Why are textbook prices so high?

by on February 3, 2007 at 7:51 am in Books | Permalink

…one of the major causes of higher priced new textbooks is the used
textbook market.  For example, if the fixed cost of producing a textbook
is $500,000 and 5,000 units of the book are sold each year for 4 years
then each textbook would bear $25 of the fixed cost.

However, if, due to the used textbook market, only the first 5,000
units are sold and, in each of the remaining three years these same
5,000 units are sold as used textbooks, then the publisher still has
the $500,000 in fixed costs spread out over only 5,000 books.  Thus each
new textbook bears $100 of fixed costs, resulting in higher retail
prices for all textbooks.  This example demonstrates what has been
happening in the textbook market over the past several years: As the
used textbook market has expanded so have the market prices of new and
used textbooks.

Here is more, but is that correct?  To the extent this is a superstars market, where the leader becomes a focal choice and earns rents, the downward price pressure won’t induce a proportionate supply reduction.  (There would be, however, less ex ante competition to obtain this spot, which may involve supply reductions.)  For less successful books, which inhabit a more competitive sector of the market where costs more likely bind, this analysis is more likely correct.

Paraphrasing Alex, I might note: "We know that textbook innovation saves lives and has a very high benefit to cost ratio.  Thus, price controls or other restrictions that reduce prices are almost certainly a bad idea."

Juliette February 3, 2007 at 8:01 am

It’s interesting, because I work the other way around: when a textbook dosn’t cost too much, I’ll buy it new and keep it.
If it’s too expensive, I’ll buy it used and sell it when I’m done with the course.

pinus February 3, 2007 at 9:31 am

I agree with Juliette. Why does used textbooks market exists? Because the textbook prices are so ridiculously high. Look at Greene’s Econometric analysis, one of the most sold books in econometrics. 129 USD after 18% discount at Amazon? Is it the fixed cost? Oh come on!

I don’t blame them much for collecting the rents on the books. OK, I complain just a bit. But saying the used textbook market is responsible for high textbook prices is cheap. The only factor responsible for high textbook prices is the publishers who have chosen to set the prices so high.

It’s like the chicken-egg dilemma but with a clear answer now. What was here first? The textbook, or the used textbook?

Grant Gould February 3, 2007 at 9:38 am

Isn’t this just the old “things still suck for a durable-goods monopoly” problem? The current textbook publisher is competing with itself last year, itself the year before that, and so forth. But then why don’t we see textbook publishers using all the standard durable-goods monopoly tricks, like guaranteed buyback pre-commitments to starve the used market?

The answer, I think, is that textbook publishers have already solved the used-books problem through techniques like revision-cycling. A small revision — just enough to renumber the pages — is enough to substantially inconvenience used purchasers. As this trick is widely used already (how many texts, even in seldom-changing fields, are on their sixth or seventh editions?), it seems unlikely that the used book market is a big unsolved problem. More likely it’s just an excuse.

odograph February 3, 2007 at 9:48 am

Is there a feedback loop of some kind with the production quality and perceived quality of the books? Are they finely made to justify a high price, or priced high because they are finely made?

‘been a long time since I bought books, but I’d have been happy with a low grade paperback for a lot of my non-core classes.

Avinash Goldfish February 3, 2007 at 10:00 am

Matt, I don’t know your background, but if I may help, any trained economist would read the assumption that used books go to the market as really meaning that if some books go back to the market then the fixed costs in each new book sold will be higher. Tyler gave an example rather than a model, anyway. And imagine if he said “suppose a proportion alpha of used books are sold back to other students”.. THAT would be silly in this context, wouldn’t it? Best regards.

John G February 3, 2007 at 11:45 am

I’m a non-economist and I’m surprised it took 11 posts before luispedro pointed out the issue of who selects the textbook for the course. The student has a choice between buying a new or used textbook or going without (maybe by relying on friends or the library). Choosing a different title is not an option. The textbook salesforce does not aim its efforts at the students.

The professoriate as a class benefits from high prices. A few benefit directly from royalties and many benefit from the freebies from publishers. There is some similarity to physicians and drug prescriptions, but patients often have a say in the decision and 3rd-party payers have a lot of market clout. Neither applies to the textbook “market.”

I’m tring to teach myself spanish. I went to the bookstore and looked at the text used in our local intro Spanish class: Claro Que Si, available on Amazon for a mere $94.36! Instead I did some browsing on Amazon and purchased Spanish for Gringos for $18.68 (which comes with two CDs). Of course it’s not the same as the textbook, but I don’t think the difference in price is due to the fact that the non-textbook is taking a less classy approach to teaching the subject. The textbook has lots of illustrations and gimmicks which are a cost for the publisher, but to the professor selecting the text those gimmicks come free. In general I think language instruction is a good model of the issue because there is instruction going on outside college classrooms and operating in an environment where the purchasing decision is quite different.

o February 3, 2007 at 12:11 pm

The used-market argument is theoretically valid, but I don’t believe it is empirically large. The agency problem dominates. Suppose that we (successfully and costless) banned a used-book market. Publishers would keep each edition longer, which would be generally a good thing, since more student would buy each edition, saving the industry inefficient fixed costs. But prices would not fall — in fact, they might rise! — becasue (1) MC would not fall, and (2) demand would become less elastic in the absence of substitutes, due to the fact that instuctors do not bear any of the costs.

Matt February 3, 2007 at 1:23 pm

But Avinash, is the assumption is “some books go back on the market” why is the assumption in the model above _all_ books go back? And if the model is for all books going back, would it not be a mistake to assume it applies when _some_ do? Economics is a very useful tool. But, it’s often a pretty crude one, and massively counter-to-fact assumptions are reasons why. Given that the assumption here is obviously quite different from reality I’m pretty dubious that it will tell us very much about reality.

Juliette February 3, 2007 at 1:33 pm

I think luispedro and John G have excellent points here. It often happens that when students complain to teachers that the books are too expensive, we realise the teachers really don’t care. The price is absolutely not taken into account when choosing the textbook. When they do realise the price, they’ll tell you “It’s only $80, you can afford that for my amazing class” without realising that we getat least five or six teachers telling us this at the same time. It might not look like much when you have a salary, but on a student budget, it weighs A LOT.
Hence the used textbooks market.

I currently study in Italy, and there is a market much worse going on: photocopies. It’s an entire industry, despite the many laws against it. Teachers here rely more on textbooks than in any other country I’ve been to, and even relying on used books becomes too expensive.
It’s annoying, especially when you arrive at the exam and realise you didn’t really need the textbook in the first place, despite the teacher telling you the world would come to an end if you didn’t read it.

Bernard Yomtov February 3, 2007 at 1:42 pm

I’m in the camp of those – Don Lloyd, luispedro, JohnG – who consider this an agency issue. The profesor makes the selection and the student pays. I don’t think it’s necessary to ascribe nefarious motives to the professors, just a lack of price sensitivity.

Notice, in this regard, that textbooks, unlike almost all other books, usually do not carry cover prices. Even a teacher who wanted to take price into account would need to do a bit of work to get the information. This certainly suggests that publishers are aware of the agency issue.

And of course there will be a fair amount of inertia built into the selection process. The teacher’s lecture notes and assignments may be organized around a given text. Changing involves evaluating new books and possibly reorganizing the class. That also works against price sensitivity.

mike February 3, 2007 at 2:33 pm

eweininger,

would we not have an interesting natural quasi-experiment if capable teachers in various fields were–for reasons altruistic or otherwise–to produce “no frills” intro texbooks and make them available for free or for nominal cost?

Yes, I’ve been thinking along the same lines for some time now. That would be a good idea in fields are not frequently updated. In fact, a downloadable textbook distributed under GPL or similar terms would be far easier to update, expand, and customize as needed. Unfortunately, it would probably be easier to find professors willing to write the textbooks than professors willing to adopt them.

Avinash Goldfish February 3, 2007 at 2:48 pm

Matt, I insist that well applied economic reasoning helps understanding more than it hinders it. The point of the original quote is, merely, that the textbooks market is special in that there is a permanent supply of lower-quality, lower-priced imperfect substitutes to new books, and that some people are willing to buy those substitutes makes the fixed costs borne by each new book sold higher. That is, in principle, correct. Your point, that not all used textbooks are resold, to which my perpetually-about-to-fall pile of textbooks is the liveliest proof, would affect only the intensity of this effect. The price of new textbooks should go up with the proportion of used books resold.

I myself agree that the agency issue should be the most important factor there. First, if the publishers
did not believe they would be able to coerce enough students to buy the new textbooks they would never pay
the high signing fees we are seeing today, as Don Lloyd said above.

Don Lloyd February 3, 2007 at 3:12 pm

While the 3rd party or agency effect is probably the dominant effect, as a student you have to ask yourself what factor of increase in textbook price would cause you to not take a given course.

Then, ask yourself what factor of increase would cause you to change universities.

Finally, what factor of increase would cause you to not pursue a college degree?

The value of textbooks is ultimately limited by the degree to which textbooks, or substitutes, are necessary to realize the value of a college degree.

Regards, Don

Paul McLellan February 3, 2007 at 3:30 pm

I think the high cost is almost entirely due to the monopoly effect that once an instructor has selected a textbook then students have little option but to buy. Of course the price to the instructor is zero since publishers will give them textbooks.

My university education was in the UK which had (at least then) no tradition that a course required a particular textbook, so no monopoly effect. Often any one of 4 or 5 textbooks were recommended, and it was always the case that the exam questions could be answered based simply on the lecture material. The textbooks were an just additional optional way to approach and learn the same material. The same (computer science) textbook (e.g. Aho, Hopcroft and Ullman’s or Knuth’s books on algorithms) would be available in paperback in the UK for about a quarter of the hardback (no paperback available) price in the US for the same book.
— paul

Viscus February 3, 2007 at 4:22 pm

Michael W. Brandl is a total moron.

He writes (as Tyler quotes him):

one of the major causes of higher priced new textbooks is the used textbook market. For example, if the fixed cost of producing a textbook is $500,000 and 5,000 units of the book are sold each year… (bold added)

Is the author too lazy to even look up some actual numbers? If he is too lazy, can he at least qualify what he is writing. You know, instead of saying is a major cause, say might be a cause of unknown magnitude depending on how the actual numbers turn out?

Last time I checked, you don’t establish actual major causes in the real world without reference to actual facts. Fake facts don’t work to prove actual causes.

Here is Mr. Brandl’s brilliant conclusion.

This example demonstrates what has been happening in the textbook market over the past several years: As the used textbook market has expanded so have the market prices of new and used textbooks. (bold added)

“This example demonstrates!” Wow. I really feel sorry for the students at UT Austin business school who end up with this guy as their instructor. You too can learn to “demonstrate” things using numbers that you make up… Fake facts don’t demonstrate anything!

I can play this “I will make up my own numbers” game to demonstrate any point I want. If the fixed cost of publishing a textbook is $100,000 and 40,000 of them are sold new each year and 10,000 are sold used, we can conclude that but for the used book market, the fixed cost would be $2.00 per book, but because there is a used market it is $2.50 per book, or a $0.50 difference.

$0.50 is insignificant compared to textbook prices. So, the used text book market is an insignificant factor determining the prices of new books. “This example demonstrates” there must be some other explanation for the high price of textbooks.

It is amazing what you can demonstrate using made up numbers!

This post demonstrates that Michael W. Brandl is a moron who should not be teaching at a high school, much less at a business school. I hope he has tenure, because I don’t think he is going to last long otherwise.

Chairman Mao February 3, 2007 at 4:50 pm

Herr Cowen,

Students sell their books back at a price far lower than what other students pay for those used books. The price hike is higher than the transaction costs involved in re-selling the books. Some of that profit goes back to the distributors and produces of new textbooks.

Another reason for the reduction in sales of new textbooks is use of electronic sources. Publishers have actively tried to impede the development of this practice though it is more convenient for students and professors.

Finally, new editions that change three pages and force a new unnecessary product into the market do nothing more than increase the cost of, and reduce access to education. It is unethical.

Viscus February 3, 2007 at 5:12 pm

Why you should be nice to fools.

So, I was bored enough to look up Michael Brandl’s web page. And I can’t help but conclude that he is a nice guy. Bah!

If you want to see how much of a nice guy he is, just check out one of his philosophical statements here.

This guy is not only wrong in thinking that fake numbers demonstrate anything about the real world, but, even worse, he is excessively nice!

I can’t think of anything worse.

eweininger February 3, 2007 at 6:40 pm

“Unfortunately, it would probably be easier to find professors willing to write the [free] textbooks than professors willing to adopt them.”

Certainly possible, but…why? I don’t think the pretty pictures and fancy graphics are that important to most professors when making book selections. The general inertia mentioned above?

Viscus February 3, 2007 at 7:31 pm

Novice,

Your relative is right. You are off base. The reason is that copyright and other IP protections gives the music industry some market power.

If company A signs artist X to an exclusive contract, company B cannot then sell you an identical product made from artist X. And further, obviously, there is no perfect substitute for artist X (artist Y singing a similar song) if you really like the work of that artist.

novice February 3, 2007 at 8:41 pm

thanks viscus, that makes much sense. For the sake of argument, though, suppose a label signed a reasonably popular artist (or one who became popular) and leveraged information technology to slash consumer prices… they could (theoretically) move a lot more music volume and potentially make more money than competing labels. The cost of replicating information is negligible so things should scale up favorably in the internet model. Although no artist could be a perfect substitute for artist X, I rarely–maybe I’m unusual in this regard–find myself in the situation where I “must have X.” It is usually the case that I have reasonably similar affinities for X,Y,and Z. Even if I have a slight preference for buying X at the moment, if Y was on a label that sold at a mere fraction of the cost, I would by Y and be rather content. (Then again, I’m not much of a music buff.) No doubt if some corporate entity could increase profit by doing this, they would, but where exactly does this scenario break down? Unlike the case of textbooks, it would seem that music consumers have more individual power to choose satisfactory though non-identical alternatives.

bhauth February 3, 2007 at 10:30 pm

There’s an easy solution, but you may not like it. Pay the profs a bit extra and make them buy the textbooks.

GVV February 4, 2007 at 2:53 am

There are no text book “super stars” in India.So there are no text book “leaders” and nobody earns rent.The universities allow enough freedom of choice to the students.For example,our university prescribes a number of standard books for the graduates.The students can choose between them or a combination of them.To illustrate, for macro, the syllabus prescribes texts by:
1.Greg Mankiw 2.Rosalind Levacic and Alexander Rebman 3.Richard Froyen 4.Brian Snowdown,Howard Vane and Peter Wynarczyk 5.Rudiger Dornbusch and Stanley Fisher 6.Eric Pentecost 7.Brian Hillier 8.Joseph Aschheim and Ching Yao Hseih 9.Robert Gordon 10.Thomas Michl etc.

Slocum February 4, 2007 at 9:23 am

This problem will be solved in the following way. First, students are going to figure out they can scan text books with a digital camera, a tripod, a couple of desk lamps and some decent OCR software. The result is more useful than the original physical book because it is both searchable (a big win) and portable. And like MP3s it is freely copyable. Once this takes off, textbook sales will take a big hit.

The ultimate solution? Textbooks (including electronic copies or perhaps only in electronic form) will be bundled with courses. Students will have no choice but to buy the texts new, but the cost will be lower because universities will have a financial interest in bargaining down the price.

RSA February 4, 2007 at 9:47 am

Other issues have only slightly been mentioned above, including barely ethical kickbacks.

Wow, thanks for the link. I thought kickbacks were limited to things like a free copy of an adopted book. Getting paid to adopt a book is outrageous, and in my humble opinion someone who takes money for doing it should be fired for unethical behavior.

That said, I’ve reviewed textbooks and been compensated for it, usually in the form of a couple of hundred dollars worth of books of my choice from the publisher. It’s always been drafts of books that are under consideration for publication, though, nothing that’s already in print.

RSA February 4, 2007 at 9:58 am

I forgot to mention one other kickback that I find interesting: There are people who used to wander through my department offering to buy “old” textbooks from the faculty, especially any recent freebies from the publishers. They then resell them at a profit. Most of my colleagues treat these people as pariahs; they just drive up the price of used textbooks for students. (It must be a minimal effect, but still. . .) It strikes everyone I talk to as unethical to make a profit on something that someone has given you, in this situation, at least.

Slocum February 4, 2007 at 12:49 pm

They then resell them at a profit. Most of my colleagues treat these people as pariahs; they just drive up the price of used textbooks for students.

Huh? Adding the freebies collecting dust on professor’s shelves to the supply of used books would tend to reduce the price rather than drive it up. Supply and demand you know.

RSA February 4, 2007 at 1:26 pm

Adding the freebies collecting dust on professor’s shelves to the supply of used books would tend to reduce the price rather than drive it up.

I forgot to include what we actually do: give the books away to our students.

WWU_econ_grad February 4, 2007 at 3:39 pm

I was always wary of courses where the prof assigned the “flavor of the week” textbook in the discipline. I suspected those textbooks were doing so well because the publisher had a good marketing and sales staff – not because the book was all that great.

I took Intermediate Micro in 2005 and the prof assigned a book by Katz and Rosen. It hadn’t been updated since 1998. We had to have been the only class in the country still using it. But it was a damned good book. I felt confident she assigned because she believed it was the best book to help teach the course, not due to kickbacks or other pressure from publishers.

lee February 4, 2007 at 8:28 pm

I took an Organic Chemistry course. The textbook was $140. On the first day of class the professor said we could not buy a used textbook from the college bookstore. The publisher had changed the edition number-the bookstore would not buy the used books back due to the edition number change. The professor then passed out four sheets of paper–three contained the changes from old to new editions, the fourth was a list of the students from the previous year who wished to sell their books. I bought the book(perfect condition)for $40. The seller was pleased too–he recouped $40 that he could recoup in no other way.

scott February 5, 2007 at 7:33 pm

In the US, textbook publishing is an oligopoly. A few summers ago the principles of economics book I had my students using came out with a new edition and a substantially higher price. I looked around for a lower cost alternative and found all of the other texts had likewise gone up in price.

I also found that one could purchase the same book in the UK for about 60% of what it goes for in the US.

Another option is to essentially rent the text from the publisher. This can be done by purchasing access to the book’s supplemental web site which contains the entire text online.

Relative prices are $125 new, $95 used, and $30 for the web site.

greek correspondent February 6, 2007 at 4:51 pm

To whom may wish to know about textbooks in Greek universities
…and some questions for Alex and Tyler

All students having been admitted to a greek state faculty are entitled to a free textbook per semester course, usually written by the professor. Students obtain their copy by showing their student ID to the bookshop keeper and have their names filed on a list. Once the semester is over, the list is handed back to the faculty secretary to be checked and summed up. The number of distributed copies is then forwarded and the publisher receives an amount equal to the number of copies times the price per copy. Textbook prices are set by a special committee with the greek ministry of education on the basis of textbook size (characters per line times lines per page times total pages plus figures plus equations and so forth). The preponderence of a unique, although free, textbook per course, is blaimed upon this bureaucratic alternative.
Recently, the greek government announced its intention to replace the whole thing with a system of vouchers. Assuming the value of vouchers will be indexed to publication costs, how will this policy affect the welfare of students and professors ? How is it possible that both students and professors are against vouchers?

dhill February 8, 2007 at 4:46 pm

The increasing prices on textbooks is getting completely ridiculous. I am a college student, and luckily where I go to school, we rent our books. The cost is included in our tuition and we simply rent books at the beginning of each semester and return them at the end of the semester. I do hear from other college friends about the price they have to pay for textbooks. Some students have to pay between 300 and 500 dollars in textbooks for their classes. However, I do not think that the used-textbook market is causing prices to rise on new textbooks. I could not agree with “Globadoc” more when he said go back to cheaper printing material and/or use online books. That is a great idea. With professors choosing these new books and the price of them being so expensive, there has to be other alternatives rather than a poor college student having to buy brand new, expensive textbooks. I’m so thankful I can rent my books rather than having to buy them.

Tom Rebman November 11, 2007 at 6:47 am

My name is Thomas Rebman and I am currently a student at Daytona Beach Community College. A highly decorated, retired, 23 year Naval Officer, I am obtaining my Elementary Education Degree so that I can teach Elementary School as my next career.

I have attached my formal complaint in MS Word format that will give you all the background information you need on my current situation. My reason for writing is I could use your advice on what resources are available within the Education community to assist me. I have tried to reach out to every government and private organization I can think of, to no avail. Although I have gotten support from the Foundation for Individual Rights in Education (FIRE), and the ACLU, the college does not seem to want to correct the problem. I am now trying to inform the public at large about my discovery that Follett Higher Education Group (a $200 Billion a year company with 700+ campus bookstores throughout the country) is willfully and intentionally defrauding students against the contracts in place to protect the students.

I also want the public to know that at least one college president, D. Kent Sharples, of Daytona Beach Community College, has chosen to ignore mounds of irrefutable evidence that this is, in fact, taking place. As a matter of fact, he has mistakenly gone one step further. He has chosen to personally attack me, kick me off campus with police (I am 6 credits short of my AA degree), and has stated to the local media that I “slapped” someone. I believe he has done this because pressure exerted by Follett, who incidentally paid the college approximately $500,000 dollars last year (we have an enrollment of around 11,000 students) as the college’s share of their revenues.

I know this is a lot of information to take in. I can easily summarize it this way. I feel Follett is breaking FTC Monopoly laws, intentionally overcharging students, and making a lot of people at Follett rich instead of using education dollars to educate our children. They restrict book information so that students are forced to use their on-campus bookstore. They underpay for used textbooks (each college has a contract that states what they should pay as a buyback minimum), overcharge when they resell these textbooks (again, the contract states they SHALL NOT sell used textbooks for more than 75% of the current new text selling price), and at least here at DBCC, all financial instruments issued by the college are only good at the campus bookstore (Pell Grants, Book loans etc.) which prevents the student from competitively shopping (internet book prices are 40-70% cheaper).

If you have any ideas on how I can get the national media involved or if you know of a government or private agency that could help me I would greatly appreciate your assistance. If you have any personal feedback, I would greatly appreciate that as well. Their actions have financially devastated my family, ruined my civic reputation, and have dramatically decreased my employability as a teacher. I feel they are trying to “out money” me and frankly, right now, they are doing a good job of it. I can no longer even afford the maintenance fees on the two free bookswap websites I set up for students at DBCC and UCF.

Thanks so much in advance for your assistance, I genuinely look forward to your opinion of my situation. If you have any questions, feel free to call or email anytime.

Sincerely,

Thomas F. Rebman
LT, USN Retired
Daytona Beach Community College Student
Cell: (386) 689-8407
Hm: (386) 760-7484
Email: RebmanThomas@aol.com
Facebook | Thomas Francis Rebman

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