A guy named John Paul Koning takes a look at the ever-rising price of comic books and thinks that it defies economic theory:

Basic economics tells us that if the demand for Amazing Spider-Man increases at an existing supply, more will be offered for it and the price will rise. Profits at Marvel, Spider-Man’s publisher, would grow, and managers at Marvel would therefore increase the supply of comics, or competitors would enter the market with similar products. This increase in supply would reduce prices and profits. Conversely, a drop in demand should result in a decline in price, profits, and supply.

Not exactly stellar. Except for the boom years in the early 1990s, the title’s popularity has actually waned. That this hasn’t caused a drop in prices seems to defy economic logic. Even the dramatic plummet in demand for Spider-Man from 1994 to present day has been accompanied by more than a doubling in monthly prices from $1.25 to $2.99. What gives?

Being from the Mises Institute, he is inclined to blame government-controlled dollar supply, but it seems to me that there is a simpler explanation.

If one assumes that there are no or minimal fixed costs, then comic book publishers could respond to decreased demand by lowering price (almost down to cost, if need-be). However, if there are significant fixed costs that they have to recoup, they have bills to pay whether they’re publishing 5,000 comics or 50,000. If you sell 50,000 copies, you can charge less per copy and make it up in volume. Inversely, though, if you only sell 5,000, that means that you need to charge more so that you can meet company expenses.

If you don’t meet company expenses, you basically have two options: raise prices to make more money per unit or lower prices to create enough demand to compensate for making less per unit. Which route you should go depends on whether your product has an elastic or inelastic demand. In other words, how cost-conscious are your consumers? How much affect does the price of your product have on their decision to buy it?

Back when comics were cheap, they were sold in convenience stores, drug stores, and all manner of places. Comic books were usually self-contained, meaning that if you missed an issue it was no big deal. It was a good environment for the casual reader. In this environment, it is likely that comic books were relatively elastic in demand. The potential customer looks on the rack, sees something for a nickel, has a nickel and some time to kill, and decides to buy it. Back then, keeping costs and prices down was extremely important.

The comic book market has not been like that for some time now. Comics are still sold at some convenience stores, drug stores, and gas stations, but not very many. They have been replaced by hobby shops, which transformed the customer base from a casual one to a devoted one. Or maybe they got moved to hobby shops because they had already lost or were losing the casual customer base. Either way, after the shift the comic book companies had a different kind of consumer. And a different kind of product. Storylines now not only span issues of the same series, but cross-over into other series. Once every year or two, they have a storyline that spread over nearly every series in their product line. The result is that devoted fans have more and more comics to buy, but there are a lot fewer of them.

When you have a devoted customer base, though, you have people that are willing to pay more for the product if that’s what they need to do. It’s a lot easier to convince them to pay more than it is to try to bring the casual customer back into the fold. So that’s what the comic book industry has been doing. Has it worked? Not really. Now they’re caught in a cycle where the books are geared to please an ever-dwindling customer base and fail to attract new readers. However, it’s far from clear that the other choice would work out any better. I’ve actually been mulling over a post on what I would do if I were in charge of DC Comics. Maybe I should get around to it.

So anyway, comic book pricing does not really “defy” economic theory in any meaningful sense. The real reason involves laws of demand elasticity and inelasticity , fixed and marginal costs, and profit margins. I don’t think it involves national monetary policy.

It can be a risky proposition, though, because if you raise prices more and more people stop buying, then you’re still not making money. What you have to hope is that your customer base is willing to pay more to keep your enterprise afloat. In economic terms, you have to hope that your product does not have the elastic demand curve. But if your customer base is small but devoted, you can get away with it.