The Economics of Authors’ Royalty Contracts: Some Analytics

This article examines the alleged conflict between authors and publishers whereby authors allegedly prefer a sales‐maximising price while publishers prefer a profit‐maximising price. It is shown that: (1)given some initial royalty rate proposal, there is limited scope for royalty rate changes which can make both parties better off by maximising profits‐plus‐royalties compared with profit or sales maximisation; (2) where publishers adopt a profit‐maximising price,there is an inverted‐U relationship between authors′ royalty receipts and the royalty rate with a consequent “maximal” rate; (3)appropriate demand and cost assumptions yield royalty rate predictions broadly in line with those observed, without assuming any bargaining bias in favour of the publisher.