Why book publishing contradicts conventional wisdom about competition.

Books are unique cultural goods, often considered to provide societal benefits beyond their commercial value. Governments worldwide intervene in book markets through various means, including tax reliefs, subsidies and price regulations.

One of the most common, and controversial, interventions is fixed book price (FBP) regulation. Such policies restrict retailers from setting their own book prices, instead allowing publishers to fix the prices.

The aim is to strengthen independent bookshops, promote cultural diversity and support small publishers, by ensuring that shops earn a guaranteed margin on bestsellers thus allowing them to produce and promote a more diverse range of books. But by preventing price competition, FBP regulations may also lead to higher prices, reducing book sales and potentially limiting access to literature.

The Levi law in Italy

Our research investigates how an Italian FBP regulation - the so-called Levi law - affected book prices and variety. The legislation, which was introduced in September 2011, capped the maximum discount that retailers could offer on books at 15%.

Our dataset includes monthly data from 2009 to 2014, covering all titles published and sold, their recommended cover prices set by publishers, the discounts offered by retailers and their sales across different retail channels (including independent bookshops, chain stores and e-commerce).

We use Switzerland - where Italian is an official language and no FBP regulation was in place - for comparison. We compare book prices and variety in Italy and Switzerland before and after the policy change.

Our analysis indicates that the law increased book prices overall, but with significant differences across retailers. Independent bookshops raised their prices significantly (+7.8%), while chain stores and e-commerce saw little to no price change (-0.6%).

Publishers did not change the recommended cover price, which means that all price effects resulted from changes in retailer discounts. Before the Levi law, independent bookshops offered fewer discounts than chain stores. After the law came into force, their discounting decreased even further, making books more expensive. Meanwhile, chain stores continued to offer some discounts within the legal limit.

The law had no effect on the number of new books published, contradicting the argument that it would boost book production. But it had a significant effect on the variety of books sold. The number of titles actually bought increased, particularly in independent bookshops. Many books that previously had zero or very low sales started being sold, and sales became less concentrated on bestsellers.

Do consumers benefit?

To assess how an FBP regulation affects consumers, we consider two opposing effects. First, there is a potential (negative) "price effect", where higher prices reduce demand, harming consumers. Second, there is a (positive) "effort effect", where with price competition reduced, independent bookshops invest relatively more in events, book recommendations and customer service, increasing demand.

Our analysis finds that with the Levi law, the price effect reduced consumer welfare by €39mn in the two years after the policy was implemented. But the effort effect increased consumer welfare by €116mn, as bookshops competed on non-price dimensions. Hence, the overall net effect was that consumers gained €77mn from the policy.

This suggests that although the law raised prices, it induced competition in service quality - such as personalised book recommendations and in-store events - making the book-buying experience more valuable for readers.

We also look at employment effects, finding that the law led to higher employment in very small bookshops (those with between two and five employees), indicating increased demand for service-oriented roles. Using Google Reviews data from over 2,250 bookshops, we find that independent ones received higher ratings, with positive sentiment toward staff assistance, book discovery and events.

Finally, using machine learning techniques on the posted reviews and sentiment analysis, we confirm that independent bookshops outperformed chain stores in non-price dimensions, supporting the effort effect hypothesis.

Cultural goods and consumer products

The introduction of FBP regulation in Italy raised prices, particularly in independent bookshops. But it also increased the variety of books bought and shifted competition toward non-price factors, benefiting consumers. Our work highlights a key trade-off between price competition and service quality, offering broader insights into how regulation affects cultural markets.

By documenting a real-world case with rigorous empirical evidence, we contribute to debates about whether cultural goods should be regulated differently from other consumer products. The findings suggest that while FBP policies may reduce price competition, they can still enhance overall consumer welfare if they prompt competition in other areas such as customer service, book variety and experience. In markets with many small retailers, like books, restricting price competition may not always harm consumers, as service-based competition emerges.

In contrast, in concentrated markets, price-fixing may simply mean customers paying more without offsetting benefits. Our findings suggest that price regulation might work differently for cultural products where consumer experience and variety matter. This could be relevant not only for books but also for films, music and digital platforms.

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21 October 2025     Paper Number CEPCP718

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This CentrePiece article is published under the centre's Growth programme.

This publication comes under the following theme: Business dynamism