The threat of deflation

Ross Clark

13 December 2008

Prices are crashing in cyberspace

Zero interest rates, record borrowing, printing money; the government has indicated that it is prepared to consider anything to slay the spectre of deflation. But if deflation is really such a bad thing — and I’m not convinced that, in a mild form, it is — then perhaps ministers should look at reining in a culprit whose role in promoting deflation has scarcely been mentioned: the internet.

We are forever reminded about the deflationary pressures which have arisen from the huge shift of manufacturing to Asia. But what about the influence of the vast discount store that is the worldwide web? Any author hoping for a Christmas royalties bonus will already have had a foretaste of the debilitating effects of deflation. Just look on Amazon and you will see why your earnings are so measly. Why is it that within days of a book being published you can buy a brand-new copy of it online for less than half the published price? Let’s take one at random. With due respect to Michael Parkinson, the market doesn’t appear to be putting much value on his autobiography. Published in hardback on 2 October with a recommended retail price of £20, the price for a new copy online has already plummeted to £7.35. If you don’t want to pay that, Amazon will link you to 11 online booksellers who will sell you a used copy for as little as £5.43.

It’s not just poor old Parky who is suffering from heavy discounting. Jeremy Clarkson (also published on 2 October at £20) is down to £7.35 new and £5.99 used. Remember the days — nearly 20 years ago — when newly published hardbacks cost a minimum of £15? The collapse of book prices is not only down to online booksellers: until 1996 book prices were controlled by the ‘net book agreement’, which fixed retail prices of new books. What the internet has introduced to the book trade, however, is a near-perfect market. Before Amazon, if you wanted a book, you had to pay the price that your local bookshop was asking. There were plenty of cheaper new and secondhand copies out there somewhere, but you didn’t know where. Now you do. The availability of market information has exposed a huge glut of books, and so prices have collapsed accordingly.

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The Remittance Man

December 15th, 2008 1:16pm Report this comment

To take just one of your examples, why should newspapers, or magazines charge for their only services? Flanking this article are a veritable barrage of adverts for all sorts of things; Marriott Hotels, the Spectator Wine Club, Spectator Travel Club, Spectator Shop, you name it.

What's more, your web editor has spread the paragraphs that could comfortably fitted on a sigle page over three, thereby trebling the potential advertising revenue.

Neither the Speccie nor any other publication needs to charge people to read stuff if they get the advertising right.

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