{"id":1466,"date":"2013-08-23T02:37:05","date_gmt":"2013-08-23T02:37:05","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=1466"},"modified":"2014-02-09T04:01:41","modified_gmt":"2014-02-09T04:01:41","slug":"bookstore-wars","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2013\/08\/bookstore-wars\/","title":{"rendered":"Bookstore Wars: Creativity versus Scale – Article by Sanford Ikeda"},"content":{"rendered":"
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\"The<\/div>\n<\/div>\n
Sanford Ikeda
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August 22, 2013<\/big><\/span><\/div>\n
Recommend this page<\/a>.<\/strong><\/div>\n
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Independent bookstores appear to be making a comeback after several years of decline.\u00a0As reported by MSNBC<\/a>, the number of independent bookstores has risen significantly.<\/p>\n

Some 1,000 independent bookstores went out of business between 2000 and 2007, according to the American Booksellers Association (ABA), as consumers turned to online buying, downloading e-books, or flocking to Barnes & Noble and (now defunct) Borders. But the ABA said that since 2009, the number of independent bookstores has risen 19 percent, to 1,971.<\/p>\n

If my arithmetic is right, that still means the industry hasn\u2019t rebounded to where it was in 2000 (about 2,600 stores), but it\u2019s not bad. Meanwhile e-book sales, which had been rising at triple-digit rates,\u00a0have evidently lost a bit of steam<\/a>, last year growing at about 5 percent overall.<\/p>\n

These facts perhaps illustrate two important lessons: \u00a0First, the scale of a business\u2019s operations is not the same thing as its competitiveness; and second, the kind of competition that counts in free markets has much less to do with efficiency than with creativity. \u00a0Selling books and digital media in massive volume seems to make firms sluggish in addressing customer preferences for more personalized service and responsiveness.<\/p>\n

Efficiency and Scale Are Important<\/strong><\/p>\n

Free-market economists are typically painted by friends and foes alike as cheerleaders for efficiency. Indeed, many economists do tout efficiency as the prime virtue of the free market, keeping prices low and employment high. In standard economics, efficiency refers to using the lowest-cost means to reach a given end.<\/p>\n

If Jack is in New York and wants to be in Philadelphia, then among the alternative means available to him\u2014walking, boating, flying, driving, or taking the train\u2014efficiency implies that Jack chooses the one that minimizes the cost to him of getting to Philadelphia. In manufacturing, the production process that, other things equal, produces a given rate of output at the lowest cost is the efficient one.<\/p>\n

(Note: \u00a0Cost, like benefit, always refers to the cost to someone of doing something. \u00a0Sometimes the chooser experiences the costs, sometimes someone else does, but neither costs nor benefits are ever disembodied.)<\/p>\n

One form of efficiency is economies of scale. Economies of scale occur when using more of all inputs (scaling up) increases output so much that the cost per unit of output falls. (In econ-speak that\u2019s when the long-run average-cost curve slopes downward.) Critics pick up on this and argue that the free market therefore necessarily favors big businesses over small businesses because the bigger a firm is, the more efficient in terms of unit costs it tend to be, and that allows it to charge lower prices and drive smaller firms out of the market.<\/p>\n

But Not as Important as Competition<\/strong><\/p>\n

That story, however, only looks at the relative efficiencies of existing firms and markets. If the fundamental goal is to improve the well-being of people as they see it, then you have to pay more attention to competition, particularly entrepreneurial competition. In that sense, competition trumps efficiency (as Israel M. Kirzner has explained<\/a>).<\/p>\n

That\u2019s because, again, efficiency means choosing from among given alternatives the one that achieves a given goal at the lowest cost. Where the standard economic concept of efficiency falls short is that in the real world neither ends nor means are simply given to anyone. Ends and means, outputs and inputs, have at some point to be discovered by someone. Yes, efficiency is a good thing, like having a clean and orderly workplace, but it\u2019s entrepreneurship in the competitive process that does the heavy lifting of finding the work to be done and putting you in a position to do it.<\/p>\n

The resurgence of independent bookshops in the face of book megastores, I think, is an example of how creative competition overcomes the scale efficiency of providing a particular product. There\u2019s nothing inherently wrong or uncompetitive about megastores or inherently virtuous about small businesses. Big and small businesses have their niches, whether online or in brick-and-mortar shops. But central to the competitive process is the ability, whatever your size, to be aware of changing circumstances and to adjust appropriately to them. The MSNBC article quotes an independent bookseller as saying, “We learned how to get books that people couldn’t find online, and to cater as much as we could to the customer. When a customer walks in, we try to make them feel wanted and at home.”<\/p>\n

Scale economies in both the online and brick-and-mortar parts of the industry do little to win over customers who prefer personalized service or the intangibles of local businesses. Independent bookstores are more flexible, for example, at staging readings of local authors and other neighborhood events. The giant bookseller Borders Books, one of the pioneers of book retailing, apparently didn\u2019t do a good job adjusting and closed a couple of years ago (I wrote about it here<\/a>). Today Barnes & Noble scrambles to cope with competition from the e-book, Amazon.com, and, it seems, local bookshops.<\/p>\n

While the diminished growth of e-book sales is hardly a harbinger of decline\u20145 percent is nothing to sneeze at\u2014it does suggest that sometimes the demand side of the market doesn\u2019t change quite as fast as the supply side\u2014that is, a lot of innovation is just discovering better ways to satisfy fairly stable tastes. Still, it\u2019s competition\u2014for new markets, new techniques, new resources, and yes, new tastes\u2014and not efficiency that drives, and is driven by, the creative discovery of ends and of means.<\/p>\n

The Lesson Applied<\/strong><\/p>\n<\/div>\n

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The other day a friend told me that, when she told her fianc\u00e9 she couldn\u2019t understand why\u00a0a mildly alcoholic beverage called \u201cChu-hi,\u201d<\/a>\u00a0which is very popular in Japan, isn\u2019t sold in stores here, his response was something like, \u201cIf there were a demand for it, it would be.\u201d Knowing that I write this column she then said to me, \u201cThat\u2019s the free market, right?\u201d<\/p>\n

Okay, class, what do you say?<\/p>\n<\/div>\n<\/div>\n

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism<\/em>.<\/strong><\/div>\n
***<\/span><\/div>\n
This article was originally published by The Foundation for Economic Education<\/a>.<\/strong><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Sanford Ikeda August 22, 2013 Recommend this page. ****************************** Independent bookstores appear to be making a comeback after several years of decline.\u00a0As reported by MSNBC, the number of independent bookstores has risen significantly. Some 1,000 independent bookstores went out of business between 2000 and 2007, according to the American Booksellers Association (ABA), as consumers turned to online buying, downloading e-books, or flocking to Barnes & Noble and (now defunct) Borders. But the ABA said that since 2009, the number of…<\/p>\n

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