Study on the Economic Effect of Enhanced Fixed Book Pricing Scheme

This paper studies the economic effect of the enhancement policy for the fixed book pricing scheme in November, 2014. The enhancement, which prohibits the price discount of more than 10% for every selling books, aims to increase profits of small and mid-size local bookstores, by cutting the online bookstore’s price competitiveness. Using manually collected data before and after the enhancement policy, the paper examines the change of selling prices, sales amount of books. Moreover, this work also calculates welfare loss of consumers, deadweight loss, and especially transferred amount from online bookstores to offline bookstores. Due to the enhancement, the selling price rises by 16.2% for bestseller books and by over 40% for steady-seller books. The enhancement decreases the sales amount by 12.1%. The size of welfare loss of consumers is over than 13 billion (won) per month, and the amount of deadweight loss is over than 8 billion per month. The transferring effect happens only when the demand is highly inelastic, but even in this case the size is not any considerable. These disappointing results come from a careless direct market intervention by price regulation, which is not designed for delicately specifying policy beneficiaries such as small and mid-size bookstores. To promote their businesses, we need a well-designed direct subsidy policy.