Textbook Prices

There are a number of bloggers debating the high price of textbooks, concluding that the high prices are attributable to inelastic demand curves, and/or further exacerbated by third-party decision making. (The professor decides which text to use and does not bear any of the cost of his decision.) Although these all likely contribute to high textbook prices, it doesn't explain the major reason for such high prices. And it certainly doesn't explain the 40% increase in textbook prices over the previous six years.

As I note here, I first began using Gwartney and Stroup's Economics: Private and Public Choice in 1998 when its list price was $75. Today, this same text lists for $126. If inelastic demand curves and third-party decision makers are to blame, why did it take so long for textbook publishers to catch on to the captive market they had? And given that content doesn't change all that much between editions, a competitive substitute for any text is a previous edition of the same text. Take into account also that law school texts are not priced on average as high as economics texts.

My guess is that a large part of the relatively high price of textbooks (and especially the price increase) is attributable to the publisher capturing the resale value of the text. Because of the Internet the average textbook is now resold more times given the increasing liquidity of the market. (I can't find the data right now, but my recollection is that the average text is now resold twice as many times relative to just five years ago. 4 times vs. 2)

As an example, let's say that a student receives $30 in value from the use of a text book. They would of course be willing to pay up to $30. But what if the student could resell the book for $25 after they're done using it? Then they would obviously be willing to pay more.

So let's say that the first student who purchases the book new values it at $30; the next student who buys it used for the first time values it at, say, $25; and every student buying the book thereafter values it at $20. Assuming a five percent discount rate, the book would sell new for roughy $72 if it could be resold two times, as was the case five years ago. [$30 + ($25/1.05) + ($20/1.05^2) = $71.95]. Add two more resales and the textbook now sells new for $106.

The increasing liquidity of the used textook market is largely responsible for the increase in textbook prices. And students are better off because their actual use value (their cost after resale) has likely declined given this increasing liquidity. Before I paid $30; now I pay $105 and I resell it for $80, for a net cost of $25.

BTW - As a comparison, how much more would you pay for a house that could be resold within a month of putting up for sale relative to the same house if you expected that it would take a year or more to resell? Or if you expected that it wouldn't resell at all?

Comments

[Sam Sherwood]

wouldn't the easier availability of used textbooks represent an increased supply of cheaper textbooks, simultaneously increasing overall supply and driving down demand for new textbooks?

[Giles]

But the question then is - is this a good thing? I used to keep all my textbooks from courses I enjoyed - but the pricing mechanism is now assuming, it seems, that students will not do that. And if you dont keep the book you normally forget the material. So what the point of the course then?

regarding law school books, I can say from personal experience that we are encouraged to write in / highlight the text in a manner that would be unappealing for repurchase. So maybe that plays into the theory - I would venture that law school texts resale less often than ordinary books (most students I know buy fresh copies for each class, for example).

[JC]

Hey Mark,

I didn't know you were blogging until I saw the link on MR. Interesting stuff. I think you're right. Also, I wonder how the rise of state "merit-based aid" scholaships plays into this. Some states cover textbooks for students who can maintain a B-average. I'm not sure how widespread this is, but maybe textbook publishers are soaking up some of this subsidy, since these students have little incentive not to buy the book.

JC Bradbury

[Timothy]

Sam: in a perfectly competitive world where all textbooks could be considered homogeneous, sure. But as Mark puts above, the recoverable nature of at least a decent portion of the textbook price is going to raise what folks are willing to pay. Like Marks says, if I'm willing to pay $30 and the book costs $105, but I can recover $80 of that from reselling it, my net cost is $25 and my welfare has actually improved.

[Joshua Conner]

Fascinating post. The only flaw is in your numbers. As a college student (doing my undergrad in psychology), my experience is that you get about $25 back for a $105 book.

I also rarely resell my books, but it appears that I'm in trouble regardless.

[Tom Rebman]

Hello,

The reason I am writing is that I desperately need your help. Please take the time to read this as it is a little long. Frankly, I feel I am in a movie or that this really isn't happening. Allow me to explain. I am a retired Naval Officer who is attending Daytona Beach Community College to obtain my Elementary Education Degree so I can teach Elementary School. My name is Thomas Rebman, and I was appointed to a Customer Service Task Force that was commissioned by the President of the University, President Ken Sharples.

I interviewed hundreds of students and its no surprise that the price of textbooks was an extremely hot issue. It is very difficult for Community College students to afford their books while working and paying for school. Many are single parents or younger students with limited financial means.

The issue of textbook pricing has been bubbling since 2003 when the GAO conducted their investigation. A couple of days ago, Congress opened an investigation into textbook gouging. This is a hot button issue that is being covered in the Washington Post, Associated Press, Wall Street Journal etc.

Now the reason I am writing. I REALLY NEED HELP! I pondered the problem and using my own money, I started a free service for students here at DBCC called FalconBooksDirect.com which is simply a place for students to sell their used textbooks to each other. It costs them nothing and they list books for sale and buy books directly from other DBCC Students. The website is simply a conduit between students and does not get involved in the financial transaction of buying or selling the book. It is college specific and therefore students may know each other or at the very least are local. It makes exchanging books simple! At some point I planned on charging students a nominal fee of $2 per semester to join and have arranged with the college for all of the profits from this to go to scholarships.

I established a non-profit company called Dollars 4 Scholars and decided this would be a great idea to do at other schools. My website for University of Central Florida (GoldenKnightBooksDirect.com) will be live on 1 June 2006. I plan on doing 43 different schools in Florida over the next 24-60 months.

The idea has been met with praise from the Administration at DBCC and the website is already extremely successful. Unfortunately, not everyone is happy. Follett is the contractor on DBCC that runs the bookstore on campus. Apparently, they feel I am a threat to them. This is not said lightly, as I have caught 2 separate employees of the bookstore, on 2 separate campuses in the act of removing my advertisements on campus. I have Police Reports and witnesses to this effect. Apparently, they have an exclusive contract with the college to sell textbooks on campus and feel I am taking money out of their pocket.

I guess I am the first one in the country to do this under the premise of giving the profits back to the students in the form of scholarships. I am a non-profit company of one person. Therefore, the college allows me to post on the student bulletin boards (as I said I am a student), because its a free service for their benefit. Since Follett has a non-compete contract with the college, I don't need to tell you this is creating lots of friction. Previous to this, Follett had just put pressure on the college anytime their monopoly was threatened. Now they have competition they can't compete with because I am not trying to make money for myself.

Ironically, their employees actions (the thefts I spoke of above) have made the site even more popular. Because of the situation my story has been covered locally by The Daytona Beach News Journal, Deland Beacon, The Grotto and on Channel 9 WFTV News Orlando.

Believe it or not, instead of apologizing for their actions, Follett has responded by hiring the largest and one of the most expensive law firms in Florida, Holland and Knight. My assumption is that this means they intend to sue me as I have not sued them yet.

Even though the first theft was witnessed by 4 people (3 students and me) AND the Follett employee admitted to the Daytona Beach Police Officer she had committed the theft she has still not been charged. I am trying to get the Criminal Investigation Division involved because the Officer and Supervisor refused to charge her.

The second theft involved the Volusia County Sheriff as it was on the Deland, Florida campus. This theft was witnessed by myself and an employee of DBCC. The Sheriff's Deputy refused to charge her and referred me to the States Attorneys Office who also refused to charge her.

Basically, I have no available recourse even though they are trying to negatively influence my non-profit website and stealing my flyers. More importantly they are destroying my personal dream of being able to create jobs for students and raise scholarship money. The police refuse to prosecute and the only way I can stop them is to sue them. How can I fight Holland and Knight? I don't have the financial resources to do so.

I started putting my authorized flyers on 5 different campuses in 5 different cities on 1 Feb 2006. They were mysteriously disappearing. Everytime I went to the campus all of my flyers were gone but no one was going to the website. I went to the Student Activities Offices of the college and asked if they were removing them (they are the approval authority at the college for flyers on the student bulletin boards). They stated they weren't.

On 12 April 2006 I caught the first employee on the Daytona, FL Campus. I then caught a second employee on 20 April at the Deland FL campus. Both of these were totally by chance. I have logged over 2000 miles which took 100's of hours to distribute flyers at the Flagler, Deltona, Daytona, Deland and New Smyrna Campuses since February.

That's why I need your help. Since these incidents, I have discovered a lot of unethical things Follett does that I need to get to the right people (I meet with Congressman Feeny's Office tomorrow so that part is taken care of). The second part of this is that I need the public to know that this major company is trying to destroy a good thing. I want the entire United States to hear my story so that I can help other people establish similar Non-profit Organizations using my concept in the other 49 states.

If you have any advice, suggestions, connections, or other help...... I could sure use some. Nothing would make me more fulfilled than to help literally thousands of people save money on their textbooks while providing scholarships for other students! Feel free to pass this email to every educator, teacher, student or anyone else that could help. You may also feel free to call me at the below number or email me at this address.

Thank you so much,

Thomas F. Rebman
LT, USN Retired
FalconBooksDirect.com
(386) 689-8407 DIRECT

[Ruth Crawford]

Tom, we were in science class last semester, I think your idea is great. I have a Math for Liberal Arts that anyone who needs it may have it free. I paid $50 and hardly used it.

[jack c]

i started a website called www.ibeatmybookstore.com which helps student buy and sell books to other students on campus, for free.

it basically increases the amount if info on available books so people can make better book buying choices

if anybody knows the author can they give them my email (jack@ibeatmybookstore.com)

thanks