Most of the time I forget that the Kboards community exists, given I don’t share their interests, and since I gave up Amazon discussion groups and Goodreads I don’t notice mentions of them in my various Twitter and blog streams.
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The phrase “Gresham’s Law” had been bouncing around in my head, but I knew that wasn’t quite the right concept. Gresham’s Law is about currency circulation, where everyone knows that two currencies that have the same official value may differ on other value dimensions (e.g., gold coins and base-metal coins that have the same value when used as currency). But the book market seemed to me to be an asymmetric information situation.*
The result of the two processes is the same: the bad product drives the good product out of the market. But the way it occurs and why it occurs are different.
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Two decisions have converged during the rise of ebooks to make low-production-value, low-priced books much more commonplace. The first is the original decision by the Big 6 publishers to conspire illegally to set and maintain high prices for their ebooks. The second is the decision of authors to self-publish their books and price them much lower than Big 6 books in order to gain market share. The second decision was facilitated on a large scale by Amazon’s willingness to provide a retail portal for these author-publishers.
By the time the Big 6 (now the Big 5) were forced to stop price-fixing, the average price of ebooks had decreased because of the influx of self-publishers and the willingness of readers to take a chance on these books. This trend was especially true in genre categories like romance and SFF. As a result, a $7.99 book not only looked awfully expensive to the average high-volume romance reader, it was competing with many lower-priced and even free books in the same genre.
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Worse, the price points didn’t necessarily reflect quality differences, or even easily measurable criteria like length. Consider the following examples:
- A “self-published” rerelease of a NY-published author’s backlist
- A new self-published book from a previously NY-published author
- A self-published debut from an unknown, newbie author
- A loss leader from a NY publisher trying to drum up readership
Four very different types of provenance, but all four books could have price points of $3.99. With that price confusion, what rational consumer is going to take a chance on a $7.99 book unless she has additional information about the book or the author?
So the primary differentiator, price, is becoming a very noisy signal. At $3.99 you can get a very good book or a very bad book or something in between.
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Quite apart from whether reviews are genuine or fake, written by people with a stake in the book/author or by an unconnected reader, I don’t find it believable when a best-selling book has a 93.6% positive rating. But even if I were convinced of the overwhelming love for it, when so many books get 4.5+ star averages, two things happen to me, the unconnected reader:
- I have trouble knowing which book to pick;
- When I read it and find out it is not a 4.5 star book in objective terms, i.e., technique/production issues, I start to mistrust reviews. A lot.
And when I mistrust reviews, there goes my second signal. Rather than having helpful signals, I now have two measures that provide noise. So how do I choose among the vast numbers of books Amazon offers me? I can flip a coin, read a lot of samples, or throw up my hands and decide to stream something on Netflix or Amazon Prime instead.
. . . .
Right now we have ways of sorting amongst the enormous slush pile that is the Kindle bookstore. We can follow NY authors to their self-published efforts and hope they have kept their same standards. We can feast on the backlist releases (there are luckily many, many of those). We can follow word-of-mouth and reviews from people we trust to discover new writers.
Link to the rest at Dear Author and thanks to SFR for the tip.
PG says that one of the most common habits of people who regard themselves as experts on something or other is to believe those whom they don’t perceive as experts are fools.
Here, we have an author of a blog post who is convinced that readers will become too confused on Amazon to buy books. Or perhaps, they’ll become too confused to buy the right kind of books because, you know, experts are always better at picking books than mere readers.
And, of course, ordinary folk become confused by too many choices. That’s why you see so many of them standing transfixed inside the doors at any Wal-Mart, unable to decide which product to purchase.
The Kindle bookstore is the most popular place on the planet to buy books. Somehow, without assistance from Dear Author or The New York Times Sunday Book Review, ordinary people, all by their little selves (some without advanced degrees!) manage to find books that they like. Over and over again, they find books that they like.
Maybe Jeff Bezos has implanted computer chips in their brains.