The Economics of Indexing Part 5

Regarding my “house of cards” comment in Part 4, please keep in mind what I’m trying to build here is a thought experiment, not an exact scientific statement. The point of these essays is to try to discover some of the underlying principles of the indexing business. It is not, for example, to determine with statistical exactitude how many publishers are hiring indexers. So when at the end of Part 4 I refer to 236 publishers with an average of 68 non-fiction titles and 944 publishers averaging four titles a year, of course I am not maintaining those are exact numbers. They are used for a working hypothesis, which is that a small number of publishers put out a lot of non-fiction titles each year, and a larger number put out a few—which ought to be intuitively obvious. Other statistical services seem to provide similar numbers. See for example: Publishers with 10 active ISBN identifiers: 73,000; Publishers with 11-199 active ISBN identifiers: 11,837; Publishers with 200 or more active ISBN identifiers: 1,804. --PMA Newsletter, September 2003 http://www.PMA-online.org and http://tinyurl.com/8qlcs (www.parapublishing.com) with additional data.

With that proviso, picking up with the last paragraph of Part 4, what can we discover about how the concentration of publishing might affect how indexers are chosen (keeping in mind at this point, I’m only focusing on publishing houses—authors hiring indexers for self-publication will have to come later.

To analyze the question, I’m going to make a huge assumption—that the market for indexers is rational and obeys at least some laws of the marketplace. Some concepts that will be used are “Price Elasticity of Demand” (PED), “Fair Value,” “Market Price,” and “Competition.” Readers not familiar with the meanings of these terms in an economic sense can find reasonably accurate explanations of all through Wikipedia (http://en.wikipedia.org) .

Demand can be either price elastic or price inelastic. In general terms, if elastic, when the price increases, the demand will drop and vice versa. If inelastic, the demand doesn’t change very much no matter what the price changes. Compare the demand for chocolate, which is elastic, versus the demand for water, where the demand is inelastic.

Generally, PED deals with goods. However, services also can fall under this concept. On a simplistic level, goods and services seem two different things, but in reality the two merge together. Indexing is both a good and a service. Indexers supply a service (indexing the book), but the product delivered to the ultimate consumer is both a service (finding material in a book or journal), and a good (discrete value added to the printed material). How does this idea of price elasticity effect things like fair value, market price, and competition?

Let’s take those hypothetical 944 publishers with an average four non-fiction titles a year. For discussion, let’s create one example using more statistics from the parapublishing.com Tiny URL several paragraphs above. A trade book published by a small press sells for $15.77 (average price in 2002). The print run is 1,500 copies. The book costs $10,388 to produce. It goes to bookstores for 45% of the sale price and sells all 1,500 copies (extremely unlikely). Net sales for the publisher are $13,000. The book costs $2,700 to produce (typical production costs from the same URL). The publisher pays 7.5% royalties and ends with a net profit of $9,413 while the author earns $975.

Refer back to this last example in the next post in this series when we get into demand elasticity, value, price, and competition. (I’m trying to keep these posts to a readable, i.e., around 600 words or less in size.)