Free riding, part 1

Economists and others talk about the free rider problem:

"free riders" are those who consume a resource without paying for it, or pay less than the full cost of its production. Free riding is usually considered to be an economic "problem" only when it leads to the non-production or under-production of a public good (and thus to Pareto inefficiency), or when it leads to the excessive use of a common property resource. The free rider problem is the question of how to limit free riding (or its negative effects) in these situations.

The name "free rider" comes from a common textbook example: someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate.

I take free rides on many, many conveyances. For example, I listen regularly to public radio but have never given them money and in fact am philosophically opposed to doing so. I am not opposed to the existence of public radio, and in fact am glad to benefit from it while it is there. But I am also careful not to become attached to it in any way. As long as it is there I am happy to partake, but if it disappeared tomorrow I would find something else to listen to, or simply occupy myself with my own thoughts.

For many years I have ridden for free on the excesses of publishing companies, simply by haunting remaindered book tables. No publisher makes money on a remaindered book; those books are their mistakes, although they are calculated mistakes—publishers expect a certain percentage of their titles will fail to sell. Once upon a time booksellers did not have to count unsold books as taxable inventory, and so they could keep them in stock indefinitely. Then the tax laws changed, and suddenly it cost taxes year to year to keep an unsold book, and so reasonably enough bookstores started clearing books from their shelves the moment they stopped selling in quantity.

Thus began the golden age of remaindered books, when I could expect to buy just about any hardcover book for a few dollars six months or a year after it was released. I always waited, and now I own many of those books. Neither the publisher nor the author saw a penny of what I paid for them. But again, I am not attached to remaindered books. If the situation changed tomorrow, I would find another way to stock my library.

For those of you who treasure a well-stocked library as much as I do, I’d like to suggest that we’ve all been riding for free on a historical trend that isn’t all that old and looks like it may be about to end. Up until the middle of the 19th century a book was a rare and expensive thing. Thomas Jefferson stocked his library in large part by not paying his bills. Subscription libraries provided important access to books for well-read people, and the cost of belonging was prohibitive. Only a select few owned books in any quantity.

Books only became readily available when (1) high-speed machines were invented that could print them in huge quantities, and (2) publishers figured out what sorts of writing could be sold in great enough quantities to keep the presses running efficiently. Mass production makes the individual product affordable, but only sales of mass quantities can cover the cost of mass production. In 2003 I had 2000 copies of a 160 page paperback book printed for roughly 50 cents apiece (plus a $2000 initial change just to get them to turn on the printing press!).

But the printer was not catering to me; I was simply a blip on their screen, a way for them to make a few extra bucks by giving me a tiny sliver of their capacity. Their plant was filled with very expensive, highly specialized machines designed to efficiently produce copies of one title by the hundreds of thousands. It existed because there were many titles which hundreds of thousands of people would buy. If there were not a market for multi-hundred-thousand press runs, that plant would not have been there to give me a tiny sliver of its capacity. Printing would be more like it was in Ben Franklin’s day, and he would have charged me much more than 50 cents per copy to print my book.

Just as I was riding for free on the machinery set up to publish books for the mass market, my readers were riding for free. If my only option were to have Ben Franklin print my book, I could not have afforded 2000 copies, and my customers would not have been able to buy the book for $15. I can’t even guess what the price would have been in 2003 dollars; you’ll need to pick a number which would be so high that people would have to join together and form an expensive subscription library just to buy a copy to share around. The person who paid $7.95 for the latest James Patterson thriller was making it possible for me to have the book printed at all, and for you to put a copy on a shelf of your own personal, well-stocked library.

Curiously enough, as the need for large quantity high-speed printing comes to an end (being replaced by digital text), another technology may come into play just soon enough to serve the people who still want printed books, namely print-on-demand. It is now possible to submit your book to a service such as Amazon CreateSpace who will print copies as they are purchased, one at a time. The quality is very good. The cost is higher than with large-quantity traditional printing, about $8 per copy compared to 50 cents. But since a traditional publisher is not taking their very large cut, the price to the reader can be competitive.

And then there is the Espresso print-on-demand book machine, which can print a 300-page book in 7 minutes at a cost of 1 cent per page. Imagine one of these installed at your local independent bookstore, able to print you a copy of an ebook for just a few dollars.

Inexpensive printed books were an accidental luxury, and the technology which created them is about to disappear. And just because we’ve come to view this particular luxury as an entitlement is no guarantee that social and technological trends would continue to cater to it. So let’s be grateful that someone has found a way to serve the much smaller niche market that the print book market is about to become.

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One thought on “Free riding, part 1

  1. In the bus example, the free rider is consuming part of a limited resource, leaving less of that resource (seats) available for generating revenue. A related kind of problem is when the providing the service to the free rider means that the paying riders have to pay a higher rate. The former is the case with a fixed number of busses. The latter is the case if you try to add busses to the routes to satisfy the demand, even though the demand is really only high because of the free riders. The cost of the extra busses for those free riders ends up being paid in the form of higher fares for the paying riders.

    Listening to public radio without paying doesn’t consume a limited resource. It doesn’t add to the cost of production at all. In fact, it’s a net positive (in spite of not contributing money) to whatever extent the non-paying listeners talk or write about shows they like, because that’s free publicity. More people will tune in as a result of that publicity, and some fraction of those will be sufficiently annoyed by “pledge week” that they’ll contribute.

    (Now that you’ve got me thinking about this, I guess I stopped listening to public radio around the time podcasts and audio books became so easy to get. I haven’t even bothered to find the stations in this area on the car radio since we moved to a new city more than a year ago. But if I were listening, the only reason I’d contributing would be to encourage the service to continue, if I cared enough about that and if it weren’t government subsidized.)

    (And this reminds me that I actually was a free rider for a while as a regular listener to http://www.radioparadise.com/ , a listener-supported streaming music site. They have bandwidth costs, so my listening cost them money, and I didn’t buy anything via their affiliate links, etc. [Sorry!] It’s not close enough to my taste in music to keep me going back, but if anyone likes “eclectic rock” it’s commercial free and very well run. Very eclectic.)

    I think the printer example is also not a free rider situation in the economic sense. It’s to the printer’s advantage to have enough capacity to handle the largest jobs they want to be able to land. That means there will be off-peak times too. You didn’t take capacity away from anyone with your small print job, because if they had been booked with high-paying print jobs at the time they would have told you to come back later. For that matter they wouldn’t take the job if it weren’t helping to pay the salaries of employees who otherwise would have been paid for being idle during off-peak times.

    It would be like the bus company making most of its money off of monthly passes, and only allowing pass holders to ride during the peak hours. Then if the busses are going to be running anyway during the off-peak hours it’s to their advantage to fill empty seats at low fares (but not free). Better to get a little money out of those seats than have them empty.

    The most frequently mentioned free rider problem these days is in the health care industry. People who get their insurance through their employer generally don’t have a realistic idea of what it’s costing them (indirectly). So if there are other people getting discounted or free care, the costs are passed along to those paying full price in the form of higher costs, which are passed along as higher insurance rates. And because most consumers don’t realize what it’s actually costing them those increased rates are passed along more easily than most price increases. As someone who now pays out of pocket for insurance this one really hits home. Hence my interest in the topic.

    (Apologies for the length, and the ridiculous number of parens and commas. I’m always more aware of my writing flaws when I post here! Sometimes I even go back to edit what I wrote because you set such high standards. But unfortunately not today.)

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