Battlepanda: Aren't Libertarians supposed to be against messing with markets?


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Saturday, August 06, 2005

Aren't Libertarians supposed to be against messing with markets?

If you're done with a book that you now want to get rid of, where is the best place to leave it in terms of maximizing social utility? Tyler Cowen thinks the answer is to leave it in a bookstore, where it would be the most likely find the person who values it most highly (as attested by the fact that the buyer will be paying top dollar for it).

The big assumption, of course, that the book can pass for new and that the clerk finds a way to ring it up. I have a feeling that in reality, bookstores would be appalled by Tyler's novel take on robin-hoodery. Bookstores get to charge a huge premium on the fact their books are new. Now a few books left here and there by one eccentric econ prof probably won't cause the whole system to come tumbling down, but in the words of my kindergarten teacher, we all have to think about what would happen if everybody starts doing the same thing. Bookstores would probably resort to mass-shrinkwrapping to assure consumers that they're not getting somebody's cast-offs.

Even assuming he puts his books back undetected on the shelves, Tyler's actions still does not maximize social utility because it is a short-circuit that leaves the used-book market out of the loop. Now, when a customer purchases a book at cover price at a book store, s/he is stimulating demand for that book through market mechanisms. When the bookstore run out of the book they order more, which in turn causes the publisher to print more. Used book customers have no such leverage -- the supply is dependent on the rate at which new books are disposed of by their owners. If everybody makes like Tyler and return their books to the store (and assuming that the bookstore owners put up with it), it would dry up the supply for second-hand books. In this scenario, bookstore owners would be enriched by Tyler since he is replacing their stock, publishers would be hurt since Tyler would be decreasing demand for their wares, buyers of new books would be completely unaffected (assuming they are duped into thinking that their books are new) and buyers of second-hand books would be completely screwed. By hurting the second-hand book market, Tyler is destroying the best mechanism for price differentiation in the book market and thus making it less efficient.

For the love of the Market, Tyler. Don't leave any more books in bookstores.