Market Forces

Andrew Samwick directs us to:

PoET: Prices of Economics Textbooks: The goal of this site is to encourage instructors to take price into account when shopping for texts. Like doctors prescribing drugs for their patients, college instructors selecting textbooks for their classes have little incentive to pay attention to prices that they themselves do not pay. Textbook publishers do not advertise their prices. Often it is even difficult to find prices on their websites. Nowhere have we been able to find current price lists for a full selection of competing texts.

Introductory Economics and Intermediate Micro and Macro texts commonly retail for more than $150. Over the past twenty years, despite reduced production costs, real prices have climbed by about three percent per year.[1] By all reasonable estimates, publishers' net revenue per sale is several times larger than marginal cost. While it is true that publishers' revenues must cover fixed as well as variable costs, there is little doubt that successful textbooks are enormously profitable and would be so even at much lower prices.

As economists, we are not surprised that publishers seek to maximize profits. Economic theory predicts that the ratio of a seller's price to marginal cost will be high if demand is inelastic. While publishers are unlikely to respond to moral suasion, they are likely to respond to increased price elasticity. Thus we hope that this website will have two beneficial effects. The direct effect is that it may help you find a better deal for your students. An indirect effect is that the more attention that consumers pay to prices, the more elastic will be demand, and hence the lower will be the profit-maximizing prices.

Comments

[anonymous]

a good class will pay for itself many times over the cost of the book

the market for selling textbooks back at the end of the semester used to be very good, at least at a state unviersity 10-15 years ago. i always looked forward to selling some of the textbooks back. i also bought lots of used textbooks from the store at the beginning of the semester - cheaper.

my parents never asked about the cash from selling books back. it was some good spending, err, saving money.

[Octavian]

I thought profs made students buy the books the prof had authored. My profs did.

[coconino]

In later years and grad school, I kept books for future reference (from most of my major and major-related courses). I still refer back to them, regularly, so selling them back seems a crime. Regardless of whether you sell them back or not, book prices are ungodly, especially in the sciences. I remember many years ago, my ex (a physicist), regularly broke the $500 barrier which was relatively unheard of in those (mid-80s) days. Now, however, I'm sure its been raised to the $750 or $1000 barrier. Regardless, they're too expensive and I suspect a racket not just for college, but for our public school education, as well.

[Altoid]

Geez louise. For fifteen years or more librarians have been trying to get someone with clout interested in the cost of ordinary books and media and of scholarly publications and databases. Students have been mobilizing almost as long about the cost of textbooks; look at intro calc, physics, chem, or just about any other high-volume text. Look at the cost of scholarly journals. (Look at society dues, but that's something else altogether.)

So they're blaming profs who don't bear the cost? They need to look around. What's been going on is quite simple. Publication in some fields had to be routinely written into grants, because the journals and newsletters charged for pages. Publishers of those journals also charged libraries top dollar to buy them, but some of that was also written into grants. Many of these scientific publishers operated primarily in Europe, where publication fees were and are paid by governments and where libraries also are government-funded. They'd figured out ways to slurp up lots of that subsidy money and were cleaning up. They decided to expand into other areas, and took the pricing structure of these subsidized fields with them into unsubsidized ones. They moved into science textbooks and built up journal stables, and in the process they jacked up the prices by anywhere from five to ten times, at least where journals are concerned. They took it further on the road with books in some fields. You know who these publishers are.

This has been referred to as "the crisis in scholarly publishing," or at least a major facet of it, for many years. It's been absolutely killing university and public library budgets. It gets worse with the multi-hundred-thousand-dollar databases whose subscription fees have to be paid every year. I love the ones I use, but I'm not blind to the fact that they're using the new copyright laws and definitions to rob universities blind.

Pricing here has followed the same model as pricing in cable TV. The buyers think they have no alternative except to buy the stuff, the sellers think the buyers have no alternative except to buy the stuff, and prices keep rising. This is what I've always heard of in CNBC-speak as a "franchise." Others might call it "rent-seeking."

It illustrates one central tenet of the market, that there's absolutely no necessary relationship between price and cost of production as long as the latter is higher than the former (in fact, much of the work of putting together these top-dollar publications is unpaid). This is something too often forgotten by those who would set markets free of all fetters.

It seems late in the game for someone to be noticing this, and accounting for it incompletely. The web site is an open invitation to price-fixing, btw.

[Altoid]

"*lower* than the former," sorry. Proofreading, proofreading . . .

[William Smith]

Let me add that some savvy publishers include a CD-Rom disc of electronic exercises and such, which negates any possibility of resale as the CD-Rom is 'no longer protected' or 'opened' or 'obsolete'. I wouldn't mind paying 150 for the books if I could get 75 back on resale.

[ogmb]

There was never a good educational reason to require a common textbook for any introductory college class. Any somewhat organized instructor can compile a list of useful texts (ideally annotated) and have copies put on one-day reserve at the library. Good students usually don't need a textbook anyway and can use the library copies as quick reference, and the students who inevitably fall behind can (or are forced to) compare the going textbooks before they make a purchasing decision.

[JRossi]

Vicious egregious slur on doctors. I am a doctor who cares quite a lot about how much pts have to pay for their meds, and most of the docs I know feel the same way. But I don't how much my pts have to pay for their textbooks.

[Slocum]

"the market for selling textbooks back at the end of the semester used to be very good, at least at a state unviersity 10-15 years ago."

Things have changed. With modern publishing technologies, it's easy to knock out a new edition every year (making the old edition nearly useless). And that's not the worst of it -- there are also the P.O.D. versions of textbooks that are inherently not resellable because they were 'customized' for a particular course or instructor. What does 'customized' mean? Leaving out chapters the prof doesn't intent to use and, sometimes, including an article or two the prof wrote for which he can then be paid royalties (which is to say -- effectively a kickback to use the text in his class).

It stinks. I'm surprised more enterprising students don't scan texts with digital cameras (as Google does for it's book scanning project). It's really not that hard or time-consuming if you know what you're doing.

[sm]

I'm a simple historian, and I can find book prices and am influenced by them. This is surely not something beyond the power of an economist.

My more important practice is that I don't assign a book unless there is a specific assignment that requires its use.

[Darren]

I often found that I got very little use from the course textbook.... just read the classroom lecture notes very carefully and you'll be fine. I bought many a 3-figure textbook that ended up being next to useless.

In other courses with sketchy lectures, OTOH, the textbook WAS the course for me... I could have had the same learning experience sitting at home with the text, not enrolled in the course, at one-sixth the cost and far less aggravation.

[Jonathan King]

Once upon a time, I was a professor teaching a course where a new edition of the textbook had just come out. I had "evaluated" it (as the publishers would say) and decided that it was not really worth switching, especially (as I reasoned) because there would be tons of used copies of the previous edition around, which should be really cheap because they had been written off as "dead" textbooks when the new edition came out.

So I ordered the old edition for my class, confident that I was saving my students some money.

Guess what happened:

Only bright, shiny new copies of the previous edition text showed up on the bookstore shelves, and the price was actually only $5 less than the new price of the new edition! Worse than that, as students (who were also annoyed) pointed out, the re-sale value of this text would be nearly zero, so my attempt to save them money probably cost many of them about $50 each.

I'm not sure what lesson one should learn from this.