Cultural Exception? The Impact of Price Regulation on Prices and Variety in the Market for Books
Price-fixing is generally seen as a bad thing. In many jurisdictions, price-fixing, understood as an agreement among competitors, is actually a crime, possibly punishable with prison sentences.
However, fixed book price (FBP) agreements, which directly restrict price competition, are common in the book retail markets of various countries. To be clear, this is not the same as an agreement among competitors to fix a price. Rather, a FBP policy allows publishers to pre-determine (or influence to a large extent) the retail price at which a book can be sold to the public. FBP agreements exist in more than a dozen European countries.
One motivation for FBP agreements is that, by restricting retail price competition, they promote book variety (variety of book titles), which is considered beneficial for society.
A recent paper examines the effects of FBP. Specifically, it estimates the effects of the “Levi Law,” a regulation introduced in Italy in 2011 which imposed a cap on the maximum discount that bookshops can offer relative to the recommended cover price set by the publisher.
Based on monthly data on the universe of books sold in Italy over the period 2009-2014, the authors focus on book prices and title variety before and after FBP was introduced. In order to perform a difference-in-difference analysis, the authors use as a control group sales of Italian books in Switzerland, the only country outside Italy where Italian is an official language.
The figure below summarizes the results regarding prices. The vertical axis measures prices, whereas the horizontal axis measures time. The vertical lines correspond to the introduction of FBP. The blue line corresponds to Italy (treatment group), whereas the red line corresponds to Switzerland (control group). The left panel corresponds to bookstore chains, whereas the right panel corresponds to independent bookstores.
The authors estimate that FBP implied a 7.8% increase in retail prices at independent bookshops and a decrease in retail prices at chain bookstores. Overall, the average effect is a 1.4% price increase. Publisher recommended prices, in turn, remained the same (both for large and for small publishers).
The authors find no effect on the number of titles at the publisher level. However, at the retail level, they observe an increase in the sales of seldom-sold books, especially at independent bookstores.
The figure below summarizes the results regarding the number of titles. The panels, axis, and lines are as in the previous figure, with the exception that the vertical axis now measures the number of titles.
Based on these estimates, the authors then estimate a nested logit consumer demand model. This allows them to evaluate the welfare impact of FBP. They estimate that the price effect (higher prices from FBP) costs consumers 39 million euros over the two-year period following the law change. However, the increase in variety has larger positive effect, so that the net effect is positive and around 77 million euros.
Christos Genakos, Mario Pagliero, Lorien, Sabatino, and Tommaso Valletti
Cultural Exception? The Impact of Price Regulation on Prices and Variety in the Market for Books
LSE CEP DP # 2085, March 2025.