Followup to ‘this ebook is a lemon’

There have been a few responses to my ‘This ebook is a lemon’ post earlier. Most of them either omit or misunderstand details from the post, which means that I probably wasn’t clear enough in the original. So here is a followup with a few clarifications based on issues raised.

It’s not an analogy

I was not comparing ebooks to cars. I was, like Akerlof in his paper, using cars to explain the ‘market of lemons’ dynamic. The other examples Akerlof used in his paper were from insurance and employment but the used car example was both simpler to explain and had the added benefit of being real-world evidence of the model.

Why didn’t I use ebooks to explain the theory? Because, as I stated in the post, I’m not 100% certain ebooks fit the model. It’s better to explain a model using examples that fit perfectly and then let people apply that understanding to the problem area at hand.

Well, except for the fact than none of the commenters or responders seem to have done that.

No, not all cars or ebooks suck, that’s not the point

Another common misunderstanding was that I was claiming that all ebooks were crap or that all cars from a certain era were crap. Absolutely not. The entire post and Akerlof’s model hinge on information asymmetry. The buyer can’t tell beforehand whether any given product is a lemon or not while the dealer can. Amazon, for example, has access to abandonment rates and return rates, as well as the ability to data-mine notes on a book for negative keywords. A publisher knows quite well how much effort they have put into a book. Dunning-Kruger aside, most publishers who are dumping crap on the market know it’s crap.

This information asymmetry is what gives rise to the bad publisher’s incentive, the customers demand for a lower price, and the good publisher’s disincentive. The bad publishers don’t take over the market until late in the process and I stated quite clearly in the post that I think we’re at the start of the process, not the end.

So, the point isn’t that all cars or books are bad. The point is that the buyers know that there are lemons in the market (might even have bought one or two in the past) but can’t tell if any of their current options are lemons or not. The existence of lemons combined with information asymmetry is what creates the dynamic.

“The returns policy you suggest is insane”

Possibly. There are only two ways to break the market of lemons dynamic:

  1. Information symmetry. The customer gets access to all of the information needed to help tell lemons from the rest.
  2. Returns and warranties. Which is an artificial way of shifting risk back onto the provider.

So, you need either a massive returns policy or information symmetry. I don’t think you’d need both.

And as to whether publishers could survive that sort of returns policy for ebooks. Of course they can, they live with that same policy for print.

You don’t have to work in publishing for long to see at least one sales forecast completely destroyed by a series of booksellers returning a book months later. Publishers are already geared for this kind of uncertainty.

“This will only impact self-publishers and push readers to big publishers”

Possibly. But what worries me is big publishing seems to be relaxing their quality standards (or they never had them, as in the case of ebook production). More and more they are acquiring new titles from self-publishing or fan-fiction, which would be fine if they were going for the good titles (of which there are plenty in both circles) but they are manifestly going for the crap most of the time.

But, yes, this could result in a two tier market where big publishers get away with charging $10 and everybody else can’t give it away.

“You didn’t mention X free bla”

I stated a general principle of the effects of free. If somebody disagrees with a common sense statement, bringing in examples won’t sway them, they will just come up with excuses for disregarding those examples.

“Piracy solves the problem”

One of the most interesting observations on piracy was Tim O’Reilly’s statement that ‘piracy is progressive taxation’. That is, it disproportionately impacts the more successful.

A corollary to that is that the promotional and marketing benefits of piracy disproportionately go to the more successful. Try to pirate anything beyond the recent and mainstream and you will run into difficulties. Most people know how to pirate a current TV series. They don’t have a clue of how to find anything less popular.

Moreover, piracy is a function of interest. You won’t pirate something you aren’t interested in. So, any product that has generated enough interest to benefit from the distribution effects of piracy has also generated enough interest to break out of the ‘market of lemons’ dynamic.

"DRM-free solves the problem

It’s a start since it does take away some of the long term risk for the buyer (‘will I lose this book in the future due to DRM?’) but it doesn’t address the basic information asymmetry.

“Prime members read for free”

Only for Prime members in the United States and the Lending Library only has a fraction of the books on the market.

The Lending Library may well be part of the solution as it lets people read as much of the ebooks as they want, but it comes with it’s own issues. Namely, most publishers can only get into it by giving Amazon exclusivity, which would make the Lending Library a massively iatrogenic solution. The cure would be worse than the sickness.

“The bad publishers will drop out”

Given that bad publishers have more incentives to publish than the good and that bad publishing requires next to no investment, this problem will not be solved by bad publishers dropping out of the market as their ‘get rich quick’ schemes fail. The incentives will make sure that several new bad publishers will be lining up to replace every one that drops out.

“You can easily tell whether a car is a lemon or not”

The idea here being that the car simply either works or not—it’s quality apparent just with a test drive.

A lemon is not a car that doesn’t work or handles badly. A lemon is a car or product that fails later on, after purchase. A car with a history of specific kinds of repairs and failures is more likely to fail than others (and is a lemon). This is the reason why used car dealers in many countries are required to disclose a car’s repair history. Those laws are in effect because of Akerlof’s paper. They weren’t on the books when he first wrote it.

Akerlof’s theory is not about ‘used’ versus new products

The used car market was just an example. Whether the cars were new or used doesn’t matter for the theory. The dynamic is orthogonal to the newness or how used the products are. That’s why his other example was a non-rival product like insurance.

“One man’s lemon is another’s lemonade”

Sure, that’s why I said that the following was one of the basic premises of the post:

Quality in this piece being defined as whatever the reader values, no matter how rubbish it looks to an over-educated twit like me. I’m not making any assumptions about writing, genre, or style.

That means that when I’m talking about quality I’m talking about it from the perspective of the buyer, e.g. a romance reader looking for romance ebooks. A lemon in this context is what that reader considers to be an unacceptably bad romance book, not a scifi or crime novel.

And I also stated that if you disagree with any of the premises then you really don’t have to read the rest as you’ll almost certainly disagree with it. I meant it. If you already disagree with the premise why bother responding to the post? I’ve already given you an out.

8 thoughts on “Followup to ‘this ebook is a lemon’

  1. >>>The entire post and Akerlof’s model hinge on information asymmetry.

    Which has existed since the time “Caveat Emptor” was coined. Yet we have survived.

  2. Interesting. I missed the original post, so this gave me a chance to go back and read it. I agree with many of your observations about the market, however I disagree with your conclusions regarding the 1-year return policy. I tend to agree with the comments of Mike Cane on that.

    It seems to me that the main premise of your argument is that “the casual reader” cannot find reliable information about eBook quality, which is what makes the market for new eBooks (there is no used eBooks market) similar to that described by Akerlof. If this interpretation is wrong, then I’ve missed the point too, and the rest of the comment isn’t worth reading.

    I am not an expert here (experts, please chime in), but I would argue firstly that quality is not necessarily the primary factor in “the casual reader’s” decision to buy an eBook. The casual reader looks at the blurb, the title, the cover, maybe the first pages, a recommendation from a friend, an ad or a chance mention somewhere. “The casual reader” doesn’t read reviews or doesn’t make buying decsions based on them (I don’t know if that’s true, but I’m guessing it is).

    Furthermore, I would argue that access to reliable information about quality for “the casual reader” hasn’t changed much between the print and eBook market. That follows logically from the above premise (which may or may not be true).

    I would also hazard a guess that “the casual reader” may have lower quality standards than the avid reader, perhaps overlooking (or not recognizing!) OCR errors, amateur writing, or other faults that the avid reader would not forgive.

    Then, there is the subjective question of appreciation. One cannot escape the conclusion that one has bought a lemon if it keeps breaking (a car), but whose fault is it if one just doesn’t like the thing after having used it for a while? The casual reader may not place the blame on others, e.g. “I just couldn’t get into it.”

    Finally, I would argue that unlike “the casual reader,” the avid reader will look for trusted sources of information about book quality.

    Therefore, there will still be an incentive for publishers to produce high-quality work as long as the target market is the avid reader and not the casual one.

    Anyway, this is an interesting analysis.

  3. First: you talk about “complete transparency” in the first post, and “information symmetry” in this one, but you never go into detail in terms of what sort of information the seller would need to provide to help tell lemons from non-lemons. I’m kind of puzzled what information that would be, given that you agree quality is subjective. Even if a book is selling like hotcakes and almost nobody wants to return it, that’s no guarantee you would find it a non-lemon to you personally. If that were the case, nobody would complain Twilight or Fifty Shades were hackneyed pieces of trash.

    Seems to me Amazon is already coming about as close to transparency as you can expect in this kind of marketplace. You get sample chapters, and you get both positive and negative consumer reviews. (Jeff Bezos has taken flak for allowing negative reviews of products, but responded, “We don’t make money when we sell things, we make money when we help people make purchase decisions.” ) You even get up to a week to return it (provided you don’t do it so often you get flagged as a system abuser). Short of allowing you to sample the whole thing before you buy it, I’m not sure what else it could do.

    Speaking of sampling the whole thing before you buy it, what would be the point of allowing up to one year returns? I’m not sure I follow that either. I mean, providing a lengthy warranty on cars or other consumer goods, such as TV sets (in my day job, I provide tech support and troubleshooting for a major retail store’s house brands of TV), is because these items can have manufacturing defects that only show up after extended normal use. But an e-book isn’t going to throw a piston after eleven months. Given that “a lemon is a car or product that fails later on, after purchase,” I’m not sure how an e-book can even be one of those in the first place. If an e-book is going to “fail,” it’s going to be right after you buy it and discover it’s lousy.

    • Unless you do not read the book immediately after purchasing it (e.g., because you read the paper version and bought the e-book to read again at some later point in time, because you came across an interesting e-book and bought it on impulse for later reading, because you bought several e-books during a sale or as a bundle, etc. — basically, any e-book you buy to add to your TBR list). It happens to me, so I guess it must happen to others, too.
      Sometimes months can go by before I read a downloaded (purchased) e-book — years in the case of “Green Mars” by K S Robinson: I bought the trilogy in December 2009 from an online book store and although I read “Red Mars” almost straight away, I waited until June 2012 before I read the electronic version of “Green Mars” (I’d read it before, on paper), only to find that it contained at least two typos per page (and that’s pages displayed on a 5″ screen, which means an even higher typos-per-physical-page count). (Curiously enough, only “Green Mars” had horrendous typos: “Red Mars” and “Blue Mars” only had a few throughout the book, although all three e-books were issued under the same imprint.)
      In that particular case, I could not get a refund because the order was too old (I was willing to settle for a corrected e-book but none was available), but I got the next best thing: a gift certificate in amount of the e-book’s purchase price (and within the week, without having to justify anything but the basic facts — that particular store has outstanding customer support). I guess this shows that even without a statutory refund duty or equivalent standard business practice some book stores just take their customers seriously; they can count on my custom.

  4. What if this applies to books generally, not just ebooks? Andrew Rhomberg (Jellybooks) says they see people sample digital books, then buy physical. That got me thinking about where the problem comes from. If the information asymmetry is endemic, rather than due to an influx of bad sellers, I think it might explain a lot about the book market as a whole.

    • An added difficulty is that, for fiction at least, the ending and/or additional books in the series brings with it risk because there’s no good way to overcome informational asymmetry without a) reading all the way to the end or, if applicable, b) waiting until the series is complete (which some readers I know do). A car is experienced as a gestalt; a story requires narrative and a series requires a succession of successful narratives.

      This is an extreme example, but how many Wheel of Time readers would have liked to returned all the books they had bought so far once they hit book 8 or 9 and dropped out of the series?

  5. Speaking from my personal experience, many of the problems of epublishing have already struck regular publishing. The big difference is what the story is printed on.,

  6. I think that this analysis overlooks both the quantity and the quality of information that is shared between consumers. Book buyers do not exist in a vacuum.

    “Word of mouth” advertising is a growing force in the e-book market. With the internet, it is easy for one reader to reach tens of thousands of third generation contacts. Most of my personal buying decisions are not informed by publisher controlled sources such as advertising, press releases, or professional reviews, but by the network of unpaid book bloggers.

    The marketplace has always been its own best defense against shoddy goods. The Music Man was able to keep selling empty promises only so long as he kept moving faster than the news of his deceptions. Twitter would have put him out of business overnight.

    For the better part of a century the speed and reach of top-down advertising has so overshadowed word-of-mouth that producers of content have forgotten the importance of reputation, but the technology has kept changing so that the balance of power, in terms of information, has swung back to the marketplace. We are, essentially, all living in the same small town, and if the corner grocer cheats your neighbor, you know about it the same day.

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