Textbook publishers hope to maximize profits. Authors, however, face very different incentives. Authors are typically paid royalties, which are a specific percentage of total revenue from the sale of a book. And so, for example, if an author's contract says that she will receive 20 percent of the revenues from the sale of a text and the publisher's total revenues are $100,000, the author's royalties will be $20,000. Who will prefer a higher price for the text, the publisher or the author or both prefer the same price?
Textbook publishers hope to maximize profits. Authors, however, face very different incentives. Authors are typically paid royalties, which are a specific percentage of total revenue from the sale of a book. And so, for example, if an author's contract says that she will receive 20 percent of the revenues from the sale of a text and the publisher's total revenues are $100,000, the author's royalties will be $20,000. Who will prefer a higher price for the text, the publisher or the author or both prefer the same price?
Chapter8: Monopoly
Section: Chapter Questions
Problem 3SQP
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Textbook publishers hope to maximize profits. Authors, however, face very different incentives. Authors are typically paid royalties, which are a specific percentage of total revenue from the sale of a book. And so, for example, if an author's contract says that she will receive 20 percent of the revenues from the sale of a text and the publisher's total revenues are $100,000, the author's royalties will be $20,000. Who will prefer a higher price for the text, the publisher or the author or both prefer the same price?
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