Bookshop, blockbusters and readers’ tastes: a new appraisal of the fixed book price

This paper models the book retail market as a dual market. Consumers choose between competitively retailed, well-identified blockbusters, and going to a monopoly bookshop to find the best match for their tastes. I show that uncertainty about the status on a given title (will it be a blockbuster or not?) places publishers in front of a trade-off between low prices (valuable if they get a blockbuster) and high prices (in the other case). The main effect of this trade-off is a decrease of wholesale prices compared with the case of full information, thus enabling the bookshop to compete with lower-priced blockbusters. Uncertainty thus increases both industry profits and consumer surplus. A fixed book price further increases consumer surplus and profits of non-blockbuster publishers, at the expense of those who get a blockbuster.