Is it reasonable for writers to expect economic profit?

[Feo Takahari]

Disclaimer: So far, I've taken less than a year of economics. It's entirely possible I'm seriously wrong about something.

I'm currently taking microeconomics, and I've been learning about the different types of markets. In general, if it's difficult to enter an industry, and there are few companies in it, ("oligopoly"), those companies that successfully establish themselves can make a good profit, assuming there's at least some demand for their goods (no one wants a monopoly on the sale of slide rules.) On the other hand, if it's easy to enter an industry, and the products sold are virtually indistinguishable ("perfect competition"), long-run economic profit* will tend towards zero--if it gets higher, people will enter the industry and drive prices down, and if it gets lower, people will leave the industry and drive prices up.

The sale of books fits neither of these models, instead being closer to "monopolistic competition" (only John Grisham can write John Grisham novels, but anyone can theoretically become as famous as John Grisham.) But in an industry that's easy to enter, monopolistic competition is functionally equivalent to perfect competition for the vast majority of sellers--brand recognition means little when you're trying to decide between a book by Mickey Zucker Reichert and one by Lawrence Watt-Evans**. And self-publishing and e-publishing have made writing easier to enter than ever before.

From this, it would seem to follow that at best, writing will level out to zero economic profit for any writer who doesn't successfully establish a brand. At worst, if hobbyist writers compete with writers who seek profits, and if the number of hobbyist writers is greater than the number of profit-seeking writers the industry could support, average economic profit should be negative, and writers who seek a profit are betting against the odds.

Now, there are at least two factors I'm not figuring in here. The first is the time and skill required to become a good writer. It may be that the time investment is sufficiently long, or the skill is sufficiently rare, as to make the number of good writers less than the market can support. However, I think it likely that many people with the potential to be good writers have additional skillsets that make more money, such that an expansion of the market and the potential for profit would entice them to enter the industry until it reached zero economic profit again. I'm also not convinced the market can easily reward good writers, particularly if they're difficult to find amongst the crowd. The second factor is that some people (most obviously the writer of Fifty Shades of Grey) can analyze the patterns by which branding succeeds, and use those patterns to create a powerful brand irregardless of writing quality. However, this is a sufficiently rare and valuable skill that it's not applicable to most writers.

With all this in mind, can the average writer reasonably expect to make more money from writing than from another career that requires as much time and effort?

* Profit greater than what sellers could receive by selling in another industry. Zero economic profit is still positive accounting profit, assuming that sellers could make greater than 0$ in another industry.

** Major kudos if you've actually read a book by either, since they're very good writers, but my point still stands for the average reader.

 

[JCFarnham]

Economic profit? I'm not convinced. Actual profit however is probably easier to achieve. In epublishing, you only have to factor in the price of each unit to produce (each book, the paper/epaper it's printed on, cover work, etc.) and set your mark up accordingly. If done correctly you could make profit (no matter how miniscule) on each unit.

If your in writing fiction for money alone, you're better off packing it in and going to write Copy for some company like money supermarket. You know?

For most of us, sadly, we're not all Meyer's, James's or King's, that's the fact.

 

[BWFoster78]

In a perfect world, talent would equal profit. I'm not sure that's the case in the market right now. The moat for established writers is fame.

Fame + modicum of ability = profit

For the average hobbyist:

Skill at manipulating the market + investment of time/money in marketing = fame

or

A moment of luck = fame

Just the way it seems to me.

Good discussion topic. Thanks.

 

[JonSnow]

I think most of us hobby/amateur writers are happy just to create work of high enough quality that somebody else would want to read it. I don't expect to ever make a profit from my writing. If my writing evolves to that level, and I somehow get a fortunate break and get published, that would be gravy.

 

[Frog]

Speaking as a hobbyist who got picked up for publishing, I think it is reasonable to expect some form of profit.

If one defines economic profit as net profit for work, then it's unlikely that any writer receives an economic profit. I am both and attorney and a writer. When working as an attorney, I bill my time at $175/hr. If we use that to establish the value of my novel, then the amount I am receiving for my novel is dwarfed by the amount I put into it.

Obviously, the value of time is going to differ depending on what else you could be doing. If you are otherwise employed at a fast food joint making minimum wage, then your threshold for economic profit is far lower than mine. That's not a bad thing; that's just the sales figure you need to clear to make writing more profitable than flipping burgers.

That's the really wild variable, as far as economic profit is concerned. The reason that perfect competition tends towards zero profit is that the competitors offer prices as low as they can in order to compete, and that will strike a balance at the point at which it ceases to become profitable at all to offer a discount. That model fails with writing, because from person to person time itself has a different value, and so there is no single point at which we can balance the price of a book equal to the value any given author would put into producing that book.

There's a lot to be said for going through the publishing process, as well. Books put out by a publisher tend to have an actual editor assigned to them, and (speaking in general terms) this alone tends to increase the quality of the product. Increased quality tends to increase demand, as does the increased marketing that can go along with having a publisher. That increase in demand for certain products over others, even for new authors, can throw off the competitive monopoly = perfect competition theory you're playing with.

Finally, in terms of simply receiving money for a book, of course it is reasonable to expect to get paid for writing. The reason for this is pretty simple: there is a demonstrated market. People are paying. Whether or not they're paying enough to compensate the author for his or her time is something the author needs to decide.

 

[Devor]

It depends on what level of economics your courses are.

If economic profits were below zero, then by definition people would stop writing and feel that their endeavors were a loss. That happens a lot, but it doesn't happen as often as your model would indicate.

That leaves two possibilities:

1 - Something about writing makes people behave irrationally.
2 - Writing offers a secondary benefit which your model does not catch.

Both, I think, are true, and it is possible for an economic model to capture and quantify both of those factors as well as the monetary benefits, which would give you a better idea of what's going on in the industry and whether it is rewarding. Also, the distinction between writer and hobbyist breaks down once the hobbyist attempts to be published. There's a sliding scale between money and satisfaction as a profit, and many are are in the middle.

 

[Frog]

1 - Something about writing makes people behave irrationally.
2 - Writing offers a secondary benefit which your model does not catch.

Agreed, but I'm not sure that in the case of writing these are two different things. I'm pretty sure that (personally) the secondary benefit of writing is that I get to behave irrationally.

 

[Devor]

Agreed, but I'm not sure that in the case of writing these are two different things. I'm pretty sure that (personally) the secondary benefit of writing is that I get to behave irrationally.

There's definitely that. I was referring more to delusions of how well your next book will do.

 

[psychotick]

Hi,

From an economics perspective, since the introduction of ebooks the market for writers has changed. Initially there were huge barriers for writers to be published, things like getting an agent, a publisher etc. And POD publishing was something anyone could do, but then even after doing that you had more barriers like trying to get your books on shelves.

Self pubbing and ebooks has shifted the market dramatically. Now there are few barriers to writing something and getting it published. It is far closer to what you describe as perfect competition. And the very thing we are seeing is that as more and more writers enter the markets, prices of books are dropping. There are so many books at 99 cents and 2.99 that they are swamping the market, and the free books are making this trend even more obvious.

Its absolutely not monopolistic. John may be the only writer to be able to pub his books, but he isn't the only writer out there doing crime fiction. He is in direct competition with many others. In essence he is a brand like Gregg's Coffee versus Bushells.

Now will the average writer make a profit? Yes. Will he make a big one? No. Will his monies from writing compete well with his monies from other work - probably not. But will becoming a brand like John Grishom help him make more money and potentially give him a viable income, it absolutely could.

Cheers, Greg.