Chapter 30 Question 025

Why do the best-selling books and CDs sell for less than the less popular ones, and why do the best-selling movies cost more than less popular ones? (Ed Walla) Bob.Dylan's CD "Modern Times" is priced at 18.Ninety-nine dollars, but after the official release in August 2006, Amazon sold only 8.Seventy-two dollars, more than a half discount.Conversely, for albums by lesser-known artists, the discounts are much smaller.For example, the French band Paris Combo's "Theme" album is priced at 17.$98, $14 on Amazon.Ninety-nine dollars, almost eight.50% off. The situation with books is similar.For example, at the Borders bookstore, bestsellers can sell for seven.50% off, but most other titles are sold at the list price on the cover.

The opposite is true for movie tickets.While all the movies showing at a given time at a particular theater are priced roughly the same, theaters are especially reluctant to offer discount coupons for popular movies compared to other movies.Why is it that only movie theater operators take advantage of consumers' willingness to pay more for more popular products, while book and CD sellers don't? Every book, every movie, every CD is unique.The market is not sufficiently competitive as competing sellers cannot offer perfect substitutes for these products.Even so, in markets that are not perfectly competitive, it is still generally the case that the products and services that buyers value most command higher prices.As mentioned earlier, the movie ticket sales model matches this.

So why do books and CDs deviate from the above pattern?First of all, it can start from the fact that the cost conditions faced by sellers of these products are quite different from those faced by theater operators.For movie theaters, the scarce resource that determines ticket prices is not the movie itself, but seats.Once the movie theater is full, no amount of money can serve additional customers. So theater owners have good reason not to discount sold-out movies.Conversely, book and record sellers who discount popular products don't drive away customers.Most of the time, they can foresee which products are the most popular and prepare sufficient inventory in advance to ensure supply.Because these products move so quickly, the cost of keeping each copy on the shelf is fairly low.Books and CDs that are not popular may only sell one set in a month or two, and the same shelf space brings less revenue, so the cost of inventory is higher.

Virtually all retailers stock the best-selling books and CDs (because they know there will be high demand at that time), but the non-best-selling books and CDs stocked vary from store to store.That means retailers are under more competitive pressure for top-selling books and CDs.If a customer is not satisfied with the price at which Dylan's new album is sold at this store, he can go to any other store to buy it.But not so many stores stock Paris Combo's latest album.Customers who wanted to own the album right away seemed to have no choice but to pay the supplier's list price. The most successful bookstores and video stores recommend less popular but promising new albums to their customers.Without this recommendation, customers might not have noticed these works at all.Therefore, the less popular an album is, the more it needs a recommendation from a knowledgeable store clerk.This part of the human cost will naturally be borne by non-best-selling albums.Bestsellers are heavily discounted, in part because they cost less to sell.So, the next time you sit down to listen to that terrific new Paris Combat album, remember this: You're paying more for it than a best-selling CD at Wal-Mart, because video stores have to take on the burden of hiring knowledgeable The extra expense of a rich salesman, after all, only such employees know that this album might be to your liking.

Stores offer discounts on best-selling books and CDs for another reason: the practice draws more customers into the store to buy other items.