Mar 11, 2008
Education, Efficiency, Pricing Theory

Why you pay so much for college textbooks

So for RIT students it’s that time of year again - college textbook purchasing time. Every quarter the price of textbooks rise considerably and students always find themselves buying new copies of books. Some of the prices seem outrageous and totally unjustified - two books I recently bought for accounting and finance were $180 each. Now on face value this price may or may not be “reasonable” from a cost perspective. It very well could be that the vast amount of research and work needed to produce a given book “justifies” such a high price, particularly since by its very nature book production involves very high fixed costs and low variable costs - and there’s not that many students to divide the fixed costs over. But this raises another question as to whether the textual opulence of modern textbooks is really necessary. I’m sure there are several studies out there analyzing the textbook market with much more sophisticated analysis than what I present here. Here are my thoughts from pure intuition:

  1. Publishers are mostly placed in a monopoly position when selling textbooks because there is a natural asymmetry in “demand” for the book. Specifically, the person making the choice is not the person actually paying for the book. In a traditional part these two roles are always joined, but in the case for college textbooks the college professor choses the book while you pay.
  2. As a result of (1), there is no natural incentive whatsoever for professors to choose “reasonably-priced” books, since the professor incurs no costs to himself for choosing a high-priced book; those costs are totally borne by the students. In fact, there may be a negatively aligned incentive here: it is reasonable that professors would specifically choose high-priced information-loaded book to make absolute sure that the student is loaded with information as to reduce personally liability: “Student: We never covered this in class! Professor: Well, it was in the book!”.
  3. As a result of (2), a feedback loop begins to occur whereby professors demand books packed with more and more information, leading to book publishers/suppliers to oblige and create more and more textual opulence in their books. A quick look at any modern accounting book really enforces this reasoning - there is a ton of content in these books that can’t possibly ever be levered in class. Books now contain a huge array of practice problems, review notes, practice quiz questions, online websites, interactive software CDs, DVDs, etc. My own experience has found that the raw content-to-useful content ratio to be extremely high in many books. Some classes I barely touch a few pages of the book for reference, after spending hundreds of dollars.
  4. Some professors teach their class in a way that a textbook is an optional “additional aide” and not particularly required for operations in the class. This places more choice in the student - not in which actual book is chosen - but rather whether the book chosen for them is worth buying at all. This is to be applauded. Regretfully, several other professors take a dramatically different approach whereby the books materials seem to replace any planning or personal organization on the professor’s part regarding class structure. I’ve seen some professors who don’t use any of their own notes or slides whatsoever, instead relying on the textbook’s templated problems and PowerPoint slides. This is great for the professor but a shitty deal for the student, which is effectively forced into buying the book so that he can answer homework problems from the end of each chapter.
  5. Although I have no source to back this up, I remember reading somewhere that in some instances professors receive morally-dubious gifts or financial rewards for choosing a particularly textbook. Textbook publishers seem desperate to woo college professors into choosing their textbook, knowing a professor overseeing 100 students in the classroom represents a huge profit opportunity for the publisher.
  6. Now I’ve established reasoning for why new books are so expensive. But what about used books you might say? One of the most frustrating problems is that textbook publishers are very quick to publish new editions of textbooks, with semantically meaningless differences, as a way to differentiate new books from old books and crowd out old books from the market, further increasing their monopoly power. Note that the depravity of this technique rests somewhat on the subject area in question. Computer-related books seem more apt for version updates than books on calculus - a science that in its basic form hasn’t changed in decades. I find that this is a huge problem with the current college textbook market and is probably the first area I would look towards if any regulatory pressure was enacted.
  7. Some publishing companies point to relatively modest profits as salvation from attacks against the market in which the operate. However, I am skeptical of these arguments since as outlined in (3) these arguments assume a fixed book being produced. I am arguing that far less verbose and opulent books could be used and produced for a much cheaper price. In other words, professors are devoting more time and energy into the book production process than would occur in a perfectly competitive situation. Go to any Barnes & Noble and look at the math section. There are some $10 books on advanced mathematics that contain more practical information than several $180 calculus books combined.

I think it’s fairly clear that by it’s very nature the market for college textbooks represents a near-monopoly state where consumer surplus takes a back seat to producer surplus of publishing companies. Here are some potential solutions that I’ve thought about:

  1. Establish more and greater access to clearing houses for used books that sidestep the bookstore’s heavily inefficient used book buyback process to make used books more readily available and the market more fluid as a result. My friend Dan Leveille has created BookMaid.com to address this problem at RIT, and done so excellently. One particular inherent problem with establishing sites such as these is that the service being offered inherently a network good, which in theory works more efficiently as one massive popular system than several systems spread about. Half.com may be getting there, but it is less personal than your own-campus book trading website.
  2. Properly align incentives for professors to choose reasonably-priced textbooks. Once situation would be essentially to have professors pay some fixed multiple of the book price, but done so in a revenue-neutral way (give professors some money, then force them to pay for the actual books they choose). Doing something like this may align incentives against academic quality unfortunately, but I’m sure much more well-thought-out schemes are out there. Aligning incentives in this instance and in most instances is absolutely crucial for a good, well-working outcome.
  3. Enact institute policy, per department, that restricts the rate at which professors may request required edition changes to books. For example, in Calculus perhaps professors, once choosing a book, may not change the required edition for 6 years. This would enable used books to better-compete with new books in the marketplace, perhaps driving down the price for new books in the process.
  4. Enact institute policy requiring professors to justify major features of the textbook they choose and defend their choice in front of a strict panel. If a professor chose a book with all this additional software CD and DVD crap, he would have to justify its use to the student and justify the marginal cost is worth it. This can get a bit iffy and overhead and overly-regularly attitudes by institutions may fall into chaos. I don’t know.
  5. Have the federal government step in on publishers and tighten up regulation on business practices, including but not limited to - how professors are solicited for textbook purchases.
  6. A very POOR idea: price controls in the market for textbook. The federal government simply dictates maximum prices. Price controls are one of those bizarre policy instruments that always seem to get implemented in the heat of an emotional political situation without one thread of economic evidence that they work nearly as well as alternatives, if at all.
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