…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
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."