Modelling Competition in the Textbook Market: Some Lessons still to Learn

Many European governments still advocate a so-called ‘cultural exception’, intended to protect consumers and smaller bookshops, to keep their book markets isolated from competition. Other countries, with similar aims in mind, have chosen liberalization schemes instead. To reconcile these opposing views, this paper provides a theoretical framework to study the textbook market, depicting it as dominated by two simultaneous forces: horizontal differentiation among booksellers and a vertical relationship between publishers and bookshops. Using this model, we analyse the effects of alternative price schemes on the market structure and how potential benefits from price liberalization are influenced by the number (and size of) booksellers.