Arnold Kling  

Textbook Pricing

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Are textbooks overpriced? This newspaper story looks at the issue.


Rep. David Wu (D-Ore.) in November introduced a bill requiring to General Accounting Office to investigate the high price of college textbooks and whether publishers are marketing the same books at lower prices abroad.

Deputy Gov. Bradley Tusk said Blagojevich wants the Board of Higher Education to look at whether the publishing industry has been engaged in price-gouging or other monopolistic activity. If the answer is yes, legal action may be considered, he said.


The story also mentions the B-Word, talking about the way that CD-ROM's and study guides are tacked on to the books themselves.

Textbooks are like prescription drugs. On a benefit-cost basis, they are cheap. However, comparing price to marginal cost of production, they are expensive, because most of the cost of producing a textbook is up front. The writer needs to obtain the knowledge and develop the examples to convey that knowledge. The publisher must cover the cost of funding projects that fail with profits on those that succeed.

I think that nowadays it would be more efficient for professors to produce single chapters than entire textbooks. When you write an entire textbook, you inevitably get into areas that are not your comparative advantage. In fact, you are forced by the market to get into topics that you don't even think are worth covering.

For Discussion. Do think that a company that published texts in smaller units, corresponding to a few weeks of study rather than an entire semester, could offer price/quality combinations that would take market share away from the traditional textooks?


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The author at Advisory Opinion in a related article titled Overpriced Textbooks? writes:
    Democrats are beginning to complain about supposedly overpriced college textbooks. Arnold Kling offers the following: Textbooks are like prescription drugs. On a benefit-cost basis, they are cheap. However, comparing price to marginal cost of productio... [Tracked on April 13, 2004 8:49 AM]
COMMENTS (19 to date)
Don Lloyd writes:

Arnold,

"Textbooks are like prescription drugs. On a benefit-cost basis, they are cheap. However, comparing price to marginal cost of production, they are expensive, because most of the cost of producing a textbook is up front. The writer needs to obtain the knowledge and develop the examples to convey that knowledge. The publisher must cover the cost of funding projects that fail with profits on those that succeed."

Actually, the up front costs are sunk, and should have no effect on pricing. The proper price is the one that maximizes profits, which is typically the one that maximizes revenues plus half the marginal cost. Whether this actually covers the up front costs or not, it will come closest to doing so. The up front costs are a large part of the determination as to whether the book should be developed in the first place.

Textbooks DO share with prescription drugs the misperception that price discrimination in foreign markets hurts US consumers, when the reality is just the opposite, at least to a limited degree.

Regards, Don

Chris O'Donnell writes:

Do think that a company that published texts in smaller units, corresponding to a few weeks of study rather than an entire semester, could offer price/quality combinations that would take market share away from the traditional textooks?

In theory, yes. However, I think it would require a big shift in how curriculum is purchased by the schools. Being bureaucracies, schools won't quickly change how and what they buy, no matter how good the idea.

As an aside - the unit at a time approach is exactly how many homeschoolers handle curriculum. Although we did buy a comprehensive math curriculum, for just about everything else my wife assembles what she needs one unit at a time from the Internet and public library. The concept is called unit studies. I think there are sites trying to sell them to homeschoolers, but most that I know do all the grunt work of assembling the support material themselves.

Brad Hutchings writes:

I don't think smaller units would gain traction. And it's not the book that is being sold; it's "courseware". Even in the most prestigious courses taught by the best teaching profs at the best schools, the textbook is to some degree an outline for the course. Student pays tuition/fees, but then student has to pay for the courseware for various courses as picked by the profs.

So the question in my mind is if a supply of piecemeal courseware would be put together into courses by enough profs to make more than a niche market. I attended a top 10 computer science school, and in-major, there were just a few courses that mixed and matched from multiple books or handouts or prof-created lab books. In breadth courses, same story, only a couple that mixed and matched from various sources, and I don't think you can count a Humanities course where we were expected to read 5 or 6 pieces of great literature (which aren't textbooks per se).

Anyway, isn't the problem "outsourcing"? The profs are outsourcing their curriculum responsibilities to the textbook publishers, and students lose with higher prices and unoriginal teaching, right? (tongue in cheek)

-Brad

Boonton writes:
Textbooks are like prescription drugs. On a benefit-cost basis, they are cheap. However, comparing price to marginal cost of production, they are expensive, because most of the cost of producing a textbook is up front. The writer needs to obtain the knowledge and develop the examples to convey that knowledge. The publisher must cover the cost of funding projects that fail with profits on those that succeed.

It's interesting that the For Dummies books are able to tackle things like chemistry, physics, economics and even calculus but still sell at a price comparative to trade paperbacks and not textbooks.

Aquiring knowledge in the information age is cheap, why should producing text books be expensive? Why, for example, don't we see more professors writing their own texts...having Kinko's print them for $10 a binder & sell them for $25 a pop? Or better yet, put their writing on the web and let their students download as needed?

I think that nowadays it would be more efficient for professors to produce single chapters than entire textbooks. When you write an entire textbook, you inevitably get into areas that are not your comparative advantage. In fact, you are forced by the market to get into topics that you don't even think are worth covering.

I think we should have some more information about who decides what texts are to be used for College classes. Like the payola scandals in radio, I suspect there are more than a few conflicts of interest at play here.

Brad Hutchings writes:

Boonton writes: Why, for example, don't we see more professors writing their own texts...having Kinko's print them for $10 a binder & sell them for $25 a pop?

We have and will always see some profs do this for some courses. I had a linear algebra class (1990-ish) where the prof did this. The xerox packet for the course was a few dollars (no prof websites back then). He taught that particular course regularly, so the costs of developing the course material would effectively be amortized over several future courses. He could very easily have used any of serveral very good $50 books.

But to answer your question. You don't need to invent a conspiracy. When teaching is a part of the prof's job, he'll weigh the cost of developing original course material vs. the amount of bitching he'll get for making an expensive (but more than likely time-tested) book required course material. Profs who take their teaching mission seriously are a minority. If they wanted to teach, most would have taught high school. That's the real problem that the textbook market solves.

-Brad

tor writes:
Do think that a company that published texts in smaller units, corresponding to a few weeks of study rather than an entire semester, could offer price/quality combinations that would take market share away from the traditional textooks?
I think that this direction changes the nature of the product. Most textbooks seem to by targeted at as wide an audience as possible. They are formatted to be useful in courses which emphasize different topics, present material in different orders, have students at different levels(e.g advanced undergrad vs. graduate level), as well as to individual learners. Selling lots of units rather than a whole textbook would change all of this.

I don't think that publishers will choose to do this willingly, because it amounts to an "unbundling" of the information provided by the textbook. It would lessen their ability to force consumers to upgrade to newer editions, and also increase the ability for smaller actors to compete. If I am going to teach a course, and I don't like the way that a specific unit is presented by the publisher, it would not take that much effort for me to write my own unit. I know many professors who do this already, replacing material in a chapter of a textbook with their own presentation. Some professors do this with entire courses, completely eliminating the reliance on textbook publishers.
Boonton writes:
But to answer your question. You don't need to invent a conspiracy. When teaching is a part of the prof's job, he'll weigh the cost of developing original course material vs. the amount of bitching he'll get for making an expensive (but more than likely time-tested) book required course material. Profs who take their teaching mission seriously are a minority. If they wanted to teach, most would have taught high school. That's the real problem that the textbook market solves.

I think this misses the point. The professor who writes his own text and sells it for $25 (with a $15 profit) can make $1,500 selling to 100 students. Not only that, if 3 other lazy professors don't want to write their own texts he can sell it to their classes as well. If it caught on to other schools he could even publish it as a low cost textbook.

This shows that textbooks publishing is not a business that has high sunk costs, like pharamaceutical companies. I think the market failure here is due to the fact that the people selecting the texts are not rewarded for finding their students a low cost text.

Charlie Black writes:

This pricing discrimination is also happening in many electronic markets.

Specifically I'm thinking about wireless telecom. Lucent and many others are selling equivalent systems overseas at much reduced prices.

Now if network power really does migrate to the edges, ie consumers, then we (ie. good'ole USA) should be extracting the BEST prices from MFG's while ROW subsidizes us.

Hmmm, something is amiss. But I suspect not for long.

Chris Rasch writes:

Eventually, I think that most courses will be taught from freely available online texts. Here are a few sites that illustrate the beginnings of that trend:

Online math textbooks:
http://www.math.gatech.edu/~cain/textbooks/onlinebooks.html


Open textbook project
http://otp.inlimine.org/

California Open Source Textbook Project
http://www.opensourcetext.org/

Online science and math textbooks
http://spot.colorado.edu/~dubin/bookmarks/b/1240.html

Online economics texts:
http://www.oswego.edu/~economic/newbooks.htm

Bernard Yomtov writes:

I'm not sure how producing three five-week books would save money relative to one fifteen-week book.

It has always seemed to me that textbook pricing is something of an agency problem. The text is selected by the professor, but paid for by the students, so there is less price pressure than would be ideal.

Note one interesting thing about textbooks. Unlike virtually all other books, they have no cover price. So even a teacher who is concerned about students' pocketbooks will have to make some effort to find out which of several reasonable choices is the best deal.

I don't think much of Boonton's idea. It's fine to use class notes or other materials written by the profesor in place of a formal text. But the idea of the teacher making a profit by selling the materials to his students just creates too big a conflict of interest.

Sandy P. writes:

Slightly OT, but I thought I read a student bot required reading books online via the UK, had them shipped here, still charged less to the students and made a profit?

Or bot the books here, had them shipped there and still made a profit, either way.

Boonton writes:

So how come so many colleges will have a standard Department text for a particular course (like Calculus I) instead of allowing each professor to choose his own text (subject to Dept. approval for content)? How come these texts are always in the range of $75-$150?

Arnold's assertion that these texts are expensive to produce doesn't really hold very well when you consider that if you want to self-teach yourself a subject you can go to Borders & Barnes & Noble & pick up a book with equal content for $20-$30.

Even more damming, what's up with the constant stream of new editions? For some fields that change constantly (like computers and alas, even economics) I can understand that texts have to be current. But can you seriously tell me that someone who was taught Calculus with a used 1973 textbook would be any less proficient than a student taught from the latest text?

No there is a serious incentive problem here. Colleges are not rewarded for selecting inexpensive textbooks. I suspect there are incentives for selecting over priced texts. Now someone just has to explain what they are....

Bernard Yomtov writes:

"I suspect there are incentives for selecting over priced texts. Now someone just has to explain what they are...."

Well, I thought I explained why there are no incentives for choosing low-priced textbooks. Not quite the same thing, but very close.

PabloE writes:

One reason departments have a standard text for a course is for standardization of lectures, homeworks, and exams. This is especially true for lower-level undergraduate courses which are likely to be taught by graduate teaching assistants. The department does not want to give the teaching assistant the option of selecting which text to use for his/her section. Homework grading can then be done by any grader, and that grader can grade homework for more than one teaching assistant.

One very common complaint from students is in fact the cost of college textbooks. But this is somewhat tolerable to them when used textbooks are available at a reduced price. But when a new edition is released, and a department chooses to use the new edition for a course, then any available used texts (of older editions) are no longer of use, and students are forced to pay the price of a new textbook. In some subjects this is justified by the newer information available in the most recent editions. In others, for example Calculus I, students become irritated because they see the new editions as providing no added value and simply as a means to extract more money from them.

Boonton writes:

I agree with your statement earlier that professors have no direct incentive to choose the lower cost text & will have a hard time finding prices if they were so motivated on behalf of their students.

I can see a COI developing if a Prof were to require his students to buy his own self-printed 'textbook'. This could be resolved by having the department approve the text, if it were to be the standard text of the entire department then I would imagine there would have to be some consensus among all the professors that the homemade textbook was worthy.

I still suspect that publishers take advantage of the Professor-student agency problem to push texts that are more expensive than necessary. What goes into marketing a textbook? Are publishers allowed to 'wine & dine' department heads? What exactly keeps Departments from choosing low cost texts such as can be found at:

http://www.amazon.com/exec/obidos/search-handle-url/index%3Dblended%26field-keywords%3Dteach%252520yourself%252520calculus/103-5732769-1603831

or

http://www.amazon.com/exec/obidos/search-handle-url/ref=pd_kk_sr_3/103-5732769-1603831?index=blended&field-keywords=calculus%20for%20dummies

Bernard Yomtov writes:

"What exactly keeps Departments from choosing low cost texts.."

Nothing. But nothing encourages it either. And since prices are not obvious they don't affect decision-making very much.

I don't think requiring departmental approval is going to solve the conflict of interest problem. There will be a real tendency to just go along, not to mention the danger of mutual backscratching. And how many faculty members do you really think are going to examine the home-brew texts critically? And even if they do, how does anyone determine a reasonable price to charge what are pretty much captive buyers?

Boonton writes:

I guess that's a fair objection to Prof's writing homemade textbooks. Having a text that went thru peer review also can provide a balanced reference to a Prof's lecture. In a way, you get two Profs in a class...the lecturer and the author(s) of the text.

Higher level subjects would require more expensive texts since they would have to be up to date, peer reviewed and have less of a market than even the academic 'self teaching' books. This doesn't justify why some of the most expensive books are introductary subjects like Calc. I or even Mathematics. Subjects that have been around for hundreds of years & have a sizable number of low costs books available in the non-textbook market available.

Otis Gilley writes:

It is curious to me that no one has directly considered the role of the used textbook market on publishers' cost recovery strategies. In the old days before the used book market was well organized, publishers priced their texts to generate an acceptable (competitive) rate of return over the useful life of the published text (3 to 5 years in many subjects and even longer in others). Now the strategy is the same, but with the used book market so well organized, the useful life (for cost recovery) is about 1 year. This has caused textbook prices to skyrocket. The problem also affects authors and their royalty demands. Again, in the old days, many more copies of textbooks were sold (lowering the average cost per book) creating a large pool of small royalty payments per book to compensate authors. Now authors demand a much larger royalty per book from a much smaller pool of royalty payments or big up-front payments so that publishers bear the risk of sales volume. If writers had organizations like musicians (ASCAP and BMI) to help collect royalties on a per-use basis rather than on a unit-sold basis, at least this part of the cost escalation might be mitigated. Publishers would still face recovering their costs on limited sales, but costs would be lower.

torsor12 writes:
"What exactly keeps Departments from choosing low cost texts.."

Nothing.


Have you guys even read these books, or do you think that just becuase they all have the word "calculus" in the title they must all be essentially the same? The books that Boonton linked to suck in comparison with the $130 offerings. That is what keeps departments from choosing them. Can you find me a calculus textbook that has comparable mathematical coverage, exposition, typesetting, coverage of applications, use of graphing calculator work, and problem sets as Salas and Hille's calculus book, or Howard Anton's calculus book, or Thomas and Finney(all of these run around $130)? I don't think you can. Calculus for Dummies, and Teach Yourself Calculus certainly don't compare.


Keep in mind that whatever substitute for these books you find has to be acceptable not just to the mathematics department which has to teach from it, but also to the astronomy department, the biology department, the electrical engineering department, etc., who all require their students to take calculus. This is what keeps out books like G. H. Hardy's A Course in Pure Mathematics, which is a calculus book written in 1907. Hence the copyright on it has expired and it is freely available once someone gets around to scanning it and putting it up on the web. The same thing goes for Michael Spivak's Calculus book which runs about $70. The 3rd edition of this book has been available for ten years now, hence lots of used copies are available.


Oh, and lets not forget that those $130 books contain material that is generally spread out over three semesters. That makes them about $43 per semester.
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