the spiral of textbook costs

There’s a mildly interesting exchange on the NY Times website about textbook prices. The authors and commenters hit most of the pertinent facts, with a fair sprinkling of misinformation as well (like implying that the typical textbook author is getting rich off the enterprise), but one issue that seems to be missed in the role that used book sales play in the pricing spiral.

Used books aren’t just a bargain for the students and a way to increase profits for the bookstore–they also induce higher prices of new text books. When a new book is sold, everyone gets a cut. When a used book is sold, the publisher and the authors get nothing. With the used book market becoming more and more efficient, proportionally fewer students are buying new books, which means fewer sales are producing revenue for the publishers and authors. That in turn cause the publishers to demand shorter times between editions and higher prices on new books. Which in turn produces more demand for used books. The spiral is unsustainable and will eventually force authors of lower-selling alternatives out of the market completely.

11 thoughts on “the spiral of textbook costs”

  1. Not so fast, Mssr. Blue. If that were true, wouldn’t the used market have crushed the regular market for books, like, decades ago? The regular book market has pretty stiff competition from used books, yet it continued well until the rise of e-books.

    I think the basic reason for high text book prices is monopoly. A regular book buyer can buy competing new books if they don’t like the price. A student is fixed to the book. They can’t substitute. So they charge monopoly prices.

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  2. Yes, this isn’t all of the story, truly, but it’s the part that everyone seems to leave out when they are tabulating the woes of the textbook market.

    And textbook prices were spiraling out of control before e-books, with authors having virtually no control over the situation–and enduring demands from publishers for faster edition. The fact of the matter is that there’s virtually nothing earned from texts after the first year–a little in the second, but the third year, it’s completely gone. That’s because of the increased efficiency of the used book market, not the monopoly situation. And I would point out that many books that have horribly high pricing (Delamater and Myers being one of them), are on the verge of being canceled by the publisher because they aren’t making enough money. For a while, Michener and Delamater (and Myers) was the ONLY book is its category and it was still on verge of being canceled. I’m not sure who wins if there are NO sociologically oriented social psych texts on the market.

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  3. Blue: I still don’t buy the used book market as the primary explanation here. I’ve published my own book and I’ve helped a small press publish its own books, so
    I have a sense of how the business is run.

    The basic fact of the entire publishing industry is that (a) used books have never destroyed the primary market for non-texts and (b) most books can be printed and sold at a reasonable cost. For example, if you go to most bookstores, you’ll find that popular hard backs retail for $20-$40. You can find a 1,000 page soft-back novel for $10-15. These can be found in used editions cheap, yet people will still pay a little more for new copies.

    That leads me to think that the used market is really not the primary issue for text books and their self-destructive high prices. My sense is that most texts have (a) extremely high production costs due to length, illustrations, supporting materials, and need for specialized marketing (i.e., atypical factor costs for a book) and (b) captured markets (i.e., the book seller has a micro-monopoly in each classroom in which it is assigned).

    But that’s not enough to settle the issue. The issue is whether the price differential between new and used texts compensates the user for the deteriorating state of the used text. In the regular book market, I might save, say, $10 between a new and used hard back Harry Potter book. A lot of people will pay $10 to have a crisp new Harry Potter book.

    Now let’s do the same analysis for a big, fat text book. A nice big four-color text with huge pages and a computer disc and a website. That might cost about $10 to make and ship, so it’ll retail for $60-$70. So a used book, going at half off, might go for $30. That’s $30 dollars of savings.

    So will students pay $30 for a nice new text over an old one? The market says no. Before you blame the used book market, you have to ask why are people willing to buy new regular books and not new text books. Why do choices diverge?

    My guesses:

    – Since regular books are cheaper to start with, the price of newness is simply smaller and below the threshold for what people will pay for the pleasure of new books.

    – People actually like regular books, so they are willing to pay the modest differential. In contrast, people have to be forced to buy texts. People, despite what we profs think, hate text books.

    – Relative value of money: paying a few extra $ for a new Harry Potter book is not a big deal for working adults, but shelling out unnecessary $ for a text you’ll dump in 3 months is not feasible for students.

    In other words, yes, used book markets are an issue, but it’s just the symptom of the deeper problem. The core issue is that texts are super high cost items that people don’t like and are forced to buy and then become useless after three months. No wonder the text book system is screwed up.

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  4. Well, I’m kind of repeating myself, but I clearly don’t think the efficiency of the used book market is the only factor involved. Over the past decade however, it is the single biggest CHANGE in the textbook market and is making what was already a bad situation worse (we still have to see if e-books and test-book “renting” change things). That change has contributed to a spiral of shorter windows between editions and higher prices as publisher attempt to get more of the pass-along value out of the new purchase price. If you don’t believe me, just take a stroll around ASA and ask some of the textbook sellers how the used book market on Amazon has effected textbook sales. The factors you mention have been operating for much longer–I’m talking more about the current much accelerated spiral of pricing.

    By the way, I don’t think you have your pricing scheme right. The best selling big 4-color sociology text with all the support bells and whistles is Macionis, which retails not for $60-70, but $170. Rodney Stark’s is a similar style and is also $170.

    You’ll find the same among social psych texts:
    Baron: 146
    Markus: 176
    Myers: 142
    Taylor: 146
    Delamater and Myers: 156 (and I’d note that there were used copies available on Amazon BEFORE the book was formally released. It’s been out less than a month and today there are 9 used copies available.)

    We’re not alone. This style of calculus text often go for more than $200.

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  5. At my major public university, we are now required to post our textbook orders electronically to a site that students and bookstores can access before classes begin, with the explicit statement that the intent is to reduce the costs to students of the books. There has been a great deal of political mobilization around the idea of reducing textbook costs for students. We are, in fact, explicitly encouraged to consider text price as a factor in selection and to consider whether an out-of-date edition of a textbook could be just as good for our students as the newest one.

    I think it is pretty clear that the very high cost of textbooks is why they are undercut by the used market.

    The increased cost of higher education relative to the family incomes of the people who send their children to college could perhaps also be contributing. I have not seen any calculations about whether the cost of texts has risen faster or slower than the incomes of the people who send their children to college. I KNOW the cost of college has risen in real terms relative to family incomes.

    So then the question is whether text publishers are operating on an unsustainable business model. Compared to other books, one gets the impression that textbook publishers have been counting on “captive” customers who have to buy their book. This has perhaps led them to overprice the books in the past, or led them to spend money on pretty but expensive packaging of the product (four color art!) in a “price is no object” approach. The real dollar cost of texts over time would address this issue, of whether the books are more overpriced than they were in the past. And remember that the the expansion of college to a broader segment of the population has effectively reduced the real-dollar income of the families sending young people to college.

    It is manifestly not going to work (in my opinion) to sustain the text publishing business by driving the prices of textbooks up farther.

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  6. Two things I think might not be right. I’m not sure textbook prices are spiraling out of control. Are they rising much faster than general inflation or the cost of education specifically? Second, I don’t see why the used book market should be especially hard on lower-priced alternatives, eventually forcing them out of the market. Seems the more expensive ones are more vulnerable.

    This is heresy, but I don’t think the problem is that bad. The books are pretty overpriced, but are still a small part of education costs for most people (though that’s especially true at expensive schools). Average 4-year publics, in-state, cost $19,000 in tuition, and those students pay an average $1,100 for books. Doesn’t seem so unreasonable. (http://www.collegeboard.com/student/pay/add-it-up/482.html)

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  7. I can’t speak for others and this is not exactly my area of research, but our textbook pricing has risen very quickly (all the time with us fighting with the publisher to reduce the price point):

    4th ed. 1999 $79
    5th ed. 2004 $95 %increase: 20 cpi change: 13
    6th ed. 2007 $120 %increase: 26 cpi change: 10
    7th ed. 2010 $155 %increase: 29 cpi change: 5

    Change in price 99-10: +96% CPI increase: 31%

    If this is happening to other test (and I suspect it is based on the current pricing), then the prices are definitely spiraling upward.

    Also I would not that the pricing does not necessarily stay stable over the years of an edition. I recall that the 5th edition started at $95 and made its way up to $106.

    The most vulnerable are the texts that don’t sell huge numbers. However, problem is exacerbated for lower priced books, which have lower profit margins and thus need to sell a lot more to pay for the initial production costs before becoming profitable to the publisher. Since used books reduce new sales, they end up making the lower priced books more vulnerable.

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  8. There’s still something odd about what’s going on. Supposing we assume that textbook publishers are profit-motivated and are at least attempting to behave rationally. Don’t producers usually reduce prices and cut costs in the face of falling demand? And if they can’t make money on a product, don’t they stop producing it or try to figure out how to make it cheaper? So if publishers have been churning out textbooks and actually increasing production of new editions in the face of falling demand, a reasonable hypothesis is that new textbooks are very lucrative net of the costs of production due to the captive nature of the market.

    This leads me to suspect that the underlying cause of rising textbook prices and the escalation of edition changes lies not in the textbook market, but elsewhere in the publishing business. Perhaps this behavior arises because the corporations that own the textbook firms rely on them to generate profits to subsidize other kinds of publishing?

    Also, the cost of producing a new edition of a textbook must be fairly low if a new edition can help the profitability of a textbook.

    Am I missing something?

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    1. I think the response of publishers makes perfect sense. Books need to sell a certain number in order to become profitable because of front end costs. For the sake of illustration, let’s say that’s 5000 copies. Above that level the each book generates some small amount of profit and so there is a number somewhere north of 5000 that is the minimum number that must be sold for the publisher to decide it was worthwhile (they wouldn’t want to publish a book that only sold 5001 copies, for example, even though it technically made a profit). For the sake of illustration again, let’s say that number is 2000 more or 7000.

      Now let’s say that in the past, the overall demand for a textbook has been 15000 copies and of those 6000 were being met through used sales, meaning that 9000 new copies were actually sold. At 9000 copies, we’re easily meeting the sales thresholds for the publisher.

      Now suppose something happens such that used copies start to increase their share of the market such that 9000 of the total demanded copies are satisfied through used sales, meaning only 6000 new copies are being sold. This is what I’m arguing has happened due to the increased efficiency of the used book market. What is the rational publisher’s response to this? One is to cancel production of the book, which most certainly does happen. But there are other things to try as well.

      1. They could try to reduce production costs to get those 5K and 7K profitability thresholds lower. Although they try by reducing the amount of design and editing and offloading more preparation tasks on the authors, it’s not enough to make a huge difference.

      2. They can get those profitability thresholds lower by increasing the price of the book. If each book makes more money, then they don’t need to sell as many to get to profitability. If the demand is fairly unresponsive to the price, this will work.

      3. They can try to increase the overall market share of the book so that even though the proportion going to used book users is higher, the number of copies will still produce profitability. However, this involves introducing more costs per book, and thus also drives up the thresholds. It’s a risky strategy.

      4. They can try to reduce the proportion of the overall demand that is satisfied by used copies. They can do this by shortening the time between new editions. If a book is on a 4 year cycle, almost all of the copies sold in year 4 will be used copies. If we introduce a new edition after year 3, those users won’t be able to buy used copies, thereby converting them to new book purchases.

      I think the evidence suggests that while publishers try all three of these, that they are bumping their heads against practical limits on strategies 1, 3, and 4, and therefore are increasingly turning to strategy number 2. The peculiarities of the textbook purchasing system, in which the overall demand is relatively static, and there is quasi-monopolist pricing available, allow this to be a rational choice.

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  9. Is it sad that I think this thread is becoming interesting because it is starting to call out for equations? :) (OW’s fault–both that I think this and that we’re starting to need equations!)

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